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Exam 5: The Time Value of Money

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Question 51

Multiple Choice

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What is the APR on a loan with an effective annual rate of 15.01% and weekly compounding of interest?

A) 12.00%
B) 12.50%
C) 13.00%
D) 14.00%

E) A) and B)
F) None of the above

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Question 52

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Converting an annuity to an annuity due decreases the present value.

A) True
B) False

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Question 53

Multiple Choice

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If interest is paid m times per year,then the per-period interest rate equals the:

An annuity factor represents the future value of $1 that is deposited today.

Which of the following factors is fixed and thus cannot change for a specific perpetuity?

What is the minimum nominal rate of return that you should accept if you require a 4% real rate of return and the rate of inflation is expected to average 3.5% during the investment period?

Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year.The annual interest rate is 12% and payments begin in one month.What is the present value of this 2-year loan?

In calculating the present value of $1,000 to be received 5 years from today,the discount factor has been calculated to be .7008.What is the apparent interest rate?

A cash-strapped young professional offers to buy your car with four,equal annual payments of $3,000,beginning 2 years from today.Assuming you're indifferent to cash versus credit,that you can invest at 10%,and that you want to receive $9,000 for the car,should you accept?

The Excel function for interest rate is RATE (nper,pmt,PV,FV).

For a given amount,the lower the discount rate,the less the present value.

How much must be deposited today in an account earning 6% annually to accumulate a 20% down payment to use in purchasing a car one year from now,assuming that the car's current price is $20,000,and inflation will be 4%?

$50,000 is borrowed,to be repaid in three equal,annual payments with 10% interest.Approximately how much principal is amortized with the first payment?

A corporation has promised to pay $1,000 20 years from today for each bond sold now.No interest will be paid on the bonds during the 20 years,and the bonds are discounted at a 7% interest rate.Approximately how much should an investor pay for each bond?

With $1.5 million in an account expected to earn 8% annually over the retiree's 30 years of life expectancy,what annual annuity can be withdrawn,beginning today?

What will be the approximate population of the United States,if its current population of 300 million grows at a compound rate of 2% annually for 25 years?

What is the present value of the following set of cash flows at an interest rate of 7%: $1,000 today,$2,000 at end of year 1,$4,000 at end of year 3,and $6,000 at end of year 5?

Which account would be preferred by a depositor: an 8% APR with monthly compounding or 8.5% APR with semiannual compounding?

Your real estate agent mentions that homes in your price range require a payment of approximately $1,200 per month over 30 years at 9% interest.What is the approximate size of the mortgage with these terms?

Comparing the values of undiscounted cash flows is analogous to comparing apples to oranges.