ABC Electronics is considering an investment that will have cash flows of $16,000, $5,000 and $4,000 for years 1 through 3. What is the approximate value of this investment today if the appropriate discount rate is 9% per year?
$23,250
$27,250
$21,970
None of the above
You deposited $3,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all answers that apply:
interest rate
initial amount of your deposit
frequency of the interest payments
length of the investment period
If you borrow $50,000 today at 10% interest for eight years. How much of your first payment will be applied towards the principal of the loan?
$5,000
$4,372
$4,790
zero, all will be applied towards the interest
Match the following terms with the examples as appropriate:
Potential Matches:
1 : You obtained a business loan for four months. The loan will allow you to paid $300 in interest for three months and a final payment of interest and principal at the end of the four month.
2 : You obtained a mortgage to buy a home. You will pay $800 per month to cover both interest and principal.
3 : a way used by the US government to borrow money on short-term basis.
4 : You borrow $1,000 from your best friend. In return, you will give him back $1150 in 3 months.
Answer
: Pure discount loan
: Amortized Loan
: Interest-only Loan
: Treasury Bill
7. You are interested in saving to buy a new machine that costs $1,105. You can deposit $250 in your bank today. If your bank pays 8% annual interest on its accounts, how long will it take you to save for the new machine?
about 19 years
about 9 years
about 4.5 years
Can not be determined
8. How can we apply the concept of time value of money in evaluating a mortgage?