AGEC 330 Exam 1

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What would you be willing to pay for an annuity that paid you $175 at the end of each of the next 20 years? Assume it draws 8% interest compounded annually

$1718

What would you be willing to pay for an annuity that paid you $175 at the end of each of the next 20 years? Assume savings account pays 8% compounded annually.

$1718

David plans to fund his individual retirement account with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Shannon can earn 10% of his contributions, how much will he have at the end of the 10th year?

$39844 2500[((1+.1)^10)-1)/.1]

What would you be willing to pay for an annuity that paid you $200 at the end of each of the next 30 years? Assume savings account pays 10% compounded annually

$1885

Suppose you have the opportunity to purchase a 7-year annuity that pays you $2,000 per year starting in one year for each of the next seven years and you can purchase the annuity for $11,000 Suppose you take the $11,000 today and put this money in a bank account paying 6% interest. Calculate how much money you have in your bank account at the end of 10 years

$19,699 11000(1.06)^10

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the END of each of each quarter for the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$43,747.58

Stephen deposits $2000/year at the end of the year for 15 yrs into an account that pays 7% interest. How much will Stephen have at the end of 15 years

$50,258

what is the present value of $1250 that is to be received 7 years from now with a 14% interest rate compounded annually

$500

When you retire, you want to have a million dollars saved. If you plan to retire in 40 years, and you can receive 7% interest annually on a retirement account, what is the fixed amount you have to save each year?

$5009

How much money will be in a savings account in 20 years if $750 is deposited today and it earns 10% compounded quarterly?

$5407.18

How much money will be in a savings account in 20 years if $750 is deposited today and it earns 10% compounded monthly?

$5452.62

pasture land in the brazos county is selling for $3000/acre. if the value increases 4% per year, what will the value be in 20 yrs

$6573

$660

When you retire, you want to have $750,000 saved. If you plan to retire in 30 years, and you can receive 8% interest annually on a savings account, what is the fixed amount you have to save each year?

$6621

Katie deposits $5,000 in a five-year certificate of deposit paying 6% compounded semi-annually. How much will Tracey have at the end of the five-year period?

$6720

How much interest is gained if $175 is deposited in your bank account at the end of the year for each of the next 5 years? Savings account pays 10% compounded annually

$193.39

How much interest is gained if $175 is deposited in your bank account at the end of the year for the next 5 years, assume 10% interest

$193.39

If you invest $175 and earn a rate of return of 11%, how much money will you have in 1 years?

$194.25

Tyler would like to send his parents on a cruise for their 50th wedding anniversary. He expects the cruise will cost $15,000 and he has 5 years to accumulate this money. How much must Lance deposit at the end of each year in an account paying 10 percent interest in order to have enough money to send his parents on the cruise? Pick the closest answer.

$2,457 (excel)

Suppose you plan to replace a truck in 10 years and it will cost you $35000. How much money would you need to put away each year to reach this goal, assume 7% interest

$2,533

What is the NPV of an investment that costs $95, promises to pay $125 in one year, and the rate of return on comparable investments is 8%.

$20.74 (125(1.08)^-1)-95

If you borrow $15,000 and pay it back in 13 equal annual payments (principal and interest) at 9% interest. What are the annual payments?

$2004

When you retire, you want to have a two million dollars saved. If you plan to retire in 45 years, and you can receive 3% interest annually on a savings account, what is the fixed amount you have to save each year?

$21570

What is the future value of $1000 today if it draws 8% interest compounded annually for 10 years

$2159

What is the future value of $1000 today if it draws interest at 8% compounded annually for 10 years

$2159

Suppose that the firm Aggie Alfalfa has a hay field that they are willing to sell today. The net annual returns to the hay ield are expected to be $35,000 per year for the next 15 years. At the end of 15 years, it is expected that the land will sell for $25,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 14%

$218,478

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the beginning of each month for the next 35 years? Assume that your savings account pays 8% compounded monthly

$248030.9

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 3%?

$25000 3%=33.33 cap. factor (750)(33.33)=24997.5

The future value of $200 received today and deposited for three years in an account which pays 8 percent interest compounded semi-annually is ________. Pick the closest answer.

$253.06

If you could buy a bond now and five years later sell it for $40,000, what would you be willing to buy it for, assuming an 8% discount rate and no other cash flows

$27,223

How much is an oil well worth today if it will pay royalties of $25,000 per year at the end of the next 12 years and will be sold for $250,000 at the end of the 12th year? Assume that the interest rate is 8% compounded annually.

$287,680.39

$287680.39

What is the present value of $750 received 10 years from now if the interest rate compounded annually is 10%

$289

Suppose you are considering the purchase of a special livestock trailer for $15,000. It can be financed over five years with no down payment. Calculate the monthly debt payments if the annual interest rate is 6% compounded monthly and the payments are uniform (equal monthly payments including principal and interest)

$290 (excel)

Suppose that the firm CherryBlossom has an orchard they are willing to sell today. The net annual returns to the orchard are expected to be $50,000 per year for the next 20 years. At the end of 20 years, it is expected the land will sell for $30,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 16%

$297,984

You put $2,000 in an IRA account at Wells Fargo. This account pays a fixed interest rate of 8% compounded quarterly. How much money do you have in five years?

$2972

What would you be willing to pay for an annuity that paid you $575 at the end of each of the next 7 years? Assume savings account pays 8% compounded annually.

