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Exam 6: Time Value of Money

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Question 41

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The future value of a $10,000 annuity due, deposited at 12 percent compounded annually for each of the next 5 years is ________ .

A) $71,154
B) $36,050
C) $40,376
D) $63,530

E) A) and C)
F) A) and B)

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Question 42

Multiple Choice

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Susan is planning to accumulate $40,000 by the end of 5 years by making 5 equal annual deposits. If she plans to make her first deposit today and can earn an annual compound rate of 9 percent on her investment, how much must each deposit be in order to accumulate the $40,000?

A) $9,434
B) $23,844
C) $6,683
D) $6,132

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

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Question 43

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The effective rate of interest is the contractual rate of interest charged by a lender or promised by a borrower.

The Bank of Nova Scotia has 8% compounded semi-annual GICs; the Royal Bank has 7.9%compounded monthly GICs. The Bank of Nova Scotia offers a better annualized rate of return.

The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3 percent, is ________.

The nominal and effective rates are equivalent for annual compounding.

If the present value interest factor for i percent and n periods is 0.270, the future value interest factor for the same i and n is _________.

The future value of an annuity of $1,000 each year for 10 years, deposited at 12 percentcompounded quarterly is ________ .

A $10,000 loan at 8% compounded quarterly, with $318.23 per quarter payments, will take 50quarters to pay off.

You would like to have a $1,000,000 in 25 years at retirement. Your investments will earn 1% permonth on average. How much do you have to put away at the end of each month to meet yourobjective?

A wealthy art collector has decided to endow her favorite art museum by establishing funds for an endowment which would provide the museum with $1,000,000 per year for acquisitions into perpetuity. The art collector will give the endowment upon her fiftieth birthday 11 years from today. She plans to accumulate the endowment by making annual end-of-year deposits into an account. The rate of interest is expected to be 6 percent in all future periods. How much must the art collector deposit each year to accumulate to the required amount?

Young Sook owns stock in a company which has consistently paid a growing dividend over the last10 years. The first year Young Sook owned the stock, she received $4.50 per share and in the 10thyear, she received $4.92 per share. What is the growth rate of the dividends over the last 10 years?

The present value of a $25,000 perpetuity at a 14 percent discount rate is________

An investment of $1,000 grows to $4,177 at 10% per annum in 15 years.

The loan amortization process involves finding the future payments (over the term of the loan) whose present value at the loan interest rate equals the sum of the amount of initial principal borrowed and the amount of interest on the loan.

You are looking at a new $40,000 sports car and wondering what the monthly payments will be.You plan to finance the car over five years at an interest rate of 12% compounded monthly. Yourmonthly payments will be

An annuity with an infinite life is called

You would like to start a $1,000 per year scholarship fund for first year commerce students at theUniversity of Calgary. The first payment will be in one year from today. You will invest themonies in long-term Government of Canada bonds at 5% per annum. How large does the fund need to be to meet your objective?

It takes 5.34 years for money to triple in value when invested at 8% per annum.

The annual percentage rate (APR) is the nominal rate of interest, found by multiplying the periodic rate by the number of periods in one year.