# Quiz 5: Time Value of Money

Business

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Q 5Q 5

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

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True False

Q 6Q 6

Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.

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True False

Q 7Q 7

Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.

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True False

Q 8Q 8

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

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True False

Q 9Q 9

Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts.

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True False

Q 10Q 10

Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.

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True False

Q 11Q 11

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

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True False

Q 12Q 12

If the discount (or interest)rate is positive,the future value of an expected series of payments will always exceed the present value of the same series.

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True False

Q 13Q 13

Disregarding risk,if money has time value,it is impossible for the present value of a given sum to exceed its future value.

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True False

Q 14Q 14

Disregarding risk,if money has time value,it is impossible for the future value of a given sum to exceed its present value.

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True False

Q 15Q 15

If a bank compounds savings accounts quarterly,the nominal rate will exceed the effective annual rate.

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True False

Q 16Q 16

If a bank compounds savings accounts quarterly,the effective annual rate will exceed the nominal rate.

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True False

Q 17Q 17

The greater the number of compounding periods within a year,then (1)the greater the future value of a lump sum investment at Time 0 and (2)the greater the present value of a given lump sum to be received at some future date.

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True False

Q 18Q 18

The greater the number of compounding periods within a year,then (1)the greater the future value of a lump sum investment at Time 0 and (2)the smaller the present value of a given lump sum to be received at some future date.

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True False

Q 19Q 19

Suppose Sally Smith plans to invest $1,000.She can earn an effective annual rate of 5% on Security A,while Security B has an effective annual rate of 12%.After 11 years,the compounded value of Security B should be more than twice the compounded value of Security A.(Ignore risk,and assume that compounding occurs annually. )

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True False

Q 20Q 20

Suppose Randy Jones plans to invest $1,000.He can earn an effective annual rate of 5% on Security A,while Security B has an effective annual rate of 12%.After 11 years,the compounded value of Security B should be somewhat less than twice the compounded value of Security A.(Ignore risk,and assume that compounding occurs annually. )

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True False

Q 21Q 21

The present value of a future sum decreases as either the discount rate or the number of periods per year increases,other things held constant.

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True False

Q 22Q 22

The present value of a future sum increases as either the discount rate or the number of periods per year increases,other things held constant.

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True False

Q 23Q 23

All other things held constant,the present value of a given annual annuity decreases as the number of periods per year increases.

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True False

Q 24Q 24

All other things held constant,the present value of a given annual annuity increases as the number of periods per year increases.

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True False

Q 25Q 25

If we are given a periodic interest rate,say a monthly rate,we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year.

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True False

Q 26Q 26

If we are given a periodic interest rate,say a monthly rate,we can find the nominal annual rate by dividing the periodic rate by the number of periods per year.

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True False

Q 27Q 27

As a result of compounding,the effective annual rate on a bank deposit (or a loan)is always equal to or greater than the nominal rate on the deposit (or loan).

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True False

Q 28Q 28

As a result of compounding,the effective annual rate on a bank deposit (or a loan)is always equal to or less than the nominal rate on the deposit (or loan).

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True False

Q 29Q 29

When a loan is amortized,a relatively high percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage declines in the loan's later years.

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True False

Q 30Q 30

When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

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True False

Q 31Q 31

The payment made each period on an amortized loan is constant,and it consists of some interest and some principal.The closer we are to the end of the loan's life,the greater the percentage of the payment that will be a repayment of principal.

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True False

Q 32Q 32

The payment made each period on an amortized loan is constant,and it consists of some interest and some principal.The closer we are to the end of the loan's life,the smaller the percentage of the payment that will be a repayment of principal.

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True False

Q 33Q 33

Midway through the life of an amortized loan,the percentage of the payment that represents interest must be equal to the percentage that represents repayment of principal.This is true regardless of the original life of the loan or the interest rate on the loan.

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True False

Q 34Q 34

Midway through the life of an amortized loan,the percentage of the payment that represents interest could be equal to,less than,or greater than to the percentage that represents repayment of principal.The proportions depend on the original life of the loan and the interest rate.

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True False

Q 35Q 35

Which of the following statements is CORRECT?
A) A time line is not meaningful unless all cash flows occur annually.
B) Time lines are useful for visualizing complex problems prior to doing actual calculations.
C) Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
D) Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.
E) Some of the cash flows shown on a time line can be in the form of annuity payments,but none can be uneven amounts.

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Multiple Choice

Q 36Q 36

Which of the following statements is CORRECT?
A) A time line is not meaningful unless all cash flows occur annually.
B) Time lines are not useful for visualizing complex problems prior to doing actual calculations.
C) Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
D) Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.
E) Some of the cash flows shown on a time line can be in the form of annuity payments,but none can be uneven amounts.

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Multiple Choice

Q 37Q 37

Which of the following statements is CORRECT?
A) A time line is not meaningful unless all cash flows occur annually.
B) Time lines are not useful for visualizing complex problems prior to doing actual calculations.
C) Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
D) Time lines can only be constructed for annuities where the payments occur at the end of the periods,i.e. ,for ordinary annuities.
E) Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

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Multiple Choice

Q 38Q 38

Which of the following statements is CORRECT?
A) A time line is not meaningful unless all cash flows occur annually.
B) Time lines are not useful for visualizing complex problems prior to doing actual calculations.
C) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
D) Time lines can only be constructed for annuities where the payments occur at the end of the periods,i.e. ,for ordinary annuities.
E) Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

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Multiple Choice

Q 39Q 39

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would lower the calculated value of the investment?
A) The cash flows are in the form of a deferred annuity,and they total to $100,000.You learn that the annuity lasts for only 5 rather than 10 years,hence that each payment is for $20,000 rather than for $10,000.
B) The discount rate increases.
C) The riskiness of the investment's cash flows decreases.
D) The total amount of cash flows remains the same,but more of the cash flows are received in the earlier years and less are received in the later years.
E) The discount rate decreases.

