FINA5170 Chp2 B

Ms. Colonial has just taken out a $150,000 mortgage at an interest rate of 6% per year. If the mortgage calls for equal monthly payments for 20 years, what is the amount of each payment? (Assume monthly compounding or discounting.) $1,074.65 $1,254.70 $1,625.00 $1,263.06

$1,074.65

If the present value of $1.00 received n years from today at an interest rate of r is 0.3855, then what is the future value of $1.00 invested today at an interest rate of r% for n years? $2.594 not enough information is given to solve the problem $1.701 $1.3855

$2.594

John House has taken a $250,000 mortgage on his house at an interest rate of 6% per year. If the mortgage calls for 20 equal, annual payments, what is the amount of each payment? $16,882.43 $24,327.18 $10,500.00 $21,796.14

$21,796.14

What is the present value of a $1,000 per year annuity for five years at an interest rate of 12%? $3,604.78 $6,352.85 $567.43 $2,743.28

$3,604.78

You would like to have enough money saved to receive a growing annuity for 20 years, growing at a rate of 5% per year, with the first payment of $50,000 occurring exactly one year after retirement. How much would you need to save in your retirement fund to achieve this goal? (The interest rate is 10%.) $1,000,000.00 $605,604.20 $425,678.19 $827,431.28

$605,604.20

Mr. Hopper expects to retire in 25 years, and he wishes to accumulate $750,000 in his retirement fund by that time. If the interest rate is 10% per year, how much should Mr. Hopper put into his retirement fund each year in order to achieve this goal? (Assume that he makes payments at the end of each year.) $4,559.44 $7,626.05 $8,418.29 $2,500

$7,626.05

An investment at 10% compounded continuously has an equivalent annual rate of: 10.517%. 10.250%. 10.381%. none of the options.

10.517%.

An investment at 12% APR compounded monthly is equal to an effective annual rate of: 12.36% 12.00% 11.87% 12.68%

12.68%

Mr. Williams expects to retire in 30 years and would like to accumulate $1 million in his pension fund. If the annual interest rate is 12% APR, how much should Mr. Williams put into his pension fund each month in order to achieve his goal? (Assume that Mr. Williams will deposit the same amount each month into his pension fund, using monthly compounding.) $345.30 $437.13 $771.60 $286.13

286.13

If the future value annuity factor at 10% and five years is 6.1051, calculate the equivalent present value annuity factor: 3.7908 6.1051 4.8127 6.7156

3.7908

What is the eight-year present value annuity factor at a discount rate of 11%? 5.7122 11.8594 5.1461 6.9158

5.1461

If the present value annuity factor for 10 years at 10% interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due? 6.1446 6.7590 7.3800 5.7321

6.7590

For $10,000, you can purchase a five-year annuity that will pay $2,504.57 per year for five years. The payments occur at the end of each year. Calculate the effective annual interest rate implied by this arrangement. 9% 8% 10% 11%

8%

In the amortization of a mortgage loan with equal payments, the fraction of each payment devoted to interest steadily increases over time and the fraction devoted to reducing the loan balance decreases steadily. True False

False

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value? Future value of a single payment Present value of a perpetuity Future value of an annuity Present value of an annuity

Future value of an annuity

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in your retirement account to receive this income, if the interest rate is 9% per year? (Assume that the payments start on the day of your retirement.) $2,043,750.21 $1,427,831.93 $736,693.47 $802,995.88

PV = [[(1/0.09) - (1/((0.09)(1.09^25)))] × 75,000] × (1.09) = 802,995.88. Alternatively, [(75,000/.09) × [1 - (1/(1.09^25)]] × (1.09) = 802,995.88.

One can find a project's net present value by subtracting the present value of its required investment from the present value of its future cash flows. True False

TRUE

The rate of return, discount rate, hurdle rate, and opportunity cost of capital all have the same meaning. True False

TRUE