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Exam 4: Time Value of Money

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Question 51

Multiple Choice

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Your aunt wants to retire and has $375,000.She expects to live for another 25 years and to earn 7.5% on her invested funds.How much could she withdraw at the end of each of the next 25 years and end up with zero in the account?

A) $28,843.38
B) $30,361.46
C) $31,959.43
D) $33,641.50
E) $35,323.58

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Question 52

Multiple Choice

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A salt mine you inherited will pay you $25,000 per year for 25 years,with the first payment being made today.If you think a fair return on the mine is 7.5%,how much should you ask for it if you decide to sell it?

A) $284,595
B) $299,574
C) $314,553
D) $330,281
E) $346,795

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Question 53

Multiple Choice

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A $250,000 loan is to be amortized over 8 years,with annual end-of-year payments.Which of these statements is CORRECT?

What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?

You want to purchase a motorcycle 4 years from now,and you plan to save $3,500 per year,beginning immediately.You will make 4 deposits in an account that pays 5.7% interest.Under these assumptions,how much will you have 4 years from today?

What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?

JG Asset Services is recommending that you invest $1,500 in a 5-year certificate of deposit (CD) that pays 3.5% interest,compounded annually.How much will you have when the CD matures?

Your business has just taken out a 1-year installment loan for $72,500 at a nominal rate of 11.0% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?

Your girlfriend just won the Florida lottery.She has the choice of $15,000,000 today or a 20-year annuity of $1,050,000,with the first payment coming one year from today.What rate of return is built into the annuity?

What is the present value of the following cash flow stream at a rate of 12.0%?

Which of the following statements regarding a 15-year (180-month) $225,000,fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%,compounded semiannually?

What's the future value of $1,500 after 5 years if the appropriate interest rate is 6%,compounded semiannually?

Which of the following statements is CORRECT?

What is the present value of the following cash flow stream at a rate of 6.25%?

Your bank offers a savings account that pays 3.5% interest,compounded annually.If you invest $1,000 in the account,then how much will it be worth at the end of 25 years?

When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

Your aunt has $500,000 invested at 5.5%,and she now wants to retire.She wants to withdraw $45,000 at the beginning of each year,beginning immediately.When she makes her last withdrawal (at the beginning of a year) ,she also wants to have enough left in the account so that you can make a final withdrawal of $50,000 at the end of that year (her last withdrawal is at the beginning of the year,your withdrawal is at the end of that same year) .What is the maximum number of $45,000 withdrawals that she can make and still have enough in the account so that you can make a $50,000 withdrawal at the end of the year of her last withdrawal? (Hint: If your solution for N is not an integer,round down to the nearest whole number.)

Midway through the life of an amortized loan,the percentage of the payment that represents interest could be equal to,less than,or greater than to the percentage that represents repayment of principal.The proportions depend on the original life of the loan and the interest rate.

After receiving a reward for information leading to the arrest of a notorious criminal,you are considering investing it in an annuity that pays $5,000 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?