$2994

How much money would you have in your bank account in 10 years if $200 is deposited at the end of each year. Suppose 10% interest compounded annually is being paid

$3,187.48

Consider a bond with a par value of $1,500. It pays a coupon of 10% (annual) and the coupon is paid quarterly. It matures in 8 years. What is the coupon payment?

$37.50

Rebecca Smith just graduated from college and received a job managing a ranch. Her salary will be $35000 per year. If she is guaranteed a 5% raise each year, what will the salary be in 25 years.

$118, 522 35000(1.05)^25

If it costs $80000 to put a student through Texas A&M today, how much will it cost in 8 years if costs increase at an annual rate of 5%

$118,196 80000(1.05)^8

If it costs $60000 to put a student through Texas A&M today, how much will it cost in 12 years if costs increase at an annual rate of 6%

$120,732

What would be the future value of a CD of $1,000 for two years if the bank offered a 10% interest rate compounded semi-annually? Pick the closest answer

$1216

Suppose Mr. Agirich of Agirich Farms has made a good profit on his cotton this year and wants to put $10000 in a savings account to pay for his son's education. The banks pays 4% compounded annually on money in savings accounts. How much will Mr. Agirich have in his savings account if $10000 is deposited today

$16650.74

If you invest $150 and earn a rate of return of 12%, how much money will you have in 1 year?

$168

If you borrowed $175,000 to buy a house and financed it at 8% annual interest for 25 years, what is your annual mortgage payment assuming that you make equal year-end payments?

$16934 (excel)

$71350

Chad deposits $2000/year at the end of the year into an account for 20 yrs at 6% interest. How much does chad have in his account at the end of 20 years

$73,572

Suppose you can put your money in a savings account that pays 5% compounded annually. How much money would you have in your savings account in 23 years if you invested $2500 today?

$7679 2500(1.05)^23

Suppose you can put your money in a savings account that pays 5%, compounded annually. How much money would you have in your savings account in 23 years if you invested $2500 today?

$7679 FV=2500(1.05)^23

Consider a bond with a Par Value of $1,000. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 10 years. Calculate the market value of the bond if the market rate is 12%.

$770.60

Suppose you buy a truck for $37000 and sell it for $5700 in 5 years. What is the annualized cost (capital recovery) if interest rates are 7%

$8033

Peter has just accepted a job as a stockbroker. He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. His gross pay is received at the end of each year. Calculate the present value of these cash flows, if they are discounted at 4%. Pick the closest answer.

$81517.10 (excel)

As a graduate at 29 from Texas A&M, you will receive a signing bonus of $12000 to go to work for a large investment company. If you save the money until you retire at 65 what would the value be at the time assuming a 12% rate of return?

$709,627 FV=12000(1.12)^36

How many years would it take to at least double your investment in your bank account if you deposited $40,000 today in a bank that pays 5.79% Compounded annually?

How many years would it take before you had $86307 in your bank account if you deposited $25000 today in a bank that pays 10% interest annually

13 years

Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid monthly. It matures in 10 years. Calculate the annual yield on the bond if the price of the bond is $892.66.

14%

How many years would it take before you had $151467 in your bank account if you deposited $35000 today in a bank that pays 9% interest

17 years

What is the rate of return on an investment that costs $225 and promises to return $275 in one years?

22.22% r=275-225/225

How many years would it take to at least double your investment in your bank account if you deposited $30,000 today in a bank that pays 3% Compounded annually?

Suppose Mr. Agirich has made a good profit on his cotton this year and wants to put $10,000 in a savings account for his sons education. The banks pays 4% interest compounded annually on money in savings accounts. How many years will it take for the money to triple ($30,000)?

29 years

What is the yield on an investment that costs $125, and promises to pay $275 in three years?

30.06% (finance calc)

Consider a bond with a Par Value of $1,000. It pays a coupon of 8% and the coupon is paid annually. It matures in 8 years. Calculate the yield on the bond if the price of the bond is $1,091.33.

6.5%

What would you be willing to pay for an annuity that paid you $250 at the end of each of the next 5 years? Assume savings account pays 12% compounded annually.

$901

Parents want to save $250,000 for their child's college education. They plan to make fifteen equal year-end payments and expect to earn an 8 percent annual interest rate. How much will they have to invest annually to accumulate the $250,000?

$9207

Suppose you buy a tractor for $45,000 and sell it for $5,000 in 7 years. What is the annualized cost (capital recovery) if interest rates are 12%?

$9365

Consider a bond with a Par Value of $1,000. It pays a coupon of 7% and the coupon is paid monthly. It matures in 2 years. Calculate the NPV if the yield on the bond is 5% and the price of the bond is $1,100.

-$62.01

When solving for the future value of an amount deposited now, which one of the following factors would not be a part of the calculation?

1 divided by the sum of 1 plus the interest rate

The future value of a $100 ordinary annuity deposited for 10 years at 10% is $614.46

The future value of a single sum can be found with V0=VN(1+r)N. V0 is the present value, VN is the future value in n periods, r is the rate, and n is the number of periods

The future value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant.

The future value will be smaller if the interest rate in a uniform annuity is greater, holding everything else constant.

The future value will be smaller if the number of payments in a uniform annuity is longer, holding everything else constant.

The life cycle effect uses information about past, present, and expected business performance comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions.

