## Essentials of Corporate Finance Study Set 4

Business

## Quiz 4 :

Introduction to Valuation

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Q04 Q04 Q04

Lester had $6,270 in his savings account at the beginning of this year.This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year.This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant.This $282.15 is best described as:

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Q22 Q22 Q22

South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts.Northern Bank pays 2.5 percent simple interest on its savings accounts.You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today.The amount you must deposit today:

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Q31 Q31 Q31

Ben invested $7,500 twenty years ago with an insurance company that has paid him 6 percent simple interest on his funds.Charles invested $7,500 twenty years ago in a fund that has paid him 6 percent interest, compounded annually.How much more interest has Charles earned than Ben over the past 20 years?

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Q32 Q32 Q32

Lew has $3,600 that he wants to invest for 5 years.He can invest this amount at his credit union and earn 2.2 percent simple interest.Or, he can open an account at Compass Bank and earn 2.15 percent interest, compounded annually.If he decides to invest at Compass Bank for 5 years, he will:

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Q34 Q34 Q34

Theodoro has just received an insurance settlement of $18,500.She wants to save this money until her daughter goes to college.If she can earn an average of 5.2 percent, compounded annually, how much will she have saved when her daughter enters college 9 years from now?

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Q35 Q35 Q35

Travis invests $5,500 today into a retirement account.He expects to earn 9.2 percent, compounded annually, on his money for the next 13 years.After that, he wants to be more conservative, so only expects to earn 6 percent, compounded annually.How much money will he have in his account when he retires 25 years from now, assuming this is the only deposit he makes into the account?

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Q40 Q40 Q40

Sixty years ago, your grandparents opened two savings accounts and deposited $250 in each account.The first account was with City Bank at 3.6 percent, compounded annually.The second account was with Country Bank at 3.65 percent, compounded annually.Which one of the following statements is true concerning these accounts? (Do not round intermediate calculations.)

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Multiple Choice

Q44 Q44 Q44

Starlite Industries will need $2.2 million 4.5 years from now to replace some equipment.Currently, the firm has some extra cash and would like to establish a savings account for this purpose.The account pays 3.6 percent interest, compounded annually.How much money must the company deposit today to fully fund the equipment purchase?

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Q45 Q45 Q45

You and your sister are planning a large anniversary party 3 years from today for your parents' 50th wedding anniversary.You have estimated that you will need $6,500 for this party.You can earn 2.6 percent compounded annually on your savings.How much would you and your sister have to deposit today in one lump sum to pay for the entire party?

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Q53 Q53 Q53

Assume the total cost of a college education will be $325,000 when your child enters college in 16 years.You presently have $40,000 to invest and do not plan to invest anything further.What annual rate of interest must you earn on your investment to cover the entire cost of your child's college education?

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Q55 Q55 Q55

You're trying to save to buy a new car valued at $42,650.You have $40,000 today that can be invested at your bank.The bank pays 4.2 percent annual interest on its accounts.How long will it be before you have enough to buy the car for cash? Assume the price of the car remains constant.

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Q56 Q56 Q56

Your coin collection contains ten 1949 silver dollars.If your grandparents purchased the coins for their face value when they were new, how much will your collection be worth when you retire in 2065, assuming the coins appreciate at an annual rate of 5.1 percent?

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Q58 Q58 Q58

You have just made your first $5,000 contribution to your retirement account.Assuming you earn a rate of return of 5 percent and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?

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Q60 Q60 Q60

You expect to receive $5,000 at graduation one year from now.Your plan is to invest this money at 6.5 percent, compounded annually, until you have $50,000.At that time, you plan to travel around the world.How long from now will it be until you can begin your travels?

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