fin301 session 16 COPY
6 years ago, you invested $27,500. The investment has grown to $37,600. What is your average rate of return? A) 5.4% B) 2.9% C) 4.6% D) 3.8% E) 1.4%
a
At the beginning of the year, you invested $300 at a rate of 10% compounded annually. At the end of the year, you will have to pay a $12 tax on your investment. What is your tax rate? A) 40% B) 4% C) 30% D) 12%
a
If you invest $3,000 in a start-up and 5 years later your investment is worth $30,000, what was the annual rate of return on this investment? A) 58.5% B) 200.0% C) 64.6% D) 1,000% E) 82.3%
a
If you invest $5,100 a year, what would be the value of this investment at the end of 4 years at an interest rate of 7.75% and a tax rate of 17%? A) $22,454 B) $18,968 C) $19,004 D) $16,986 E) $14,099
a
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) $130.8 C) $224 D) $83.2
a
In an investment, which of the following is taxed? A) Interest earned B) The principal investment C) The future value D) Investments are tax-exempt
a
Megan makes a payment of $44,000 a year on her boat. At the end of 20 years, she's paid off her initial $350,000 loan. What was her approximate annual interest rate? A) 11.0% B) 2.0% C) 39.8% D) 5.4% E) 7.9%
a
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) $3,548,000 B) $350,000 C) $5,348,000 D) $1,547,000
a
What payment would you need to make yearly into your savings account if you wanted $250,000 in 6 years, with a tax-rate of 20% and an average market return of 8.5%? A) $35,126 B) $41,667 C) $6,944 D) $57,133 E) $33,652
a
Your financial adviser tells you about an investment that will return 12% compounded annually. How much would you have to invest today to have $1,000,000 in 6 years? A) $506,321 B) $356,843 C) $689,219 D) $166,667
a
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) Future Value C) Compounded Value D) Total Value
b
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) $105 B) $5.25 C) $5 D) $17.5 E) $175
b
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) $39 C) $30 D) $180 E) $48
b
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) 22 years B) 36 years C) 50 years D) 2 years E) 5 years
b
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) $19,397 C) $5,995 D) $7,650 E) $15,000
b
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) $72.38 B) $77.98 C) $128.40 D) $98.80 E) $68.40
b
If Joe wants to pay cash for a $30,000 car in 3 years, how much does he need to save each year if he can earn a 5% tax-free rate of return? A) $8,536 B) $8,933 C) $9,516 D) $7,209 E) $5,620
c
If you invest $130 today and, in 5 years, you have $200 - what was your annually compounded interest? Ignore taxes. A) 53.85% B) 70% C) 9.0% D) 20%
c
What rate of return is required to have $100,000 in 10 years if you start saving $5,000 a year starting now? A) 62.1% B) 20.0% C) 14.7% D) 9.8% E) 1.4%
c
You invest $150 today and in 5 years you will have $300. Ignoring taxes, what is the annual return on your investment? A) 100% B) 37.5% C) 14.4% D) 50%
c
Your uncle needs $2,300,000 upon retirement in 30 years to live comfortably. He can invest $18,500 a year to his retirement. What interest rate would his investment need to appreciate at in order for him to meet his goals? A) 4.1% B) 13.8% C) 8.5% D) 16.3% E) 11.7%
c
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) $652,500 C) $317,556 D) $429,796 E) $551,724
d
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) $38,803 B) $150,136 C) $26,190 D) $27,295 E) $40,211
d
Randy plans to save $10,000 per month for retirement starting today. If he earns a 10% annual return (tax free), compounded monthly, how much will it be worth in ten years? A) $159,374.25 B) $61,445.67 C) $9,270,806,881.78 D) $2,048,449.79 E) $756,711.63
d
Suppose you win $1,500, approximately how long it will take for your winnings to reach $4,000 in value if your annual investment returns are 10% (tax-free)? A) 72 years B) 7 years C) 15 years D) 10 years E) 5 years
d
What interest rate would you have to earn if you wanted to double an investment in 25 years? A) 11.1% B) 9.2% C) 4.8% D) 2.9% E) 13.7%
d
You invest a certain amount of money at 7% interest compounded annually. If in 8 years you have $103.09, what was your principal investment? A) $40 B) $30 C) $50 D) $60 E) $30
d
Which of the following is true concerning the difference between simple and compound interest? A) Simple interest always leads to a higher ending investment value when compared to compound interest. B) With compound interest, interest is earned only on the original investment whereas with simple interest, interest is earned on interest. C) Simple interest and compound interest always lead to the same ending investment value so there is no difference between the two methods. D) With compound interest, the assumption is that interest earned on the original investment is not reinvested. With simple interest, interest is reinvested. E) 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.
e
You invest $220 at 15% compounded annually. If your tax rate is 30%, what is your after-tax annual rate? A) 33% B) 4.5% C) 15% D) 45% E) 10.5%
e
In an investment, the after-tax return is the product of the interest rate and the tax rate.
false
True or False: If Samantha can earn a 5% tax-free interest rate or pay a 30% tax rate on an 8% return, she should invest in the tax free option because it provides a higher tax-adjusted return.
false
True or False: More frequent compounding is bad for investors because it leads to higher costs and lowers their overall return.
false
You have 24 months left until you graduate and you plan on buying yourself a new $20,000 car on graduation day. If you invest $300 a month for the next 24 months earning 4% a month - will you have enough money? A) No B) Yes
no
True or False: $50 invested at 5% compounded monthly will be worth more in 5 years than $80 invested at 10% compounded annually.
true
True or False: a 10% investment compounded annually has a lower effective annual rate than a 10% investment compounded quarterly. Ignore taxes.
true