The market value of a contract is the future value of the remaining payments of a contract compounded at the market rate

The maturity of debt securities traded in the bond market is less than 1 year

The maturity of debt securities traded in the money market is more than 1 year

The present value is lower if one dollar in the future is discounted annually rather than monthly, holding everything else constant.

The present value of a single sum can be found with Vn=V0(1+r)^n. V0 is the present value, Vn is the future value in n periods, r is the rate, and n is the number of periods

The present value will be greater if the interest rate in a uniform annuity is greater

The present value will be greater if the number of payments in a uniform annuity is shorter

The present value will be smaller if the number of payments in a uniform annuity is longer, holding everything else constant.

The price of a bond goes down as interest rates go down.

The price of bond and the interest rate are positively correlated.

The rate per period is considered as an exchange price between real and inflated dollars

The return provided by a $100 ordinary annuity deposited for 10 years that results in a future value of $1,593.74 is 15%

The secondary market is the part of the capital market that deals with issuing of new securities

The theory of accounting is the concern with how individuals and firms allocate resources through time

The uniform series future value factor [USFV(PV,N)] is based on beginning of period cash flows. With PV being the present value and N being the number of periods.

The uniform series future value factor [USFV(PV,N)] is based on beginning of period cash flows. with PV being the present value and N being the number of periods

The yield on an investment is always equal to the discount rate used to calculate the NPV

With compound interest, interest is earned only on the investments original principle

Yield is calculated as the discount rate that makes the future value of cash inflows equal to the present value of cash outflows

The internal rate of return can also be referred by the following names EXCEPT

Marginal utility of capital

Consider a bond with a Par value of $1000. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 5 years. Calculate the annual yield on the bond if the price of the bond is $960.44

What interest rate would a bank have to pay on a $15000 deposit if you wanted to withdraw $64,915 from your bank account in 17 years? Assuming that interest is compounded yearly

The capital budgeting methods that directly account for the time value of money are

B and C

Budgeting methods are used to evaluate the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, ________ budgets, and capital budgets.

D; cash flow

Finance function comprises

D; procurement and efficient use of funds

_______ is defined as the withdrawal of durable assets from the business.

Disinvestment

Which of the following is not a participant in financial markets?

E; all of the answers are participants individuals, govt, institutional investors, businesses

The four stages that a farm business passes through its life cycle include

E; both a and c establishment and consolidation

A balance sheet can be used to measure the effects of the firms financial performance for a year

A dollar's value today is lessor that when compared to its value tomorrow

A primary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves

Accounting methods are used to evaluate the future directions of a firm

An enterprise budget helps farm owners/managers evaluate the financial effect of incremental changes.

An income statement and a cash flow budget can be used to measure the firm's financial performance at a specific point in time

An investment should always be considered profitable if the total cash inflows are greater than the total cash outflows

An options contract is a contract for the sale of a good at some point in the future at a specified price

Annuity is a series of payment of changing amounts for a specified number of periods

Assuming that an annual interest rate is 6%, an investor would be indifferent between $500 today and $12000 in 55 years

Assuming that an annual interest rate is 8%, an investor would be indifferent between $700 today and $15000 in 55 years from now.

Bond holders are in a residual position in regards to claims on income and assets.

Bonds promise an uncertain payment per period and returns principal

Businesses are net demanders of securities

Capital budgeting is a chronological overview of expected cash income and expenses over a given period of time

Cash flow budgeting is the planning process used to determine whether an organizations long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth the funding of cash through the firms capitalization structure

Compound interest means each time interest is paid, it is added to or compounded into the principal but does not earn interest.

Compounding implies that interest is added to principal and interest is paid on earned interest thereafter

Discounting converts a present amount into a future amount

Efficient markets mean that it is possible to forecast future values of stock prices

Financial management involves the acquisition and use of marketing resources and the protection of debt capital from all kinds of risk

High asset liquidity is one of the structural characteristics of the agricultural production sector

If you have already purchased bonds, you want interest rates on bonds to increase, holding everything else constant.

In the context of profitability, an investment is acceptable if the Net Present Value is zero or less.

Life insurance companies do not make loans to farmers.

Net present value is compensation for foregone investments or consumption

People use money to invest in real and financial goods only

Portfolio risk cannot be reduced with a mix of securities and by investing in stocks with different characteristics

Securities give you the title to underlying real assets only

The Net Present Value represents the investment profit over a zero rate of return on capital.

The USPV factor assumes infinity number of periods

The conversion period is the length of time it takes to retire the principle of a loan

The future value is higher if one dollar today is compounded annually rather than monthly, holding everything else constant.

The future value of $100 deposited today for 10 years at 10% compounded annually is $38.55

Simple interest means only the original principal, or amount of money borrowed earns interest over the life of the transaction

Stock investors are in a residual in regards to claims on income assets

The Market Value of any contract is the present value of the remaining payments discounted at the market rate.

The Net Present Value is an investments profit over the required return to capital

The USPV factor assumes a finite number of periods

The addition of durable assets to a business is known as investment.

The book value of a contract is the future payments of any contract discounted at the contractual rate.

The conversion period is the period of time that the principal accrues interest before interest is added to principal

The first step of the strategic management process is to establish the future direction of the firm and to articulate a mission statement.

The future value is higher if one dollar today is compounded monthly rather than annually, holding everything else constant

The future value of a $100 ordinary annuity deposited for 10 years at 10% is $1,593.74.

