FINAN 450 Exam 2

13) A company has a pension liability of $490,000,000 that it must pay in 27 in years. If it can earn an annual interest rate of 4.5 percent, how much must it deposit today to fund this liability? $131,245,676.31 $149,298,772.80 $142,869,639.05 $121,515,046.67 $47,537,100.25

$149,298,772.80

21) Beatrice invests $1,450 in an account that pays 4 percent simple interest. How much more could she have earned over a 5-year period if the interest had been compounded annually? $24.15 $120.73 $20.32 $28.12 $35.16

$24.15

22) Three years ago you set up a savings account and deposited $1,000. You added another $500 to the account today and plan to deposit $750 on one year. How much will be in the account three years from now if the account years 6% annual interest? $2,776.43 $2,018.11 $2856.73 $2074.71 $2,139.20

$2856.73

15) You plan to save $360 per month starting today for the next 45 years "just to start the month off right." You feel that you can earn an interest rate of 9.8 percent compounded monthly. How much will there be in the account 45 years from today? $2,916,404.13 $3,546,848.00 $3,217,260.42 $3,518,116.72 $3,202,211.73

$3,546,848.00

3) Your grandparents would like to establish a trust fund that will pay you and your heirs $220,000 per year forever with the first payment 8 years from today. If the trust fund earns an annual return of 4.3 percent, how much must your grandparents deposit today? $4,722,719.14 $5,116,279.07 $4,263,565.89 $3,502,639.57 $3,810,342.95

$3,810,342.95

4) Gerritt wants to buy a car that costs $31,000. The interest rate on his loan is 5.67 percent compounded monthly and the loan is for 5 years. What are his monthly payments? $574.75 $607.78 $624.30 $594.57 $591.78

$594.57

19) Myca Corp. has a project with the following cash flows. What is the value of the cash flows today assuming an annual interest rate of 10.3 percent? YearCash Flow 1 $1,880 2 2,390 3 2,745 4 2,755 Multiple Choice $8,356.12 $8,672.90 $6,734.05 $9,770.00 $7,575.81

$7575.81

20) You take out a four year loan for $2,000 at an annual interest rate of 5.0% that is to be paid with equal annual payments of $564.02. How much interest will be paid in the second year? Multiple Choice $52.44 $76.80 $487.22 $100.00 $464.02

$76.80

12) Your parents are giving you $210 a month for 4 years while you are in college. At an interest rate of .49 percent per month, what are these payments worth to you when you first start college? $8,664.09 $8,962.85 $8,514.71 $11,332.94 $8,796.77

$8,962.85

1) Five years from today, you plan to invest $4,750 for 9 additional years at 7.7 percent compounded annually. How much will you have in your account 14 years from today? $9,646.96 $9,764.19 $7,412.89 $9,260.51 $13,418.79

$9,260.51

9) You have just started a new job and plan to save $5,400 per year for 32 years until you retire. You will make your first deposit in one year. How much will you have when you retire if you earn an annual interest rate of 9.26 percent? $933,751.77 $891,711.95 $901,553.44 $893,153.87 $849,672.13

$933751.77

Lucas expects to receive a sales bonus of $7,500 one year from now. The process of determining how much that bonus is worth today is called: aggregating. compounding. simplifying. extrapolating. discounting.

Discounting

23) What is the effective annual rate for an APR of 11.30 percent compounded quarterly? 12.38% 11.90% 11.85% 11.79% 11.31%

11.79%

14) How long does it take to double your money of your account pays 2.4 percent compounded monthly? 187.9 years 29.23 years 28.9 years 346.92 years 350.7 years

28.9 years

8) You made an investment of $8,000 into an account that paid you an annual interest rate of 3.1 percent for the first 5 years and 7.5 percent for the next 10 years. What was your annual rate of return over the entire 15 years? 6.68 percent 4.81 percent 5.30 percent 6.01 percent 5.41 percent

6.01 percent

18) Three years ago, you invested $3,350. Today, it is worth $4,100. What rate of interest did you earn? 5.47 percent 6.97 percent .58 percent 3.49 percent 4.47 percent

6.97 Percent

25) Fifth Fourth National Bank has a savings program which will guarantee you $13,000 in 8 years if you deposit $100 per month. What APR is the bank offering you on this savings plan? 8.37% 7.32% 6.76% 8.51% 8.14%

7.32%

Maxxie purchased a tract of land for $24,500. Today, the same land is worth $43,800. How many years have passed if the price of the land has increased at an annual rate of 6.4 percent? 9.36 years 8.43 years 7.02 years 8.03 years 8.32 years

9.36 Years

For a given payment, number of payments and interest rate, which of the following will have the highest value? It is not possible to know without more information Present value of an annuity due Future value of an annuity due Present value of an ordinary annuity Future value of an ordinary annuity

Future Value of an Annuity Due

Assume all else is equal. When comparing savings accounts, you should select the account that has the: lowest effective annual rate. highest effective annual rate. highest annual percent rate. highest stated rate. lowest annual percentage rate.

Highest effective annual rate

Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount? Paying interest only on the principal amount Paying interest only at the end of the investment period rather than throughout the investment period Increasing the interest rate Shortening the investment time period Paying simple interest rather than compound interest

Increasing as the interest rate decreases

Cindy is taking out a loan today. The cash amount that she is receiving is equal to the present value of the lump sum payment that she will be required to pay two years from today. Which type of loan is this? Amortized Pure discount Compound Interest-only Principal-only

Pure Discount

A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must: must be partially amortized with each loan payment. require the accrued interest be paid in full with each monthly payment. have a zero percent interest rate. charge interest annually. have a one-year term.

charge interest annually.

The present value of a lump-sum future amount: decreases as the time period decrease. is inversely related to the future value. increases as the interest rate decreases. is directly related to the interest rate. is directly related to the time period.

increases as the interest rate decreases.

South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today: - is the same regardless of which bank you choose because they both pay the same rate of interest. - is the same regardless of which bank you choose because the time period is the same for both banks. - will be greater if you invest with South Central Bank. - is the same regardless of which bank you choose because they both pay simple interest. - will be greater if you invest with Northern Bank.

will be greater if you invest with Northern Bank