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Exam 14: Time Value of Money

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Question 1

True/False

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With deposits of $5,000 at the end of each year,you will have accumulated $38,578 at the end of the sixth year if the annual rate of interest is 10%.(PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

A) True
B) False

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Question 2

Multiple Choice

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An individual is planning to set-up an education fund for her daughter.She plans to invest $7,000 annually at the end of each year.She expects to withdraw money from the fund at the end of 9 years and expects to earn an annual return of 8%.What will be the total value of the fund at the end of 9 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

A) $87,413
B) $68,040
C) $50,400
D) $126,000
E) $45,360

F) A) and E)
G) C) and D)

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Question 3

Multiple Choice

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The Masterson family is setting up a vacation fund,and they plan on depositing $1,000 per quarter in an investment that will pay 12% annual interest.What amount will they have available for their vacation at the end of 2 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Keisha has $3,500 now and plans on investing it in a fund that will pay her 12% interest compounded quarterly.How much will Keisha have accumulated after 2 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

At an annual interest rate of 8% compounded annually,$5,300 will accumulate to a total of $7,210.65 in 5 years.(PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

Interest may be defined as:

City Peewee League borrowed $883,212,and must make annual year-end payments of $120,000 each.If City's interest rate is 6%,how many years will it take to pay off the loan?

A company borrows money from the bank by promising to make 6 annual year-end payments of $27,000 each.How much is the company able to borrow if the interest rate is 9%?

From the perspective of an account holder,a savings account is a liability with interest.

Molly borrows money by promising to make a single payment of $100,000 at the end of 5 years.How much money is Molly able to borrow if the interest rate is 10%,compounded semiannually? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Explain the concept of the future value of an annuity.

A series of equal payments made or received at the end of each period is an ordinary annuity.

A company expects to invest $5,000 today at 12% annual interest and plans to receive $15,529 at the end of the investment period.How many years will elapse before the company accumulates the $15,529? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Explain the concept of the present value of a single amount.

What amount can you borrow if you make six quarterly payments of $4,000 at a 12% annual rate of interest? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

A company is beginning a savings plan to purchase a new building.It will be saving $43,000 per year for the next 10 years.How much will the company have accumulated after the tenth year-end deposit,assuming the fund earns 9% interest?

Jackson has a loan that requires a $17,000 lump sum payment at the end of four years.The interest rate on the loan is 5%,compounded annually.How much did Jackson borrow today?

Explain the concept of the present value of an annuity.

The interest rate is also called the ________ rate.

Jason has a loan that requires a single payment of $4,000 at the end of 3 years.The loan's interest rate is 6%,compounded semiannually.How much did Jason borrow? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)