The future value of a $100 ordinary annuity deposited for 10 years at 10% is $1593.74

The future value of a single sum can be found with VN=V0(1+r)N. V0 is the present value, VN is the future value in n periods, r is the rate, and n is the number of periods

The future value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.

The impacts of time and risk are important in financial management

The inherent characteristics of agricultural enterprises cause different timings of return.

The present value is lower if one dollar in the future is discounted monthly rather than annually, holding everything else constant.

The present value will be greater if the number of payments in a uniform annuity is longer

The present value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.

The present value will be less if the interest rate in a uniform annuity is greater, holding everything else constant.

The price of a bond and the interest rate are inversely related

The price of bond and the interest rate are inversely related

The price of bond and the interest rate are inversely related.

The price of bonds go up as interest rates go down

The price of bonds goes up as interest rates go down.

The primary market is the part of the capital market that deals with issuing of new securities

The theory of finance is the concern with how individuals and firms allocate resources through time

The withdrawal of durable assets from the business is disinvestment.

With compounded interest each time interest is paid, it is added to or compounded into the principal and earns interest over the life of the load.

Yield is calculated as the discount rate that makes the present value of cash inflows equal to the present value of cash outflows.

a futures contract is a contract for the sale of a good at some point in the future at a specified price

The future value of $100 deposited today for 10 years at 10% compounded annually is $259.37

T 100(1.10)^10

_________ Series is the payment series that their payment and interest rates are equal in each conversion period

Uniform

In future value or present value problems, unless stated otherwise, cash flows are assumed to be

at the end of a time period

A cash flow budget is a chronological overview of cash income and expenses over a given period of time

A partial budget helps farm owners/managers evaluate the financial effect of incremental changes.

Accounting tools consist of the balance sheet, income statement, and cash flow statement.

An enterprise budget is a financial management tool used to project costs and returns for an activity-such as livestock, grain or vegetable production

An income statement is a financial statement that reports a company's financial performance over a specific accounting period

An options contract is a contingent claim. It gives holders the right to buy or sell something at a specific price during a period of time.

Annuity is a series of payments of a fixed amount for a specified number of periods

Assuming that an annual interest rate is 4%, an investor would be indifferent between $1000 today and $3243 in 30 years

Assuming that an annual interest rate is 4%, an investor would be indifferent between $850 today and $2757 in 30 years

Assuming that an annual interest rate is 9%, an investor would be indifferent between $750 today and $6467 in 25 years.

At the start of the accounting period, the firm's beginning balance sheet is the source of current and non current assets

Budgeting methods are used to evaluate the future directions of a firm

Businesses are net suppliers of securities

Capital budgeting is the planning process used to determine whether an organizations long term investment such as new machinery, replacement machinery, new plants, new products, and research development projects are worth the funding of cash through the firms capitalization structure

Compounding converts a present amount into an equivalent future amount

Constant-growth series indicates the payment series experience a constant rate of growth

Discounting converts a future amount into an equivalent present amount

Efficient markets mean that stock prices have adjusted for all information available and there are no sure bargains

Financial management involves the acquisition and use of financial resources and the protections of equity capital from all kinds of risk.

Financing refers to the means of acquiring control of assets: ownership by cash purchase or borrowing or leasing.

Identification of investment opportunities is a crucial function of management.

If you have already purchased bonds, you want interest rates (market rates) on bonds to decrease, holding everything else constant.

In an efficient market, prices are adjusted for information

In general, greater expected profits require greater risk when making financial decisions

In the context of profitability, an investment is acceptable if the Net Present Value is greater than zero.

Information flows are information about past, present, and expected business performance. this information comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions.

Interest is compensation for foregone investments or consumption

Life insurance companies make loans to farmers

Low asset liquidity is one of the structural characteristics of the agricultural production sector

Mutual funds are a pool of funds from investors. These funds are invested in a portfolio of securities

One of the key components of financial investing is that there is no expected high return without bearing high risk

Portfolio risk can be reduced with a mix of securities and by investing in stocks with different characteristics

Proforma statements can be used to create a business plan

Risk and return characteristics of an individual portfolio depend on the individuals risk/return preference

A contract for the sale of a good at some point in the future at a specified price is known as a

futures contract

The trading of debt securities with maturities less than 1 year is the

money market

discounting is the process of finding __________ values

present

The time value concept/calculation used in amortizing a loan is

present value of an annuity

The future value at the end of 11 years of $500 invested today at an interest rate of 8% is

$1165.82 500(1.08)^11

How much interest is gained if $150 is deposited in your bank account at the end of the year for 4 years, assuming 12% compounded annually

$116.90

If you borrow $8000 and pay it back in 9 equal annual payments (principal and interest) at 7% interest. What are the annual payments?

$1,228

If you borrow $12,000 and pay it back in 11 equal annual payments (principal and interest) at 11% interest. What are the annual payments?

$1,934 (excel)

Assume a lender offers you a $25,000, 10%, three-year loan that is to be fully amortized with three annual payments. The first payment will be due one year from the loan date. How much will you have to pay each year? Pick the closest answer

$10,053

Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid semiannually. It matures in 10 years. The market rate is 9%. Calculate the book value of the bond.