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Multiple Choice

Q 40Q 40

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would increase the calculated value of the investment?
A) The cash flows are in the form of a deferred annuity,and they total to $100,000.You learn that the annuity lasts for 10 years rather than 5 years,hence that each payment is for $10,000 rather than for $20,000.
B) The discount rate decreases.
C) The riskiness of the investment's cash flows increases.
D) The total amount of cash flows remains the same,but more of the cash flows are received in the later years and less are received in the earlier years.
E) The discount rate increases.

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Multiple Choice

Q 41Q 41

Which of the following statements is CORRECT?
A) The cash flows for an ordinary (or deferred)annuity all occur at the beginning of the periods.
B) If a series of unequal cash flows occurs at regular intervals,such as once a year,then the series is by definition an annuity.
C) The cash flows for an annuity due must all occur at the ends of the periods.
D) The cash flows for an annuity must all be equal,and they must occur at regular intervals,such as once a year or once a month.
E) If some cash flows occur at the beginning of the periods while others occur at the ends,then we have what the textbook defines as a variable annuity.

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Multiple Choice

Q 42Q 42

Which of the following statements is CORRECT?
A) The cash flows for an ordinary (or deferred)annuity all occur at the beginning of the periods.
B) If a series of unequal cash flows occurs at regular intervals,such as once a year,then the series is by definition an annuity.
C) The cash flows for an annuity due must all occur at the beginning of the periods.
D) The cash flows for an annuity may vary from period to period,but they must occur at regular intervals,such as once a year or once a month.
E) If some cash flows occur at the beginning of the periods while others occur at the ends,then we have what the textbook defines as a variable annuity.

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Multiple Choice

Q 43Q 43

Your bank account pays a 6% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?
A) The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
B) The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.
C) The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
D) The periodic rate of interest is 3% and the effective rate of interest is 6%.
E) The periodic rate of interest is 6% and the effective rate of interest is also 6%.

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Multiple Choice

Q 44Q 44

Your bank account pays an 8% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?
A) The periodic rate of interest is 2% and the effective rate of interest is 4%.
B) The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.
C) The periodic rate of interest is 4% and the effective rate of interest is less than 8%.
D) The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.
E) The periodic rate of interest is 8% and the effective rate of interest is also 8%.

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Multiple Choice

Q 45Q 45

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?
A) The annual payments would be larger if the interest rate were lower.
B) If the loan were amortized over 10 years rather than 7 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 7-year amortization plan.
C) The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.
D) The last payment would have a higher proportion of interest than the first payment.
E) The proportion of interest versus principal repayment would be the same for each of the 7 payments.

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Multiple Choice

Q 46Q 46

A $150,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?
A) The annual payments would be larger if the interest rate were lower.
B) If the loan were amortized over 10 years rather than 7 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 7-year amortization plan.
C) The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.
D) The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.
E) The proportion of interest versus principal repayment would be the same for each of the 7 payments.

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Multiple Choice

Q 47Q 47

Which of the following statements regarding a 15-year (180-month)$125,000,fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs. )
A) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.
B) Because it is a fixed-rate mortgage,the monthly loan payments (which include both interest and principal payments)are constant.
C) Interest payments on the mortgage will increase steadily over time,but the total amount of each payment will remain constant.
D) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.
E) The outstanding balance declines at a slower rate in the later years of the loan's life.

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Multiple Choice

Q 48Q 48

Which of the following statements regarding a 15-year (180-month)$125,000,fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs. )
A) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.
B) Because the outstanding balance declines over time,the monthly payments will also decline over time.
C) Interest payments on the mortgage will increase steadily over time,but the total amount of each payment will remain constant.
D) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.
E) The outstanding balance declines at a faster rate in the later years of the loan's life.

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Multiple Choice

Q 49Q 49

Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?
A) The monthly payments will decline over time.
B) A smaller proportion of the last monthly payment will be interest,and a larger proportion will be principal,than for the first monthly payment.
C) The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.
D) The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.
E) Exactly 10% of the first monthly payment represents interest.

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Multiple Choice

Q 50Q 50

Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?
A) The monthly payments will increase over time.
B) A larger proportion of the first monthly payment will be interest,and a smaller proportion will be principal,than for the last monthly payment.
C) The total dollar amount of interest being paid off each month gets larger as the loan approaches maturity.
D) The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.
E) Exactly 10% of the first monthly payment represents interest.

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Multiple Choice

Q 51Q 51

Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.
A) Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
D) Investment D pays $2,500 at the end of 10 years (just one payment).
E) Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).

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Multiple Choice

Q 52Q 52

Which of the following investments would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.
A) Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).
B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
D) Investment D pays $2,500 at the end of 10 years (just one payment).
E) Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

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Multiple Choice

Q 53Q 53

A U.S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%,semiannual compounding.Which of the following statements is CORRECT?
A) The periodic interest rate is greater than 3%.
B) The periodic rate is less than 3%.
C) The present value would be greater if the lump sum were discounted back for more periods.
D) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.
E) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year,$333.33 ordinary annuity.

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Multiple Choice

Q 54Q 54

A U.S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%,semiannual compounding.Which of the following statements is CORRECT?
A) The periodic interest rate is greater than 3%.
B) The periodic rate is less than 3%.
C) The present value would be greater if the lump sum were discounted back for more periods.
D) The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually.
E) The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year,$333.33 ordinary annuity.

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Multiple Choice

Q 55Q 55

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?
A) The present value of a 5-year,$250 annuity due will be lower than the PV of a similar ordinary annuity.
B) A 30-year,$150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
C) A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
D) If an investment pays 10% interest,compounded annually,its effective annual rate will be less than 10%.
E) Banks A and B offer the same nominal annual rate of interest,but A pays interest quarterly and B pays semiannually.Deposits in Bank B will provide the higher future value if you leave your funds on deposit.

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Multiple Choice

Q 56Q 56

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?
A) The present value of a 5-year,$250 annuity due will be lower than the PV of a similar ordinary annuity.
B) A 30-year,$150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
C) A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate.
D) If an investment pays 10% interest,compounded quarterly,its effective annual rate will be greater than 10%.
E) Banks A and B offer the same nominal annual rate of interest,but A pays interest quarterly and B pays semiannually.Deposits in Bank B will provide the higher future value if you leave your funds on deposit.

