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Chapter 6 The Time Value of Money-Annuities and Other Topics

6.1 Annuities

1) You wish to borrow $2,000 to be repaid in 12 monthly installments of $189.12. The annual interest rate is:
A) 24%.
B) 8%.
C) 18%.
D) 12%.

2) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years?
A) $3,525.62
B) $5,008.76
C) $3,408.88
D) $2,465.

3) If you invest $750 every six months at 8% compounded semi-annually, how much would you accumulate at the end of 10 years?
A) $10,065
B) $10,193
C) $22,334
D) $21,731

4) A commercial bank will loan you $7,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The …show more content…

Round off to the nearest $1.
A) $83,470
B) $170,877
C) $95,621
D) $121,709

7) What is the present value of a $200 perpetuity when the discount rate is 10%?
A) $2,000
B) $20,000
C) $4,000
D) $40,000

8) Your rich great, great aunt just passed away at the age of 91. She liked you more than she let on and left you in her will. You will receive 100 British bonds that pay interest forever. The amount of annual interest payments that you will receive is $5,000. If you could invest your money at 4.25%, how much are these bonds worth today?
A) $64,480
B) $197,250
C) $250,000
D) $117,647
E) $55,000

6.3 Complex Cash Flow Streams

1) What is the value on 1/1/05 of the following cash flows? Use a 10% discount rate, and round your answer to the nearest $10.

Date Cash Received Amount of Cash 1/1/07 $100 1/1/08 $200 1/1/09 $300 1/1/10 $400 1/1/11 $500
A) $490
B) $460
C) $970
D) $450

2) Consider the following cash flows:

Date Cash Received Amount of Cash 1/1/07 $100 1/1/08 $100 1/1/09 $500 1/1/10 $100

What is the value on 1/1/05 of the above cash flows? Use an 8% discount rate, and round your answer to the nearest $10.
A) $600
B) $620
C) $630
D) $650

3) If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years, how much will be in the account at the end of the 20th year? Assume that the

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