$1000

Consider a bond with a par value of $1000. It pays a coupon of 10% and the coupon is paid quarterly. It matures in 5 years. The market rate is 12%. Calculate the book value

$1000

What would you be willing to pay for an annuity that paid you $150 at the end of each of the next 15 years? Assume savings account pays 12% compounded annually

$1022

Suppose that Jim plans to borrow money for an education at Texas A&M University. Jim will need to borrow $20,000 at the end of each year for the next five years (total=$100,000). Jim wishes his parents could pay for his education but they can't. At least, he qualifies for government loans with a reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 2% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, Jim agrees to pay off the loan by borrowing from Longhorn Bank. Longhorn Bank will lend him the money he needs at an annual interest rate of 8%. Jim agrees to pay back the Longhorn Bank with 15 annual payments and the payments will be uniform (equal annual payments including principal and interest). (i) Calculate how much money Jim has to borrow at the end of 5 years to pay off the loan with AggieBank.

$104,081

Suppose that Jim plans to borrow money for an education at Texas A&M University. Jim will need to borrow $25,000 at the end of each year for the next five years (total=$125,000). Jim wishes his parents could pay for his education but they can't. At least, he qualifies for government loans with a reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, Jim agrees to pay off the loan by borrowing from Longhorn Bank. Longhorn Bank will lend him the money he needs at an annual interest rate of 6%. Jim agrees to pay back the Longhorn Bank with 20 annual payments and the payments will be uniform (equal annual payments including principal and interest). ii) Calculate the annual payment Jim must pay to the Longhorn Bank if the first payment is due at the end of the sixth year (one-year after borrowing the money from Longhorn Bank).

$11,118

Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid annually. It matures in 10 years. Calculate the market value of the bond if the market rate is 10%.

$1122.89

Consider a bond with a Par Value of $1,125. It pays a coupon of 8% and the coupon is paid monthly. It matures in 8 years. The market rate is 10%. Calculate the book value of the bond.

$1125

$11350; acceptable

Suppose that Jim plans to borrow money for an education at Texas A&M University. Jim will need to borrow $20,000 at the end of each year for the next five years (total=$100,000). Jim wishes his parents could pay for his education but they can't. At least, he qualifies for government loans with a reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 2% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, Jim agrees to pay off the loan by borrowing from Longhorn Bank. Longhorn Bank will lend him the money he needs at an annual interest rate of 8%. Jim agrees to pay back the Longhorn Bank with 15 annual payments and the payments will be uniform (equal annual payments including principal and interest). (ii) Calculate the annual payment Jim must pay to the Longhorn Bank if the first payment is due at the end of the sixth year (one-year after borrowing the money from Longhorn Bank).

$12160

If you borrow $8,000 and pay it back in 9 equal annual payments (principal and interest) at 7% interest. What are the annual payments?

$1228

If $1,000 were invested now at a 12% interest rate compounded annually, what would be the value of the investment in two years? Pick the closest answer

$1254

If $1,000 were invested now at a 12% interest rate compounded annually, what would be the value of the investment in two years? Pick the closest answer.

$1254

If you borrowed $120,000 to buy a house and financed it at 10 percent annual interest for thirty years, what is your annual mortgage payment assuming that you make equal year-end payments?

$12723 (excel)

Suppose that Jim plans to borrow money for an education at Texas A&M University. Jim will need to borrow $25,000 at the end of each year for the next five years (total=$125,000). Jim wishes his parents could pay for his education but they can't. At least, he qualifies for government loans with a reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, Jim agrees to pay off the loan by borrowing from Longhorn Bank. Longhorn Bank will lend him the money he needs at an annual interest rate of 6%. Jim agrees to pay back the Longhorn Bank with 20 annual payments and the payments will be uniform (equal annual payments including principal and interest). (i) Calculate how much money Jim has to borrow at the end of 5 years to pay off the loan with AggieBank

$127525

(iv)Suppose that after retirement in 40 years, Rich plans to live another 20 years. Rich will use the money he has in the mutual fund to buy a monthly annuity. That is he will give an investor the money in his mutual fund and in turn the investor will promise to pay Rich a fixed monthly amount of principal and interest. How much money will he have to live on each month assuming that the interest rate for the annuity is 5% annually? (hint: Remember that the annuity is monthly so you need to use a monthly rate)

$12898

How much money would you have in your bank account in 20 years if $400 is deposited at the end of the year for the next 20 years? Suppose the savings account pays 5% interest compounded annually

$13,226.38

If you can earn 12% on your money, how much should you pay today for an investment that promises to pay $150 in on year? (market val)

$133.93

If you can earn 12% on your money, how much should you pay today for an investment that promises to pay $150 in one year (Market Value)?

$133.93

$140 1200-(400+660)=140

If you can earn 10% on your money, how much should you pay today for an investment that promises to pay $175 in two years (Market Value)?

$144.63

Olivia borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is: Pick the closest answer.

$1482 (excel)

Suppose Rich Frugal Jones graduates from TAMU and gets a job. Suppose that he has $1,200 in disposable income that he can use to make house and car payments after all other living expenses and this is the way it will be until retirement. Rich decides to buy a new car and he will make a $200/month car payment (assume that this will be his car payment until he retires). He and his wife decide to borrow $80,000 to buy a house. The bank will lend them the $80,000 for 40 years at 6% annual interest rate using a fully amortized loan. Rich will pay back the loan with monthly payments. Rich will invest his monthly disposable income ($1,200 - car payment - house payment) in a mutual fund that promises to pay 8% annually. (Assume that Rich will put this amount in the mutual fund until he retires) (iii)How much will Rich have in his mutual fund at the end of 40 years when Rock plans to retire? Assume the car payment of $400/month is for 40 years.

