Finance Exam 2

Assume you borrow $6,600 for three years. How much will you still owe after the three years, if you pay all of the payments as set forth in the loan's amortization schedule

$0

An investor purchasing a British consul is entitled to receive annual payments from the British government forever. what is the price of a console that pays $170 annually if the next payment occurs one year from today? the market rate is 4.4 percent.

PV of a Perpetuity: C/R; 170/4.4%=3863.64

Ted purchased an annuity today that will pay $1,000 a month for five years. He received his first monthly payment today. Allison purchased an annuity today that will pay $1,000 a month for five years. She will receive her first payment one month from today. Which one of the following statements is correct concerning these two annuities?

Ted's annuity has a higher present value than Allison's

Investment X offers to pay you $5400 per year for nine years, whereas investment Y offers to pay you $7,700 per year five years. a. calculate pv for investment x and y if the discount rate is 6 percent b. calculate the pv for investments x and y if the discount rate is 16 percent

a. 5400 x (1/.06-1/.06(1+.06)^9=36747.14 (pv of X) Y: 7700 x (1/.06-1/.06(1+.06)^5=32,435.20 b. 5400 x (1/.16-1/.16(1+.16)^9=24875.34 (pv of X) Y: 7700 x (1/.16-1/.16(1+.16)^5=25212.06

Binder and Sons borrowed $138,000 for three years from their local bank and now they are paying monthly payments that include both principal and interest. Paying off debt by making installments payments, such as Binder and Sons is doing, is referred to as:

amortizing the debt

Assume you borrow $12,000 for 5 years with equal annual repayments. if the interest rate on the actual loan turns out to be higher than you anticipated, then the:

annual payments will be higher than you anticipated

An annuity stream of cash flow payments is a set of:

equal cash flows occurring at equal periods of time over a fixed length of time

A flow of unending annual payments that increase by a set percentage each year and occur at regular intervals time is called a

growing perpetuity

Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.

ordinary annuities; annuities due

A perpetuity differs from an annuity because:

perpetuity payments never cease