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Multiple Choice

Q 57Q 57

Which of the following statements is CORRECT?
A) The present value of a 3-year,$150 annuity due will exceed the present value of a 3-year,$150 ordinary annuity.
B) If a loan has a nominal annual rate of 8%,then the effective rate can never be greater than 8%.
C) If a loan or investment has annual payments,then the effective,periodic,and nominal rates of interest will all be different.
D) The proportion of the payment that goes toward interest on a fully amortized loan increases over time.
E) An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.

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Multiple Choice

Q 58Q 58

Which of the following statements is CORRECT?
A) The present value of a 3-year,$150 ordinary annuity will exceed the present value of a 3-year,$150 annuity due.
B) If a loan has a nominal annual rate of 8%,then the effective rate will never be less than 8%.
C) If a loan or investment has annual payments,then the effective,periodic,and nominal rates of interest will all be different.
D) The proportion of the payment that goes toward interest on a fully amortized loan increases over time.
E) An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.

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Multiple Choice

Q 59Q 59

You are considering two equally risky annuities,each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred)annuity,while Investment DUE is an annuity due.Which of the following statements is CORRECT?
A) The present value of ORD must exceed the present value of DUE,but the future value of ORD may be less than the future value of DUE.
B) The present value of DUE exceeds the present value of ORD,while the future value of DUE is less than the future value of ORD.
C) The present value of ORD exceeds the present value of DUE,and the future value of ORD also exceeds the future value of DUE.
D) The present value of DUE exceeds the present value of ORD,and the future value of DUE also exceeds the future value of ORD.
E) If the going rate of interest decreases from 10% to 0%,the difference between the present value of ORD and the present value of DUE would remain constant.

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Multiple Choice

Q 60Q 60

You are considering two equally risky annuities,each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred)annuity,while Investment DUE is an annuity due.Which of the following statements is CORRECT?
A) A rational investor would be willing to pay more for DUE than for ORD,so their market prices should differ.
B) The present value of DUE exceeds the present value of ORD,while the future value of DUE is less than the future value of ORD.
C) The present value of ORD exceeds the present value of DUE,and the future value of ORD also exceeds the future value of DUE.
D) The present value of ORD exceeds the present value of DUE,while the future value of DUE exceeds the future value of ORD.
E) If the going rate of interest decreases from 10% to 0%,the difference between the present value of ORD and the present value of DUE would remain constant.

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Multiple Choice

Q 61Q 61

Which of the following statements is CORRECT?
A) If you have a series of cash flows,each of which is positive,you can solve for I,where the solution value of I causes the PV of the cash flows will be more than the cash flow at Time 0.
B) If you have a series of cash flows,and CF0 is negative but each of the following CFs is positive,you can solve for I,but only if the sum of the undiscounted cash flows exceeds the cost.
C) To solve for I,one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs.This is,essentially,a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
D) If you solve for I and get a negative number,then you must have made a mistake.
E) If CF0 is positive and all the other CFs are negative,then you cannot solve for I.

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Multiple Choice

Q 62Q 62

Which of the following statements is CORRECT?
A) If you have a series of cash flows,each of which is positive,you can solve for I,where the solution value of I causes the PV of the cash flows will be more than the cash flow at Time 0.
B) If you have a series of cash flows,and CF0 is negative but each of the following CFs is positive,you can solve for I,but only if the sum of the undiscounted cash flows exceeds the cost.
C) To solve for I,one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs.It is impossible to find the value of I without a computer or financial calculator.
D) If you solve for I and get a negative number,then you must have made a mistake.
E) If CF0 is positive and all the other CFs are negative,then you can still solve for I.

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Multiple Choice

Q 63Q 63

Which of the following bank accounts has the highest effective annual return?
A) An account that pays 8% nominal interest with monthly compounding.
B) An account that pays 8% nominal interest with annual compounding.
C) An account that pays 7% nominal interest with daily (365-day)compounding.
D) An account that pays 7% nominal interest with monthly compounding.
E) An account that pays 8% nominal interest with daily (365-day)compounding.

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Multiple Choice

Q 64Q 64

Which of the following bank accounts has the lowest effective annual return?
A) An account that pays 8% nominal interest with monthly compounding.
B) An account that pays 8% nominal interest with annual compounding.
C) An account that pays 7% nominal interest with daily (365-day)compounding.
D) An account that pays 7% nominal interest with monthly compounding.
E) An account that pays 8% nominal interest with daily (365-day)compounding.

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Multiple Choice

Q 65Q 65

You plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?
A) Bank 1;6.1% with annual compounding.
B) Bank 2;6.0% with monthly compounding.
C) Bank 3;6.0% with annual compounding.
D) Bank 4;6.0% with quarterly compounding.
E) Bank 5;6.0% with daily (365-day)compounding.

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Multiple Choice

Q 66Q 66

Sue now has $280.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?
A) $537.77
B) $462.48
C) $473.24
D) $639.95
E) $510.88

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Multiple Choice

Q 67Q 67

Jose now has $500.How much would he have after 6 years if he leaves it invested at 6.7% with annual compounding?
A) $855.88
B) $752.59
C) $568.13
D) $737.83
E) $885.40

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Multiple Choice

Q 68Q 68

Suppose you have $2,350 and plan to purchase a 5-year certificate of deposit (CD)that pays 3.5% interest,compounded annually.How much will you have when the CD matures?
A) $2,539.87
B) $2,791.06
C) $2,428.22
D) $3,488.83
E) $3,153.90

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Multiple Choice

Q 69Q 69

Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD)that pays 11.4% interest,compounded annually.How much will you have when the CD matures?
A) $6,063.44
B) $5,886.84
C) $5,357.02
D) $7,299.68
E) $6,769.86

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Multiple Choice

Q 70Q 70

Last year Rocco Corporation's sales were $175 million.If sales grow at 6% per year,how large (in millions)will they be 5 years later?
A) $290.39
B) $281.03
C) $271.66
D) $196.72
E) $234.19

