Question 1

Postal Express is considering the purchase of a new sorting machine.The sales quote consists of quarterly payments of $37,200 for five years at 7.6 percent interest.What is the purchase price?

Accepted Answer

The purchase price is the present value of the annuity of $37,200 per quarter for 20 quarters (5 years) at a quarterly interest rate of 1.9% (7.6% annual rate divided by 4). Using the present value of annuity formula, the correct answer is $614,184.40.

Question 2

Janice plans to save $80 a month, starting today, for 20 years.Kate plans to save $80 a month for 20 years, starting one month from today.Both Janice and Kate expect to earn an average return of 5.5 percent on their savings.At the end of the 20 years, Janice will have approximately _____ more than Janice.

Accepted Answer

Janice starts saving one month earlier than Kate, so her first $80 deposit earns interest for an additional month compared to Kate's savings. This extra interest results in Janice having approximately $159.73 more than Kate at the end of 20 years.

Question 3

Karley's setting aside $32,000 each quarter, starting today, for the next three years for an expansion project.How much money will the firm have at the end of the three years if it can earn an average of 5.45 percent on its savings?

Accepted Answer

The answer of Karley's setting aside $32,000 each quarter, starting...

Question 4

Max's Kennels spent $220,000 to refurbish its current facility.The firm borrowed 60 percent of the refurbishment cost at 5.95 percent interest for six years.What is the amount of each monthly payment?

Accepted Answer

The answer of Max's Kennels spent $220,000 to refurbish its...

Question 5

London Motors will sell a $24,000 car for $335 per month for 60 months.What is the interest rate?

Accepted Answer

The answer of London Motors will sell a $24,000 car...

Question 6

Forni's Furniture is offering a bedroom suite for $2,700.The credit terms are 60 months at $73.00 per month.What is the interest rate on this offer?

Accepted Answer

The total payment over 60 months is $73 * 60 = $4,380. The interest paid is $4,380 - $2,700 = $1,680. Using the formula for simple interest rate: Interest = Principal * Rate * Time, we rearrange to find Rate = Interest / (Principal * Time). Here, Rate = $1,680 / ($2,700 * 5) = 0.2097 or 20.97%.

Question 7

RB Farworth will pay you $2,500 a year for 15 years in exchange for $25,000 today.What interest rate will you earn on this annuity?

Accepted Answer

The answer of RB Farworth will pay you $2,500 a...

Question 8

You owe $6,800on a car loan that has an interest rate of 6.75 percent and monthly payments of $310.You lost your job and your new job pays less, so your lender just agreed to lower the monthly payments to $225 while keeping the interest rate at 6.75 percent.How much longer will it take you to repay this loan than you had originally planned?

Accepted Answer

The answer of You owe $6,800on a car loan that...

Question 9

Industrial Tools owes you $38,600.This amount is seriously delinquent so you have offered to accept weekly payments for one year at an interest rate of 3 percent to settle this debt in full.What is the amount of each payment?

Accepted Answer

The answer of Industrial Tools owes you $38,600.This amount is...

Question 10

Cromwell is acquiring some land for $1,200,000 in exchange for semiannual payments of $75,000 at an interest rate of 6.35 percent.How many years will it take Cromwell to pay for this purchase?

Accepted Answer

To find the number of years, we need to calculate the present value of an annuity. The formula for the present value of an annuity is: PV = PMT × [(1 - (1 + r)^-n) / r], where PV is the present value, PMT is the payment amount, r is the interest rate per period, and n is the number of periods. Here, PV = $1,200,000, PMT = $75,000, and r = 6.35%/2 = 0.03175 (since payments are semiannual). Solving for n gives approximately 22.7 periods, which is about 11.35 years (since there are two periods per year).

Question 11

So you can retire early, you have decided to start saving $500 a month starting one month from now.You plan to retire as soon as you can accumulate $1 million.If you can earn 5 percent on your savings, how many years will it be before you can retire?

Accepted Answer

The answer of So you can retire early, you have...

