FIN_3610_CH_6_100

84. You would like to establish a trust fund to provide $140,000 a year forever for your heirs. The expected rate of return is 5.45 percent. How much money must you deposit today to fund this gift? A. $2,568,807 B. $2,521,212 C. $2,600,000 D. $2,458,122 E. $2,500,000

A. $2,568,807

You are paying an effective annual rate of 15.33 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account? A. 14.35 percent B. 13.90 percent C. 14.10 percent D. 13.75 percent E. 14.00 percent

A. 14.35 percent

First City Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.65 percent annual percentage rate on its loans. What is the maximum rate the bank can actually earn based on the quoted rate? A. 7.95 percent B. 8.14 percent C. 8.21 percent D. 7.78 percent E. 7.87 percent

A. 7.95 percent

99. You are going to loan a friend $6,000 for one year at an interest rate of 4.5 percent, compounded annually. How much additional interest could you have earned if you had compounded the rate continuously rather than annually? A. $5.84 B. $.6.17 C. $6.10 D. $5.93 E. $6.28

B. $.6.17

97. What is the effective annual rate of 11.9 percent compounded continuously? A. 12.72 percent B. 12.64 percent C. 13.43 percent D. 12.89 percent E. 12.68 percent

B. 12.64 percent

88. Your credit card company charges you 1.65 percent interest per month. What is the annual percentage rate on your account? A. 18.95 percent B. 19.80 percent C. 20.90 percent D. 21.25 percent E. 21.70 percent

B. 19.80 percent

Your local pawn shop loans money at an annual rate of 23 percent and compounds interest weekly. What is the actual rate being charged on these loans? A. 25.16 percent B. 25.80 percent C. 26.49 percent D. 26.56 percent E. 26.64 percent

B. 25.80 percent

You grandfather invested $20,000 years ago to provide annual payments of $750 a year to his heirs forever. What is the rate of return? A. 4.75 percent B. 3.75 percent C. 4.10 percent D. 4.25 percent E. 4.33 percent

B. 3.75 percent

100. You are borrowing money today at 8.48 percent, compounded annually. You will repay the principal plus all the interest in one lump sum of $12,800 two years from today. How much are you borrowing? A. $9,900.00 B. $10,211.16 C. $10,877.04 D. $11,401.16 E. $11,250.00

C. $10,877.04

81. The government has imposed a fine on JJ's Place. The fine calls for annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including the investment earnings, to help the local community shelter. The government will earn 5.5 percent on the funds held. How much will the community shelter receive four years from today? A. $263,025 B. $236,875 C. $277,491 D. $328,572 E. $285,737

C. $277,491

83. A preferred stock pays an annual dividend of $4.10. What is one share of this stock worth today if the rate of return is 9.68 percent? A. $41.48 B. $41.18 C. $42.36 D. $39.87 E. $42.90

C. $42.36

AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 06-04 How interest rates are quoted (and misquoted). Section: 6.3 Comparing Rates: The Effect of Compounding Topic: Interest rates 92. Your credit card company quotes you an interest rate of 21.9 percent based on annual compounding. Interest is billed monthly. What is the actual rate of interest you are paying? A. 21.90 percent B. 19.21 percent C. 24.24 percent D. 22.57 percent E. 23.72 percent

C. 24.24 percent

Goods Guys Foods established a trust fund that provides $125,000 in scholarships each year for needy students. The trust fund earns a fixed 7.25 percent rate of return. How much money did the firm contribute to the fund assuming that only the interest income is distributed? A. $1,687,450 B. $1,478,023 C. $1,333,333 D. $1,724,138 E. $1,600,000

D. $1,724,138

DLM preferred stock has a 5.8 percent dividend yield. The stock is currently priced at $36.20 per share. What is the amount of the annual dividend? A. $2.30 B. $2.35 C. $2.40 D. $2.10 E. $1.90

D. $2.10

You just paid $750,000 for an annuity that will pay you and your heirs $36,000 a year forever. What rate of return are you earning on this policy? A. 4.75 percent B. 5.10 percent C. 5.33 percent D. 4.80 percent E. 4.72 percent

D. 4.80 percent

What is the effective annual rate if a bank charges you an APR of 8.25 percent, compounded quarterly? A. 8.32 percent B. 8.38 percent C. 8.42 percent D. 8.51 percent E. 8.61 percent

D. 8.51 percent

The banks in your area offer the following rates of interest on their savings accounts. If you want to open one of these accounts, which bank should you select? Bank A: .75 percent APR with daily compounding. Bank B: .85 percent APR with monthly compounding. Bank C: .8725 percent APR with annual compounding. Bank D: .87 percent APR with quarterly compounding. Bank E: .775 percent APR with semiannual compounding. A. Bank A B. Bank B C. Bank C D. Bank D E. Bank E

D. Bank D

What is the effective annual rate of 14.9 percent compounded continuously? A. 15.59 percent B. 15.62 percent C. 15.69 percent D. 15.84 percent E. 16.07 percent

E. 16.07 percent

You are considering five loan offers. The only significant difference between them is their interest rates. Given the following information, which offer should you accept? (Assume a 365-day year.) Offer A: 6.75 percent APR with daily compounding. Offer B: 6.8 percent APR with monthly compounding. Offer C: 7 percent APR with annual compounding. Offer D: 6.825 percent APR with quarterly compounding. Offer E: 6.85 percent APR with semiannual compounding. A. Offer A B. Offer B C. Offer C D. Offer D E. Offer E

E. Offer E