BNKF5001 Time Value of Money (Multiple Payments)

Which of the following is an annuity?

• A fixed payment that occurs indefinitely (without end)

• Different payments that occur for a fixed period of time

• A fixed payment that occurs regularly over a fixed period of time

• All of the above

A tennis player has signed a three year contract with $5 million to be paid over three years. There is an immediate cash payment of $0.5 million, $1 million at the end of the first year, $2 million at the end of the second year and $1.5 million at the end of the third year. Assuming a 9% p.a. discount rate, how much is the contract worth today?

• $5,000,000

• $4,628,439

• $4,476,936

• $4,259,065

What is the future value at the end of year 5 of the following cash flows placed in a term deposit paying 7% per annum: year 1, $3,000; Year 2, $2,000; year 3 to 5, $1,000?

• $9,174.93

• $9,597.37

• $9,667.37

• $11,220.41

Suppose you deposit $480 at the end of each month into a savings account for the next five years. If the bank pays interest at 6.6% p.a. compounded monthly over the period, how much will you have in your account at the end of five years?

• $11,443.09

• $24,265.55

• $27,384.08

• $34,011.14

Suppose you deposit $2,500 at the end of the year into a savings account for the next six years. If the bank pays interest at 6.4% p.a. compounded annually over the period, how much interest alone will you have earned after six years?

• $596.00

• $2,614.88

• $3,627.35

• $7,600.17

Which of the following will increase the present value of an annuity, other things being equal?

• Decreasing the interest rate

• Increasing the interest rate

• Decreasing the number of payments

• Decreasing the amount of payments

How much would you expect to pay for an annuity of $4,000 paid at the end of each quarter for the next fifteen years with interest compounded quarterly at 6.8% p.a.?

• $57,687.80

• $85,576.38

• $149,717.74

• $231,785.71

You wish to accumulate $1 million by the end of twenty years by making equal end-of month payments into an account over the next twenty years. If you earn a compound rate of 10% p.a. on your investment, how much must you deposit at the end of each month?

• $965.02

• $1,316.88

• $9,650.22

• $17,459.62

Five years ago you entered into a loan agreement to borrow $40,000. The loan was to be paid off over ten years through equal monthly instalments. If the interest rate was fixed at 7.2% p.a. over the period, calculate the total value of the regular repayments to date.

• $2,342.80

• $14,400.00

• $28,114.05

• $28,739.33

How much would you need to have in your savings account today earning 4% p.a. interest to live off a monthly payment of $1,000?

• $8,110.90

• $25,000.00

• $98,770.17

• $300,000.00