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Multiple Choice

Q 71Q 71

Last year Dania Corporation's sales were $525 million.If sales grow at 9.5% per year,how large (in millions)will they be 8 years later?
A) $965.74
B) $1,085.11
C) $1,204.47
D) $976.60
E) $1,020.00

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Multiple Choice

Q 72Q 72

How much would $1,growing at 12.1% per year,be worth after 75 years?
A) $6,041.14
B) $5,253.16
C) $6,408.86
D) $4,465.19
E) $5,095.57

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Multiple Choice

Q 73Q 73

How much would $100,growing at 5% per year,be worth after 65 years?
A) $1,787.99
B) $2,717.75
C) $2,383.99
D) $2,574.71
E) $2,860.79

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Multiple Choice

Q 74Q 74

You deposit $1,125 today in a savings account that pays 6% interest,compounded annually.How much will your account be worth at the end of 25 years?
A) $5,842.31
B) $4,876.64
C) $5,456.04
D) $4,828.35
E) $3,669.55

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Multiple Choice

Q 75Q 75

You deposit $500 today in a savings account that pays 6% interest,compounded annually.How much will your account be worth at the end of 20 years?
A) $1,539.43
B) $1,747.89
C) $1,908.25
D) $1,699.78
E) $1,603.57

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Multiple Choice

Q 76Q 76

Suppose a State of New York bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 4.9%,how much is the bond worth today?
A) $619.79
B) $464.84
C) $669.37
D) $625.99
E) $650.78

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Multiple Choice

Q 77Q 77

Suppose a State of California bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 6.2%,how much is the bond worth today?
A) $537.68
B) $704.54
C) $618.02
D) $673.64
E) $741.63

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Multiple Choice

Q 78Q 78

How much would $30,000 due in 50 years be worth today if the discount rate were 7.5%?
A) $838.94
B) $959.94
C) $621.14
D) $806.67
E) $613.07

Free

Multiple Choice

Q 79Q 79

How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%?
A) $1,101.38
B) $1,311.17
C) $983.38
D) $1,232.50
E) $1,166.94

Free

Multiple Choice

Q 80Q 80

Suppose a U.S.treasury bond will pay $1,700 five years from now.If the going interest rate on 5-year treasury bonds is 4.25%,how much is the bond worth today?
A) $1,380.60
B) $1,035.45
C) $1,698.14
D) $1,090.68
E) $1,711.95

Free

Multiple Choice

Q 81Q 81

Suppose an Exxon Corporation bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 5.60%,how much is the bond worth today?
A) $3,001.04
B) $2,609.60
C) $2,139.87
D) $2,218.16
E) $2,948.84

Free

Multiple Choice

Q 82Q 82

Suppose the U.S.Treasury offers to sell you a bond for $597.25.No payments will be made until the bond matures 5 years from now,at which time it will be redeemed for $1,000.What interest rate would you earn if you bought this bond at the offer price?
A) 9.01%
B) 9.56%
C) 11.08%
D) 11.94%
E) 10.86%

Free

Multiple Choice

Q 83Q 83

Suppose the U.S.Treasury offers to sell you a bond for $3,000.No payments will be made until the bond matures 10 years from now,at which time it will be redeemed for $4,000.What interest rate would you earn if you bought this bond at the offer price?
A) 3.33%
B) 2.60%
C) 2.92%
D) 3.44%
E) 3.62%

Free

Multiple Choice

Q 84Q 84

Ten years ago,Lucas Inc.earned $0.50 per share.Its earnings this year were $3.60.What was the growth rate in earnings per share (EPS)over the 10-year period?
A) 18.77%
B) 16.80%
C) 21.82%
D) 26.19%
E) 23.57%

Free

Multiple Choice

Q 85Q 85

Five years ago,Weed Go Inc.earned $2.30 per share.Its earnings this year were $3.20.What was the growth rate in earnings per share (EPS)over the 5-year period?
A) 6.83%
B) 7.58%
C) 6.55%
D) 6.35%
E) 7.72%

Free

Multiple Choice

Q 86Q 86

Janice has $5,000 invested in a bank that pays 8.4% annually.How long will it take for her funds to triple?
A) 11.44 years
B) 13.62 years
C) 16.62 years
D) 11.71 years
E) 12.39 years

Free

Multiple Choice

Q 87Q 87

Bob has $2,500 invested in a bank that pays 6.8% annually.How long will it take for his funds to double?
A) 10.64 years
B) 9.06 years
C) 10.54 years
D) 10.96 years
E) 8.64 years

Free

Multiple Choice

Q 88Q 88

Last year Thomson Inc's earnings per share were $3.50,and its growth rate during the prior 5 years was 9.6% per year.If that growth rate were maintained,how many years would it take for Thomson's EPS to triple?
A) 12.94
B) 10.67
C) 11.98
D) 10.55
E) 13.06

Free

Multiple Choice

Q 89Q 89

You plan to invest in securities that pay 7.0%,compounded annually.If you invest $5,000 today,how many years will it take for your investment to grow to $9,140.20?
A) 9.01
B) 10.79
C) 6.78
D) 9.63
E) 8.92

Free

Multiple Choice

Q 90Q 90

You plan to invest in bonds that pay 6.0%,compounded annually.If you invest $10,000 today,how many years will it take for your investment to grow to $25,000?
A) 15.88
B) 17.61
C) 16.35
D) 15.73
E) 14.00

Free

Multiple Choice

Q 91Q 91

You want to buy a new sports car 3 years from now,and you plan to save $2,700 per year,beginning one year from today.You will deposit your savings in an account that pays 5.2% interest.How much will you have just after you make the 3rd deposit,3 years from now?
A) $8,357.93
B) $9,807.78
C) $9,296.07
D) $8,528.50
E) $7,846.22

Free

Multiple Choice

Q 92Q 92

You want to buy a new ski boat 2 years from now,and you plan to save $7,000 per year,beginning one year from today.You will deposit your savings in an account that pays 6.2% interest.How much will you have just after you make the 2nd deposit,2 years from now?
A) $15,156
B) $14,434
C) $16,599
D) $17,609
E) $14,290

