Advanced Time Value of Money Problems

You just signed a consulting contract that will pay you $38,000, $42,000, and $45,000 annually at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 10.5?

$102,138.76

Two annuities have equal present values and an applicable discount rate of 7.25 percent. One annuity pays $2,500 on the first day of each year for 15 years. How much does the second annuity pay each year for 15 years if it pays at the end of each year?

$2,681.25

Phil purchased a car today at a price of $8,500. He paid $300 down in cash and financed the balance for 36 months at 5.75 percent, compounded monthly. What is the amount of each monthly loan payment?

$248.53

A charity plans to invest annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment will be invested one year from today. Assuming the investment earns 5.5 percent annually, how much will the charity have available four years from now?

$277,491

You estimate that you will owe $40,200 in student loans by the time you graduate. If you want to have this debt paid in full within 10 years, how much must you pay each month if the interest rate is 4.35 percent, compounded monthly?

$413.73

An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn a rate of return of 6.5 percent, compounded quarterly, what is the most you are willing to pay as a lump sum today to obtain this annuity?

$44,591.11

Racing Motors wants to save $825,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each quarter starting today. How much does the company need to save each quarter to achieve its goal if it can earn 4.45 percent on its savings?

$63,932.91

You just acquired a home mortgage for 30 years in the amount of $184,500 at 4.65 percent interest, compounded monthly. How much of the first payment will be interest if the loan is repaid in equal monthly payments?

$714.94

Your broker is offering 1.2 percent compounded daily on its money market account. If you deposit $7,500 today, how much will you have in your account 15 years from now?

$8,979.10

Al obtained a mortgage of $195,000 at 5.25 percent for 15 years. How much of the second monthly payment is applied to interest?

$850

What is the future value of $1,575 a year for 25 years at 6.3 percent interest, compounded annually?

$90,152.04

You just won the magazine sweepstakes and opted to take unending payments. The first payment will be $50,000 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent?

$925,925.93

The Rodriquez family is determined to purchase a $250,000 home without incurring any debt. The family plans to save $2,500 a quarter for this purpose and expects to earn 6.65 percent, compounded quarterly. How long will it be until the family can purchase a home?

14.85 years

You are paying an EAR of 16.78 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account? Group of answer choices

15.61%

An annuity that pays $12,500 a year at an annual interest rate of 5.45 percent costs $150,000 today. What is the length of the annuity time period?

20 years

First City Bank offers an APR of 7.65 percent on its loans. What is the maximum rate the bank can actually earn based on the quoted rate?

7.95%

You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?

Annuity B has a smaller present value than annuity A.

Chris has three options for settling an insurance claim. Option A will provide $1,500 a month for 6 years. Option B will pay $1,025 a month for 10 years. Option C offers $85,000 as a lump sum payment today. The applicable discount rate is 6.8 percent, compounded monthly. Which option should Chris select, and why, if he is only concerned with the financial aspects of the offers?

Option B: It has the largest value today.

Which one of these statements related to growing annuities and perpetuities is correct?

The present value of a growing perpetuity will decrease if the discount rate is increased.

An amortized loan:

may have equal or increasing amounts applied to the principal from each loan payment