Question 12

Recently, you needed money and agreed to sell a car you had inherited at a price of $55,000, to be paid in monthly payments of $1,500 for 42 months.What interest rate did you charge for financing the sale?

Accepted Answer

The answer of Recently, you needed money and agreed to...

Question 13

Your grandfather started his own business 52 years ago.He opened an investment account at the end of his third month of business and contributed $x.Every three months since then, he faithfully saved another $x.His savings account has earned an average rate of 5.73 percent annually.Today, his account is valued at $289,209.11.How much did your grandfather save every three months assuming he saved the same amount each time?

Accepted Answer

The answer of Your grandfather started his own business 52...

Question 14

Varian wants to have $500,000 in an investment account six years from now.The account will pay .58 percent interest per month.If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal?

Accepted Answer

The correct answer is A.The formula for calculating the future value of an annuity is:FV = P * (((1 + r)^n - 1) / r)where:FV is the future valueP is the monthly paymentr is the monthly interest raten is the number of monthsIn this case, we have:FV = $500,000r = .58% / 12 = .004833n = 6 * 12 = 72Plugging these values into the formula, we get:$500,000 = P * (((1 + .004833)^72 - 1) / .004833)$500,000 = P * 72.04905P = $500,000 / 72.04905P = $5,614.90Therefore, Varian will have to save $5,614.90 each month to reach his goal.

Question 15

What is the future value of $25 a week for 40 years at 8.5 percent interest? Assume the first payment occurs at the end of this week.

Accepted Answer

The future value of an annuity is the sum of the present values of each of the payments. The present value of each payment is the payment divided by (1 + r)^n, where r is the interest rate and n is the number of periods. In this case, the payment is $25, the interest rate is 8.5%, and the number of periods is 40 * 52 = 2080. So, the present value of each payment is $25 / (1 + 0.085)^2080 = $0.0000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

Question 16

Lionheart Trucking recently purchased a new truck costing $178,000.The firm financed this purchase at 6.6 percent interest with monthly payments of $2,400.How many years will it take the firm to pay off this debt?

Accepted Answer

The answer of Lionheart Trucking recently purchased a new truck...

Question 17

You have just won the lottery! You can either receive $183,555 per year for 20 years or $2,300,000 as a lump sum payment today.What is the interest rate on the annuity option?

Accepted Answer

The interest rate on the annuity option can be calculated using the present value of annuity formula. Solving for the interest rate that equates the present value of the annuity payments ($183,555 per year for 20 years) to the lump sum payment ($2,300,000) gives an interest rate of approximately 4.94 percent.

Question 18

Jake owes $3,990 on a credit card with an APR of 13.9 percent.How much more will it cost him to pay off this balance if he makes monthly payments of $50 rather than $60? Assume he does not charge any further purchases.

Accepted Answer

The answer of Jake owes $3,990 on a credit card...

Question 19

You want to purchase a new condominium that costs $325,000.Your plan is to pay 20 percent down in cash and finance the balance over 15 years at 4.1 percent.What will be your monthly mortgage payment including principal and interest?

Accepted Answer

To calculate the monthly mortgage payment, first determine the loan amount: $325,000 - 20% down payment = $260,000. Then, use the formula for a fixed-rate mortgage: M = P[r(1+r)^n]/[(1+r)^n – 1], where P is the loan amount ($260,000), r is the monthly interest rate (4.1% annual rate / 12 months = 0.0034167), and n is the number of payments (15 years * 12 months = 180). Plugging in these values gives a monthly payment of approximately $1,936.24.

Question 20

Today, you are purchasing a 15-year, 6.5 percent annuity at a cost of $36,500.The annuity will pay annual payments starting one year from today.What is the amount of each payment?

Accepted Answer

The annuity payment can be calculated using the formula for the present value of an annuity: PV = PMT × [(1 - (1 + r)^-n) / r]. Solving for PMT gives $3,881.88.

Quiz 5: Discounted Cash Flow Valuation