Free

Multiple Choice

Q 93Q 93

You want to go to Europe 5 years from now,and you can save $3,600 per year,beginning one year from today.You plan to deposit the funds in a mutual fund that you think will return 8.5% per year.Under these conditions,how much would you have just after you make the 5th deposit,5 years from now?
A) $26,450.86
B) $17,278.39
C) $25,810.92
D) $20,904.72
E) $21,331.34

Free

Multiple Choice

Q 94Q 94

You want to quit your job and go back to school for a law degree 4 years from now,and you plan to save $2,400 per year,beginning immediately.You will make 4 deposits in an account that pays 5.7% interest.Under these assumptions,how much will you have 4 years from today?
A) $9,501.47
B) $11,711.12
C) $11,490.15
D) $11,048.22
E) $9,390.99

Free

Multiple Choice

Q 95Q 95

You want to quit your job and return to school for an MBA degree 3 years from now,and you plan to save $2,800 per year,beginning immediately.You will make 3 deposits in an account that pays 5.2% interest.Under these assumptions,how much will you have 3 years from today?
A) $9,304.28
B) $7,908.64
C) $9,025.15
D) $10,420.79
E) $7,722.55

Free

Multiple Choice

Q 96Q 96

What is the PV of an ordinary annuity with 10 payments of $4,100 if the appropriate interest rate is 5.5%?
A) $31,213.31
B) $32,449.48
C) $32,140.44
D) $37,085.12
E) $30,904.27

Free

Multiple Choice

Q 97Q 97

What is the PV of an ordinary annuity with 5 payments of $6,200 if the appropriate interest rate is 4.5%?
A) $30,484.00
B) $22,863.00
C) $30,211.82
D) $27,217.86
E) $21,502.11

Free

Multiple Choice

Q 98Q 98

You have a chance to buy an annuity that pays $12,400 at the end of each year for 3 years.You could earn 5.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?
A) $38,137.99
B) $39,141.62
C) $36,799.81
D) $35,127.09
E) $33,454.37

Free

Multiple Choice

Q 99Q 99

You just inherited some money,and a broker offers to sell you an annuity that pays $4,300 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?
A) $52,515.75
B) $53,051.63
C) $53,587.50
D) $61,625.63
E) $60,018.01

Free

Multiple Choice

Q 100Q 100

Your aunt is about to retire,and she wants to sell some of her stock and buy an annuity that will provide her with income of $53,000 per year for 30 years,beginning a year from today.The going rate on such annuities is 7.25%.How much would it cost her to buy such an annuity today?
A) $519,610.24
B) $493,950.47
C) $756,963.06
D) $641,494.12
E) $647,909.06

Free

Multiple Choice

Q 101Q 101

What is the PV of an annuity due with 5 payments of $2,900 at an interest rate of 5.5%?
A) $14,502.08
B) $12,934.29
C) $13,064.94
D) $10,451.95
E) $11,758.44

Free

Multiple Choice

Q 102Q 102

What's the present value of a perpetuity that pays $3,000 per year if the appropriate interest rate is 5%?
A) $60,000.00
B) $47,400.00
C) $71,400.00
D) $63,000.00
E) $55,200.00

Free

Multiple Choice

Q 103Q 103

What's the rate of return you would earn if you paid $2,280 for a perpetuity that pays $85 per year?
A) 3.84%
B) 3.09%
C) 4.25%
D) 3.50%
E) 3.73%

Free

Multiple Choice

Q 104Q 104

You have a chance to buy an annuity that pays $1,400 at the beginning of each year for 3 years.You could earn 5.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?
A) $3,984.85
B) $3,945.00
C) $3,745.76
D) $4,223.94
E) $4,781.82

Free

Multiple Choice

Q 105Q 105

You have a chance to buy an annuity that pays $16,000 at the beginning of each year for 5 years.You could earn 4.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?
A) $73,400.41
B) $82,208.46
C) $86,612.49
D) $64,592.36
E) $81,474.46

Free

Multiple Choice

Q 106Q 106

Your uncle is about to retire,and he wants to buy an annuity that will provide him with $57,000 of income a year for 20 years,with the first payment coming immediately.The going rate on such annuities is 5.25%.How much would it cost him to buy the annuity today?
A) $827,207.28
B) $856,488.95
C) $732,041.84
D) $915,052.30
E) $717,401.00

Free

Multiple Choice

Q 107Q 107

Your father is about to retire,and he wants to buy an annuity that will provide him with $74,000 of income a year for 25 years,with the first payment coming immediately.The going rate on such annuities is 5.15%.How much would it cost him to buy the annuity today?
A) $853,488.17
B) $950,721.00
C) $1,047,953.82
D) $1,080,364.77
E) $1,026,346.53

Free

Multiple Choice

Q 108Q 108

You inherited an oil well that will pay you $12,000 per year for 25 years,with the first payment being made today.If you think a fair return on the well is 7.5%,how much should you ask for it if you decide to sell it?
A) $178,306.55
B) $171,116.77
C) $135,167.87
D) $143,795.60
E) $175,430.63

Free

Multiple Choice

Q 109Q 109

Sam was injured in an accident,and the insurance company has offered him the choice of $46,000 per year for 15 years,with the first payment being made today,or a lump sum.If a fair return is 7.5%,how large must the lump sum be to leave him as well off financially as with the annuity?
A) $536,896.32
B) $475,786.17
C) $541,261.33
D) $453,961.11
E) $436,501.07

Free

Multiple Choice

Q 110Q 110

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,800 at the end of Year 4 if the interest rate is 5%?
A) $11,881.98
B) $11,104.66
C) $12,881.40
D) $9,327.91
E) $12,215.12

Free

Multiple Choice

Q 111Q 111

Suppose you inherited $715,000 and invested it at 8.25% per year.How much could you withdraw at the end of each of the next 20 years?
A) $71,217.00
B) $74,184.38
C) $80,119.13
D) $57,121.97
E) $84,570.19

