BUSN 379 - Week 2 Time Value of Money Homework ES

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1. (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 12% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. (Points : 3)

       $2613

       $8690

       $5740

       None of the above 

Question 2.2. (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 19% APR compounded semiannually. The EAR for First Choice and National Emerald Bank are: (Points : 3)

       9.31% and 19.90%, respectively

       9% and 19.50%, respectively

       9.31% and 19.50%, respectively

       9% and 19.90%, respectively

Question 3.3. (TCO 3) 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? (Points : 3)

       $23,250

       $27,250

       $21,970

       None of the above 

Question 4.4. (TCO 3) 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: (Points : 4)

        interest rate 

        initial amount of your deposit 

        frequency of the interest payments 

        length of the investment period 

Question 5.5. (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your second payment will be applied to interest? (Points : 3)

       $5,000

       $4,562

       $4,809

       can not be determined with the information given  

Question 6.6. (TCO 3) Match the following terms with the examples as appropriate:

(Points : 4) 

Potential Matches:

1 : is usually a pure discount loan issued by the US government.

2 : Corporate bonds are usually issued as this form of loans.

3 : You borrow $3,000 from your bank at 10% interest. You will make no payments for two months but will return the full amount plus interest at the end of three months.

4 : obtained a 5-year loan from your bank to buy a new machine. You will pay $500 per month to cover both interest and principal.

    Answer

    4 : Amortized Loan

    2 : Interest-only Loan

    1 : Treasury Bill

    3 : Pure Discount Loan

Question 7.7. (TCO 3) You are interested in saving to buy a new machine that costs $387,120. You can deposit $32,805 in your bank today. If your bank pays 14% annual interest on its accounts, how long will it take you to save for the new machine? (Points : 4)

       about 19 years

       about 5 years

       about 12 years

       Can not be determined  

Question 8. 8. (TCO 3) Why does money have time value? (Points : 6)