Finance 301 Online Assignment 16 (Exam 2)

Jim wants to buy a $500,000 house, he already has $10,000 saved. Assuming a 10% annual return and a 30% tax rate, how much will Jim need to save per year to have a 20% down payment in 3 years? a.) $27,295 b.) $26,190 c.) $38,803 d.) $40,211 e.) $150,136

a.) $27,295

If you invest $640 at rate of 13% compounded annually and your tax rate is 35%, what is your after-tax interest earned? a.) $54.08 b.) $83.2 c.) $130.8 d.) $224

a.) $54.08 fv with tax - $640 (initial amount you invested)

You invest $150 today and in 5 years you will have $300. Ignoring taxes, what is the annual return on your investment? a.) 14.9% b.) 37.5% c.) 50% d.) 100%

a.) 14.9%

If you invest $130 today and, in 5 years, you have $200 - what was your annually compounded interest? Ignore taxes. a.) 9.0% b.) 20% c.) 53.85% d.) 70%

a.) 9.0%

On January 1 of this year, you invested $350 at a rate of 5% compounded annually. If your tax rate is 30%, what will the tax on your investment be at the end of the year? a.) $5 b.) $5.25 c.) $17.5 d.) $105 e.) $175

b.) $5.25 how much you make without tax - how much you make with tax

You invest $220 at 15% compounded annually. If your tax rate is 30%, what is your after-tax annual rate? a.) 4.5% b.) 10.5% c.) 15% d.) 33% e.) 45%

b.) 10.5%

If you had the option of $2,000 in 5 years or $1,000 today, you would take the money today if your expected return was greater than: a.) 20.0% b.) 14.9% c.) 1.5% d.) 10.0% e.) 23.5%

b.) 14.9% if the return rate was 14.9% it would take you less than 5 years to double your money

Suppose when you turn 25, you begin depositing $3500 every year into a retirement fund that earns 13% (tax-free) interest compounded annually. How much money will you have in your fund when you turn 65? (Round to the nearest thousand) a.) $350,000 b.) $1,547,000 c.) $3,548,000 d.) $5,348,000

c.) $3,548,000

On January 1 of this year, you invested $600 at a rate of 5% compounded quarterly. If your tax rate is 30%, what will the tax on your investment be at the end of the year? (rounded to the nearest dollar) a.) $5 b.) $30 c.) $39 d.) $48 e.) $180

c.) $39 how much you make without tax - how much you make with tax

If your $325 investment collects simple interest of 10%, how much will it be worth in 6 years? a.) $32.50 b.) $60 c.) 520 d.) 566.90

c.) 520 325x.10=32.5 32.5x6=195 195+325=520

Jack puts $100 into a savings account that earns 5% (tax-free) interest compounded annually. The amount that Jack will have in the account in 5 years is known as: a.) Present Value b.) Compounded Value c.) Future Value d.) Total Value

c.) Future Value

Which of the following is true concerning the difference between simple and compound interest? a.) With compound interest, interest is earned only on the original investment whereas with simple interest, interest is earned on interest. b.) Simple interest always leads to a higher ending investment value when compared to compound interest. c.) With simple interest, interest is earned only on the original investment whereas with compound interest, interest is earned on both the original investment and the accumulated interest. d.) With compound interest, the assumption is that interest earned on the original investment is not reinvested. With simple interest, interest is reinvested. e.) Simple interest and compound interest always lead to the same ending investment value so there is no difference between the two methods.

c.) With simple interest, interest is earned only on the original investment whereas with compound interest, interest is earned on both the original investment and the accumulated interest.

What is the future value of kicking a smoking habit twenty years from now? Assume $5 a pack per day and an interest rate of 10%. a.) $287 b.) $36,500 c.) $40,150 d.) $104,527 e.) $254,600

d.) $104,527

You buy a stock at $60 / share expect to earn a 14% return for the next 2 years, what do you expect the stock price will be in two years? a.) $98.80 b.) $72.38 c.) $68.40 d.) $77.98 e.) $128.40

d.) $77.98 60 x 1.14^2 = 77.9760

The current return on a 10-year U.S. Treasury note is 2%. If you were to invest today and assuming that rate stays fixed indefinitely, how long would it take you to double your investment? Ignore taxes. a.) 2 years b.) 5 years c.) 22 years d.) 36 years e.) 50 years

d.) 36 years 72/2

Travis took out a $225,000 home mortgage with 3.4% interest rate and equal annual payments. How much will he have to pay annually to repay the loan in 15 years? a.) $9,084 b.) $7,650 c.) $5,995 d.) $15,000 e.) $19,397

e.) $19,397

If you invest $15,000 today at a rate of 8.75% (tax-free), how much will it be worth 40 years from now? a.) $118,613 b.) $317,556 c.) $551,724 d.) $652,500 e.) $429,796

e.) $429,796

What interest rate would you have to earn if you wanted to double an investment in 25 years? a.) 9.2% b.) 13.7% c.) 11.1% d.) 4.8% e.) 2.9%

e.) 2.9%

true or false: Dan puts $100 into a savings account that earns 5% (tax-free) interest. In 5 years, he has $105 in the account. Dan earned compounded interest on his principal investment.

false

true or false: In an investment, the after-tax return is the product of the interest rate and the tax rate.

false