Free

Multiple Choice

Q 112Q 112

Your uncle has $415,000 and wants to retire.He expects to live for another 25 years and to earn 7.5% on his invested funds.How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?
A) $29,783.94
B) $45,420.51
C) $40,952.92
D) $37,229.93
E) $45,048.21

Free

Multiple Choice

Q 113Q 113

Your uncle has $955,000 and wants to retire.He expects to live for another 25 years,and he also expects to earn 7.5% on his invested funds.How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account?
A) $79,696.46
B) $77,305.56
C) $74,914.67
D) $90,057.00
E) $61,366.27

Free

Multiple Choice

Q 114Q 114

Your grandmother just died and left you $47,500 in a trust fund that pays 6.5% interest.You must spend the money on your college education,and you must withdraw the money in 4 equal installments,beginning immediately.How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?
A) $10,936.07
B) $9,894.54
C) $10,805.88
D) $14,581.43
E) $13,019.14

Free

Multiple Choice

Q 115Q 115

Suppose you inherited $325,000 and invested it at 8.25% per year.How much could you withdraw at the beginning of each of the next 20 years?
A) $30,527.27
B) $38,626.34
C) $33,953.80
D) $31,150.27
E) $38,314.84

Free

Multiple Choice

Q 116Q 116

Your father's employer was just acquired,and he was given a severance payment of $442,500,which he invested at a 7.5% annual rate.He now plans to retire,and he wants to withdraw $35,000 at the end of each year,starting at the end of this year.How many years will it take to exhaust his funds,i.e. ,run the account down to zero?
A) 45.85
B) 31.11
C) 31.52
D) 48.31
E) 40.94

Free

Multiple Choice

Q 117Q 117

Your uncle has $340,000 invested at 7.5%,and he now wants to retire.He wants to withdraw $35,000 at the end of each year,starting at the end of this year.He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account.For how many years can he make the $35,000 withdrawals and still have $25,000 left in the end?
A) 18.00
B) 18.75
C) 21.75
D) 15.75
E) 22.88

Free

Multiple Choice

Q 118Q 118

Your Aunt Ruth has $520,000 invested at 6.5%,and she plans to retire.She wants to withdraw $40,000 at the beginning of each year,starting immediately.How many years will it take to exhaust her funds,i.e. ,run the account down to zero?
A) 23.29
B) 25.79
C) 29.55
D) 24.79
E) 25.04

Free

Multiple Choice

Q 119Q 119

Your aunt has $680,000 invested at 5.5%,and she now wants to retire.She wants to withdraw $45,000 at the beginning of each year,beginning immediately.She also wants to have $50,000 left to give you when she ceases to withdraw funds from the account.For how many years can she make the $45,000 withdrawals and still have $50,000 left in the end?
A) 23.40
B) 24.90
C) 30.00
D) 36.61
E) 29.40

Free

Multiple Choice

Q 120Q 120

Suppose you just won the state lottery,and you have a choice between receiving $2,575,000 today or a 20-year annuity of $250,000,with the first payment coming one year from today.What rate of return is built into the annuity? Disregard taxes.
A) 6.41%
B) 7.37%
C) 4.74%
D) 7.44%
E) 7.13%

Free

Multiple Choice

Q 121Q 121

Your girlfriend just won the Florida lottery.She has the choice of $15,900,000 today or a 20-year annuity of $1,050,000,with the first payment coming one year from today.What rate of return is built into the annuity? Disregard taxes.
A) 3.23%
B) 2.84%
C) 2.16%
D) 2.81%
E) 2.28%

Free

Multiple Choice

Q 122Q 122

Assume that you own an annuity that will pay you $15,000 per year for 12 years,with the first payment being made today.You need money today to start a new business,and your uncle offers to give you $156,000 for the annuity.If you sell it,what rate of return would your uncle earn on his investment?
A) 3.31%
B) 2.77%
C) 2.42%
D) 2.72%
E) 2.15%

Free

Multiple Choice

Q 123Q 123

What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,600?
A) $118.56
B) $85.28
C) $79.04
D) $89.44
E) $104.00

Free

Multiple Choice

Q 124Q 124

What is the present value of the following cash flow stream at a rate of 7.00%?
A) $485.58
B) $589.63
C) $495.49
D) $436.03
E) $490.53

Free

Multiple Choice

Q 125Q 125

What is the present value of the following cash flow stream at a rate of 10.0%?
A) $11,888
B) $13,473
C) $9,850
D) $11,322
E) $13,586

Free

Multiple Choice

Q 126Q 126

What is the present value of the following cash flow stream at a rate of 10.0%?
A) $7,927.25
B) $8,817.95
C) $9,441.45
D) $7,570.97
E) $8,907.02

Free

Multiple Choice

Q 127Q 127

You sold a car and accepted a note with the following cash flow stream as your payment.What was the effective price you received for the car assuming an interest rate of 7.0%?
A) $5,081
B) $5,840
C) $5,723
D) $6,716
E) $6,424

Free

Multiple Choice

Q 128Q 128

At a rate of 5.5%,what is the future value of the following cash flow stream?
A) $773
B) $581
C) $638
D) $709
E) $766

Free

Multiple Choice

Q 129Q 129

Your father paid $10,000 (CF at t = 0)for an investment that promises to pay $750 at the end of each of the next 5 years,then an additional lump sum payment of $17,750 at the end of the 5th year.What is the expected rate of return on this investment?
A) 18.27%
B) 13.50%
C) 20.42%
D) 18.73%
E) 19.17%

Free

Multiple Choice

Q 130Q 130

You are offered a chance to buy an asset for $4,500 that is expected to produce cash flows of $750 at the end of Year 1,$1,000 at the end of Year 2,$850 at the end of Year 3,and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?
A) 20.60%
B) 23.77%
C) 26.72%
D) 22.64%
E) 17.21%

Free

Multiple Choice

Q 131Q 131

What's the future value of $3,300 after 5 years if the appropriate interest rate is 6%,compounded semiannually?
A) $4,080.13
B) $4,434.92
C) $3,547.94
D) $4,701.02
E) $3,370.54

