Cash Flows and Regular Time I

1)

Part 1

Which of the following statements is correct?

2)

Part 1

What is the name for an infinite stream of constant payments occurring at regular time intervals?

3)

Part 1

If interest is compounded quarterly, the ________ expresses the interest rate as if it were compounded annually.

4)

Part 1

A loan that requires regular payments that cover interest and some of the outstanding principal is called a/an

Part 2

A loan that requires regular payments of interest and the return of the principal at the end is called a/an

5)

Intro

You expect to receive two cash flows: $23,000 paid in 5 years and $34,500 paid in 10 years. You’ll put the money into a savings account with an annual interest rate of 4%.

Part 1

What is the future value of the combined cash flows, in 15 years?

6)

Intro

You expect to receive two cash flows: $8,000 paid after 3 years and $16,000 paid after 6 years. The annual interest rate is 2%.

Part 1

What is the present value of the combined cash flows?

7)

Intro

The preferred stock of General Motors pays an annual dividend of $1 forever. The appropriate discount rate is 8% per year.

Part 1

What is the present value of all dividends?

8)

Intro

In order to save for your retirement, you want to save $5,000 every year for 25 years, starting one year from now. The annual interest rate on your savings account is 8%.

Part 1

How much money will you have in your account in 25 years?

9)

Intro

You want to buy a house financed with a 30-year fixed-rate mortgage. The best monthly interest rate you could find is 0.5%.

Part 1

What is the most you can borrow if you can only afford to pay $1,800 per month?

10)

Intro

You took out a loan to buy a new car. The monthly interest rate on the loan is 1%. You have to pay $230 every month for 60 months, starting one month from now.

Part 1

What is the present value of the cash flows?

Part 2

What is the future value of the cash flows?

11)

Part 1

Kate Milling has calculated that she’ll need $74,000 to pay for her son’s college education, which will start in 15 years. How much should she save in each of the next 15 years? Her bank offers an annual interest rate of 3% (annual compounding) and her first deposit will be one year from now.

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