$1954368

How much money will be in a savings account in 10 years if $1,000 is deposited today and it earns 8% compounded monthly?

$2,229

What is the future value of $750 if it draws interest at 10% compounded annually for 12 years

$2,354

If $2000 is invested today at 6% for 3 years, what is the future value

$2,382

If you invest $200 and earn a rate of return of 10%, how much money will you have in 1 years?

$220

How much money will be in a savings account in 10 years if $1,000 is deposited today and it earns 8% compounded quarterly?

$2208.04

Suppose Mr. Agirich of Agirich farms has made a good profit on his cotton this year and wants to put money in a savings account to pay for his sons education. The bank pays 4% compounded annually on money in the saving account. Suppose Mr. Agirich wants $40,000 in the bank account in 13 years. How much does he need to put into the bank today

$24,022.96 40000(1.04)^-13

$2405598.66

What is the NPV of an investment that costs $175, promises to pay $250 in two years, and the rate of return on comparable investments is 10%.

$31.61

Suppose you plan to replace a tractor in 12 years and it will cost $75000. How much money would you need to put into your savings account at the end of the next 12 years to achieve this goal if the interest rate is 12%

$3108

Rick plans to fund his individual retirement account with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Rick can earn 10% of his contributions, how much will he have at the end of the 10th year?

$31875 2000[((1.1^10)-1/.1]

Suppose Rock Prodigal Jones graduates from TAMU and gets a job. Suppose that he has $1,200 in disposable income that he can use to make house and car payments after all other living expenses and this is the way it will be until retirement. Rock decides to buy a new car and he will make a $400/month car payment (assume that this will be his car payment until he retires). He and his wife decide to borrow $120,000 to buy a house. The bank will lend them the $120,000 for 40 years at 6% annual interest rate using a fully amortized loan. Rock will pay back the loan with monthly payments. Rock will invest his monthly disposable income ($1,200 - car payment - house payment) in a mutual fund that promises to pay 8% annually. (Assume that Rock will put this amount in the mutual fund until he retires) (iv)Suppose that after retirement in 40 years, Rock plans to live another 20 years. Rock will use the money he has in the mutual fund to buy a monthly annuity. That is he will give an investor the money in his mutual fund and in turn the investor will promise to pay Rock a fixed monthly amount of principal and interest. How much money will he have to live on each month assuming that the interest rate for the annuity is 5% annually? (hint: Remember that the annuity is monthly so you need to use a monthly rate)

$3219 (excel)

What is the future value of $1250 if it draws 6% interest compounded annually for 17 years

$3366

With continuous compounding at 10% for 30 yrs, the future value of an initial investment of $2000 is closest to

$34,898 2000(1+(.1/30))^(30*30)

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded quarterly?

$366.48

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded monthly?

$368.11

Suppose Rich Frugal Jones graduates from TAMU and gets a job. Suppose that he has $1,200 in disposable income that he can use to make house and car payments after all other living expenses and this is the way it will be until retirement. Rich decides to buy a new car and he will make a $200/month car payment (assume that this will be his car payment until he retires). He and his wife decide to borrow $80,000 to buy a house. The bank will lend them the $80,000 for 40 years at 6% annual interest rate using a fully amortized loan. Rich will pay back the loan with monthly payments. Rich will invest his monthly disposable income ($1,200 - car payment - house payment) in a mutual fund that promises to pay 8% annually. (Assume that Rich will put this amount in the mutual fund until he retires) (i) Calculate how much money Rich has to pay monthly on his house loan

$440

Consider a bond with a par value of $1,125. It pays a coupon of 8% (annual) and the coupon is paid semiannual. It matures in 10 years. What is the coupon payment?

$45

How much interest is gained if $250 is deposited in your bank account at the end of the year for each of the next 7 years, assuming it draws 8% interest compounded annually

$480.70

How much interest is gained if $250 is deposited in your bank account at the end of the year for each of the next 7 years? Assume 8% interest comp. ann.

$480.70

Suppose Rock Prodigal Jones graduates from TAMU and gets a job. Suppose that he has $1,200 in disposable income that he can use to make house and car payments after all other living expenses and this is the way it will be until retirement. Rock decides to buy a new car and he will make a $400/month car payment (assume that this will be his car payment until he retires). He and his wife decide to borrow $120,000 to buy a house. The bank will lend them the $120,000 for 40 years at 6% annual interest rate using a fully amortized loan. Rock will pay back the loan with monthly payments. Rock will invest his monthly disposable income ($1,200 - car payment - house payment) in a mutual fund that promises to pay 8% annually. (Assume that Rock will put this amount in the mutual fund until he retires) (iii)How much will Rock have in his mutual fund at the end of 40 years when Rock plans to retire? Assume the car payment of $400/month is for 40 years.

$487833

Suppose you can put your money in a savings account that pays 4%. compounded annually. How much money would you have in your savings account in 35 years if you invested $1500 today?