Free

Multiple Choice

Q 132Q 132

What's the present value of $11,500 discounted back 5 years if the appropriate interest rate is 4.5%,compounded semiannually?
A) $9,205.87
B) $9,113.81
C) $10,126.45
D) $10,678.81
E) $9,574.10

Free

Multiple Choice

Q 133Q 133

What's the future value of $1,950 after 5 years if the appropriate interest rate is 6%,compounded monthly?
A) $3,051.10
B) $2,630.26
C) $3,208.91
D) $2,498.74
E) $2,130.51

Free

Multiple Choice

Q 134Q 134

What's the present value of $1,700 discounted back 5 years if the appropriate interest rate is 6%,compounded monthly?
A) $1,298.14
B) $1,260.33
C) $1,335.95
D) $1,411.57
E) $1,398.97

Free

Multiple Choice

Q 135Q 135

Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR)on their monthly statements.If the APR is stated to be 24.25%,with interest paid monthly,what is the card's EFF%?
A) 27.14%
B) 20.35%
C) 33.11%
D) 21.44%
E) 23.34%

Free

Multiple Choice

Q 136Q 136

Riverside Bank offers to lend you $50,000 at a nominal rate of 6.5%,compounded monthly.The loan (principal plus interest)must be repaid at the end of the year.Midwest Bank also offers to lend you the $50,000,but it will charge an annual rate of 6.2%,with no interest due until the end of the year.How much higher or lower is the effective annual rate charged by Midwest versus the rate charged by Riverside?
A) -0.54%
B) -0.40%
C) -0.50%
D) -0.46%
E) -0.52%

Free

Multiple Choice

Q 137Q 137

Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 17.75%,but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.What is the effective annual rate on the loan?
A) 21.43%
B) 19.73%
C) 20.10%
D) 18.97%
E) 16.50%

Free

Multiple Choice

Q 138Q 138

Suppose a bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to make interest payments of $170.00 at the end of each quarter and then pay off the principal amount at the end of the year.What is the effective annual rate on the loan?
A) 6.98%
B) 6.07%
C) 6.63%
D) 5.79%
E) 6.21%

Free

Multiple Choice

Q 139Q 139

Charter Bank pays a 5.00% nominal rate on deposits,with monthly compounding.What effective annual rate (EFF%)does the bank pay?
A) 5.12%
B) 6.40%
C) 4.96%
D) 5.01%
E) 5.32%

Free

Multiple Choice

Q 140Q 140

Suppose your credit card issuer states that it charges a 19.50% nominal annual rate,but you must make monthly payments,which amounts to monthly compounding.What is the effective annual rate?
A) 24.12%
B) 19.21%
C) 21.34%
D) 19.85%
E) 19.42%

Free

Multiple Choice

Q 141Q 141

Pace Co.borrowed $30,000 at a rate of 7.25%,simple interest,with interest paid at the end of each month.The bank uses a 360-day year.How much interest would Pace have to pay in a 30-day month?
A) $157.69
B) $141.38
C) $181.25
D) $212.06
E) $155.88

Free

Multiple Choice

Q 142Q 142

Suppose you deposited $27,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?
A) $34,952.08
B) $30,478.21
C) $27,961.66
D) $30,198.59
E) $29,918.98

Free

Multiple Choice

Q 143Q 143

Suppose you borrowed $27,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years.How large would your payments be?
A) $10,000.86
B) $8,334.05
C) $6,500.56
D) $10,250.89
E) $6,333.88

Free

Multiple Choice

Q 144Q 144

Suppose you are buying your first condo for $300,000,and you will make a $15,000 down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?
A) $1,459.13
B) $1,369.06
C) $2,179.69
D) $2,215.71
E) $1,801.39

Free

Multiple Choice

Q 145Q 145

Your uncle will sell you his bicycle shop for $280,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon)payment of $50,000 at the end of the last month.What would your equal monthly payments be?
A) $4,747.31
B) $5,651.56
C) $5,425.49
D) $5,934.13
E) $4,408.21

Free

Multiple Choice

Q 146Q 146

Suppose you borrowed $15,000 at a rate of 11.8% and must repay it in 5 equal installments at the end of each of the next 5 years.How much interest would you have to pay in the first year?
A) $1,362.90
B) $1,557.60
C) $1,716.90
D) $1,770.00
E) $1,893.90

Free

Multiple Choice

Q 147Q 147

You plan to borrow $45,200 at a 7.5% annual interest rate.The terms require you to amortize the loan with 7 equal end-of-year payments.How much interest would you be paying in Year 2?
A) $2,403.37
B) $2,703.80
C) $2,854.01
D) $3,004.22
E) $3,454.85

Free

Multiple Choice

Q 148Q 148

Your bank offers to lend you $113,200 at an 8.5% annual interest rate to start your new business.The terms require you to amortize the loan with 10 equal end-of-year payments.How much interest would you be paying in Year 2?
A) $7,178.72
B) $8,076.06
C) $8,524.73
D) $8,973.40
E) $10,319.41

Free

Multiple Choice

Q 149Q 149

You are considering an investment in a Third World bank account that pays a nominal annual rate of 18%,compounded monthly.If you invest $5,000 at the beginning of each month,how many months would it take for your account to grow to $280,000? Round fractional months up.
A) 39
B) 41
C) 43
D) 50
E) 36

Free

Multiple Choice

Q 150Q 150

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $200,000?
A) 65.52
B) 52.53
C) 66.65
D) 56.48
E) 61.00

Free

Multiple Choice

Q 151Q 151

Your child's orthodontist offers you two alternative payment plans.The first plan requires a $3,500 immediate up-front payment.The second plan requires you to make monthly payments of $137.41,payable at the end of each month for 3 years.What nominal annual interest rate is built into the monthly payment plan?
A) 27.18%
B) 23.81%
C) 24.05%
D) 21.41%
E) 19.24%