$5,919 FV=1500(1.04)^35

Suppose Rich Frugal Jones graduates from TAMU and gets a job. Suppose that he has $1,200 in disposable income that he can use to make house and car payments after all other living expenses and this is the way it will be until retirement. Rich decides to buy a new car and he will make a $200/month car payment (assume that this will be his car payment until he retires). He and his wife decide to borrow $80,000 to buy a house. The bank will lend them the $80,000 for 40 years at 6% annual interest rate using a fully amortized loan. Rich will pay back the loan with monthly payments. Rich will invest his monthly disposable income ($1,200 - car payment - house payment) in a mutual fund that promises to pay 8% annually. (Assume that Rich will put this amount in the mutual fund until he retires) (ii) How much money can Rich put in the mutual fund monthly after paying the car and house payment?

$560

What is the present value of $1000 that is to be received 5 years from today and interest rates are 12% compounded annually?

$567

Suppose you want to buy a truck for $36,000. You have saved enough money to make a $6,000 down payment. If you borrow the balance, calculate the monthly payments if a bank will lend you the money at 6 percent. The loan must be paid back in uniform payments (fully amortized) over five years and the first payment is due in one month

$579.98 ($632 excel)

Suppose you can put your money in a savings account that pays 4% compounded annually. How much money would you have in your savings account in 35 years if you invested $1500 today?

$5919

The future value at the end of 6 years of $500 invested today at an interest rate of 3% is

$597.03

When you retire, you want to have $875,000 saved. If you plan to retire in 35 years, and you can receive 7% interest annually on a savings account, what is the fixed amount you have to save each year?

$6,330

How much money would you have in your bank account in 12 years if $375 is deposited at the end of the year for each of the next 12 years? Suppose 7% interest compounded annually

$6,708

Suppose that Jim plans to borrow money for an education at Texas A&M University. Jim will need to borrow $20,000 at the end of each year for the next five years (total=$100,000). Jim wishes his parents could pay for his education but they can't. At least, he qualifies for government loans with a reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 2% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, Jim agrees to pay off the loan by borrowing from Longhorn Bank. Longhorn Bank will lend him the money he needs at an annual interest rate of 8%. Jim agrees to pay back the Longhorn Bank with 15 annual payments and the payments will be uniform (equal annual payments including principal and interest). Calculate the total interest Jim must pay because of borrowing money to attend TAMU.

$82396

When you retire, you want to have a million dollars saved. If you plan to retire in 40 years, and you can receive 5% interest annually on a savings account, what is the fixed amount you have to save each year?

$8278 1,000,000/[((1.05)^40)/.05]

Suppose you buy a tractor for $55,000 and sell it for $10,000 in 10 years. What is the annualized cost (capital recovery) if interest rates are 10%?

$8324

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the beginning of each quarter for the next 35 years? Assume that your savings account pays 8% compounded quarterly

$83670.64 ($83329)

Suppose you can put your money in a savings account that pays 7% compounded annually. How much money would you have in your savings account in 27 years if you invested $1350 today?

$8389

$863462

Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid semiannually. It matures in 5 years. Calculate the market value of the bond if the market rate is 15%.

$897.04

Suppose that Jim plans to borrow money for an education at Texas A&M University. Jim will need to borrow $25,000 at the end of each year for the next five years (total=$125,000). Jim wishes his parents could pay for his education but they can't. At least, he qualifies for government loans with a reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, Jim agrees to pay off the loan by borrowing from Longhorn Bank. Longhorn Bank will lend him the money he needs at an annual interest rate of 6%. Jim agrees to pay back the Longhorn Bank with 20 annual payments and the payments will be uniform (equal annual payments including principal and interest). (iii) Calculate the total interest Jim must pay because of borrowing money to attend TAMU.

$97,360

As a graduate at 29 from Texas A&M, you will receive a signing bonus of $12,000 to go to work for a large investment company. If you save the money until you retire at 65 what would the value be at that time assuming a 6% rate of return?

$97,768 12000(1.06)^36

What is the NPV of an investment that costs $150, promises to pay $350 in three years, and the rate of return on comparable investments is 12%

$99.12

Suppose you are considering the purchase of a special livestock trailer for $15,000. It can be financed over five years with no down payment. Calculate the monthly interest rates (yield) if the monthly payments are $350.00

1.18%

What is the yield on an investment that costs $110, and promises to pay $115 in one year?

4.5% r= (115-110)/110

6.85%

What interest rate would a bank have to pay on a $25000 deposit if you wanted to withdraw $56305 from your bank account in 12 years, assuming interest is compounded annually

What interest rate would a bank have to pay on a $25000 deposit if you wanted to withdraw $56305 from your bank account in 12 years? Assuming that interest is compounded yearly

9.8%; acceptable

Assume you can buy a new car, currently selling for $32,000 by putting $2,000 down and making payments of $450 per month for 60 months. What is the annual rate of interest you would be paying?

Consider a bond with a Par Value of $1,000. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 5 years. Calculate the annual yield on the bond if the price of the bond is $960.44.

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over five years. Calculate the monthly interest rates (yield) if the monthly payments are $700.00

The participants in financial markets include

D; all the above institutional investors, govt, individuals (also businesses)

Information flows can be obtained from the financial statements that reports

D; all of the above profitability, liquidity, solvency

If you could buy an investment now and four years later sell it for $27000 what would you be will to buy it for, assuming a 5% discount rate and no other cash flows

C; $22,213

Which one of the following has the larges future value if $1000 is invested today?

C; 8 years with a compound annual interest rate of 8%

The ____________ of a business, agency, household, or another economics unit involves the acquisition and use of financial resources and the protection of equity capital from various sources of risk

C; financial management

The major institutional sources of loan funds for US agriculture include:

D; all of the above life insurance companies govt agencies commercial banks farm credit services

A famous basketball player is awarded a contract that stipulates equal payments to be made monthly over a period of five years. To determine the value of the contract today, you would need to use

Present value of an annuity

A/an ___________ is (generally) a security that promises a fixed periodic payment.

bond

The process of finding PV from future payments is often referred to as ____________. It is the opposite of the ___________ process used to determine future values.

discounting, compounding

The farmer believes that the guidance system will add the value of improved farming, more uniform treatments, less driver skill needed and extended hours of operation. He believes improved yields and reduction in operating costs will increase his profits by $1,000 per year. He plans to keep the Guidance system for 10 years. At the end of 10 years he believes he can sell it for $500. Calculate the market value of this investment if the market rate of return on comparable investments is 12% a.$5,650 b. $5,811 c. $17, 549 d. $18,049 e. None of the above ii. Calculate the Net Present Value if the price of this investment is $4,799 and the farmer's required rate of return is 12% (discount rate) and state if this investment is acceptable. a.-$1,012; Unacceptable b.$5,701; Acceptable c.$1,012; Acceptable d.$5,811; Acceptable e.None of the above iii. Calculate the yield on this investment if the price of this investment is $4,799 and state if this investment is acceptable if the required rate of return is 12%. a.16.7%; Acceptable b.16.2%; Acceptable c.20.8%; Acceptable d.12%; Acceptable e.None of the above iv. After the farmer has used this Guidance system for 10 years, he discovers that the increase in profits was only $900 and the 10 year old guidance system was antiquated and he couldn't sell it. Given he paid $4799 for the guidance system, what was the true yield? a.16.7% b.14.1% c.12.0% d.13.4% e.None of the above

i) a ii) b iii) c iv) d **some wrong

A farmer has been given the opportunity to become a part owner in a local fertilizer business. If the farmer becomes an owner of the fertilizer business, he will receive $4,000 each year from the firm's profits. In addition, the farmer will receive a discount on fertilizer and he believes the discount will reduce his fertilizer costs by $2,000 per year. The farmer plans to retire in 25 years and thinks he can sell his equity in the fertilizer business for $50,000. (i) Calculate the market value of this investment if the market rate of return on comparable investments is 8% a. $28,650 b. $71,350 c. $103,815 d. $68,514 e. None of the above (ii)Calculate the Net Present Value if the price of this investment is $60,000 and the farmer's required rate of return is 15% (discount rate) and state if this investment is acceptable. a.-$31,350; Unacceptable b.$43,815; Acceptable c.$11,350; Acceptable d.$8,514; Acceptable e. None of the above (iii)Calculate the yield on this investment if the price of this investment is $60,000 and state if this investment is acceptable if the required rate of return is 15%. a. 9.8%; Acceptable b.22.9%; Acceptable c.3.53%; Unacceptable d. 15%; Acceptable e. None of the above (iv) After the farmer has purchased part of the fertilizer business, he discovered that the decrease in fertilizer costs per year was only $1,000 per year instead of the $2,000 he was expecting and he only sold the business for $5,000. Given that he paid $60,000 for the business, what was the true yield? a. 8.9% b.8.1% c.15.0% d.6.85% e. None of the above

i) b ii) c iii) a iv) d

A farmer has been given the opportunity to become a part owner in a local fertilizer business. If the farmer becomes an owner of the fertilizer business, he will receive $5,000 each year from the firm's profits. In addition, the farmer will receive a discount on fertilizer and he believes the discount will reduce his fertilizer costs by $2,000 per year. The farmer plans to retire in 20 years and thinks he can sell his equity in the fertilizer business for $60,000. (i) Calculate the market value of this investment if the market rate of return on comparable investments is 15% a. $43,815 b. $47,481 c. $103,815 d. $68,514 e. None of the above (ii)Calculate the Net Present Value if the price of this investment is $30,000 and the farmer's required rate of return is 15% (discount rate) and state if this investment is acceptable. a.-$17,481; Unacceptable b.$13,815; Acceptable c.$17,481; Acceptable d.$47,481; Acceptable e. None of the above (iii)Calculate the yield on this investment if the price of this investment is $30,000 and state if this investment is acceptable if the required rate of return is 15%. a.23.7%; Acceptable b.22.9%; Acceptable c.3.53%; Unacceptable d.15%; Acceptable e. None of the above (iv) After the farmer has purchased part of the fertilizer business, he discovered that the decrease in fertilizer costs per year was only $1,000 per year instead of the $2,000 he was expecting and he only sold the business for $10,000. Given that he paid $30,000 for the business, what was the true yield? a. 23.1% b. 19.21% c. 15.0% d. 19.6% e. None of the above

i)b ii)c iii)c iv) e ***some wrong

Future value is how much a current sum of money will be worth at a future date assuming a certain ________ rate

interest

The basic price that equates the demand and supply for loanable funds in financial markets is the

interest rate

_______ is defined as the addition of durable assets to a business

investment

The primary market is facilitated by

investment banking

An annuity:

is a level stream of equal payments through time

Securities can give title to

real assets and treasury bond

Financial investments can be made by investing money in

real goods and financial goods

The interest rates respond to changes in __________________ for alternative financial assets.

supply and demand

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