Free

Multiple Choice

Q 152Q 152

Your subscription to Investing Wisely Weekly is about to expire.You plan to subscribe to the magazine for the rest of your life,and you can renew it by paying $85 annually,beginning immediately,or you can get a lifetime subscription for $740,also payable immediately.Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant,how many years must you live to make the lifetime subscription the better buy?
A) 10.48
B) 10.72
C) 11.65
D) 9.32
E) 11.42

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Multiple Choice

Q 153Q 153

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24th month,you will have $13,150 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning?
A) 9.83%
B) 8.00%
C) 9.13%
D) 6.87%
E) 8.70%

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Multiple Choice

Q 154Q 154

You just deposited $6,500 in a bank account that pays a 4.0% nominal interest rate,compounded quarterly.If you also add another $5,000 to the account one year (4 quarters)from now and another $7,500 to the account two years (8 quarters)from now,how much will be in the account three years (12 quarters)from now?
A) $20,543.18
B) $15,407.38
C) $17,461.70
D) $20,748.61
E) $24,857.24

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Multiple Choice

Q 155Q 155

Farmers Bank offers to lend you $50,000 at a nominal rate of 5.0%,simple interest,with interest paid quarterly.Merchants Bank offers to lend you the $50,000,but it will charge 6.2%,simple interest,with interest paid at the end of the year.What's the difference in the effective annual rates charged by the two banks?
A) 1.33%
B) 1.09%
C) 0.91%
D) 1.11%
E) 0.83%

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Multiple Choice

Q 156Q 156

Suppose you borrowed $75,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?
A) $17,414.67
B) $16,892.23
C) $19,852.73
D) $18,807.85
E) $18,633.70

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Multiple Choice

Q 157Q 157

Suppose you borrowed $30,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year,after you have made the first payment?
A) $19,118.33
B) $22,112.76
C) $22,343.11
D) $23,034.13
E) $20,961.06

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Multiple Choice

Q 158Q 158

Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 11.5% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?
A) 90.94%
B) 72.03%
C) 73.83%
D) 90.04%
E) 96.34%

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Multiple Choice

Q 159Q 159

Your brother's business obtained a 30-year amortized mortgage loan for $125,000 at a nominal annual rate of 7.0%,with 360 end-of-month payments.The firm can deduct the interest paid for tax purposes.What will the interest tax deduction be for Year 1?
A) $10,800.12
B) $7,229.11
C) $8,709.78
D) $8,100.09
E) $8,012.99

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Multiple Choice

Q 160Q 160

Your sister turned 35 today,and she is planning to save $85,000 per year for retirement,with the first deposit to be made one year from today.She will invest in a mutual fund that's expected to provide a return of 7.5% per year.She plans to retire 30 years from today,when she turns 65,and she expects to live for 25 years after retirement,to age 90.Under these assumptions,how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.
A) $898,847.29
B) $749,039.41
C) $756,924.04
D) $788,462.54
E) $607,116.15

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Multiple Choice

Q 161Q 161

Steve and Ed are cousins who were both born on the same day,and both turned 25 today.Their grandfather began putting $2,300 per year into a trust fund for Steve on his 20th birthday,and he just made a 6th payment into the fund.The grandfather (or his estate's trustee)will make 40 more $2,300 payments until a 46th and final payment is made on Steve's 65th birthday.The grandfather set things up this way because he wants Steve to work,not be a "trust fund baby," but he also wants to ensure that Steve is provided for in his old age.
Until now,the grandfather has been disappointed with Ed,hence has not given him anything.However,they recently reconciled,and the grandfather decided to make an equivalent provision for Ed.He will make the first payment to a trust for Ed today,and he has instructed his trustee to make 40 additional equal annual payments until Ed turns 65,when the 41st and final payment will be made.If both trusts earn an annual return of 8%,how much must the grandfather put into Ed's trust today and each subsequent year to enable him to have the same retirement nest egg as Steve after the last payment is made on their 65th birthday?
A) $2,639
B) $2,673
C) $3,359
D) $3,428
E) $3,565

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Multiple Choice

Q 162Q 162

After graduation,you plan to work for Dynamo Corporation for 12 years and then start your own business.You expect to save and deposit $7,500 a year for the first 6 years (t = 1 through t = 6)and $15,000 annually for the following 6 years (t = 7 through t = 12).The first deposit will be made a year from today.In addition,your grandfather just gave you a $32,500 graduation gift which you will deposit immediately (t = 0).If the account earns 9% compounded annually,how much will you have when you start your business 12 years from now?
A) $236,125
B) $319,814
C) $298,892
D) $295,903
E) $289,925

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Multiple Choice

Q 163Q 163

You are negotiating to make a 7-year loan of $37,500 to Breck Inc.To repay you,Breck will pay $2,500 at the end of Year 1,$5,000 at the end of Year 2,and $7,500 at the end of Year 3,plus a fixed but currently unspecified cash flow,X,at the end of each year from Year 4 through Year 7.Breck is essentially riskless,so you are confident the payments will be made.You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan.What cash flow must the investment provide at the end of each of the final 4 years,that is,what is X?
A) $9,487.32
B) $11,479.65
C) $8,918.08
D) $11,384.78
E) $10,246.30

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Multiple Choice

Q 164Q 164

John and Daphne are saving for their daughter Ellen's college education.Ellen just turned 10 (at t = 0),and she will be entering college 8 years from now (at t = 8).College tuition and expenses at State U.are currently $14,500 a year,but they are expected to increase at a rate of 3.5% a year.Ellen should graduate in 4 years--if she takes longer or wants to go to graduate school,she will be on her own.Tuition and other costs will be due at the beginning of each school year (at t = 8,9,10,and 11). So far,John and Daphne have accumulated $18,000 in their college savings account (at t = 0).Their long-run financial plan is to add an additional $5,000 in each of the next 4 years (at t = 1,2,3,and 4).Then they plan to make 3 equal annual contributions in each of the following years,t = 5,6,and 7.They expect their investment account to earn 9%.How large must the annual payments at t = 5,6,and 7 be to cover Ellen's anticipated college costs?
A) $562.25
B) $658.42
C) $739.80
D) $917.35
E) $673.22

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Multiple Choice