FIN_3610_CH_6_60

44. Island News purchased a piece of property for $1.36 million. The firm paid a down payment of 12 percent in cash and financed the balance. The loan terms require monthly payments for 10 years at an annual percentage rate of 4.75 percent, compounded monthly. What is the amount of each mortgage payment? A. $12,548.18 B. $13,419.97 C. $13,607.11 D. $14,878.15 E. $12,301.16

A. $12,548.18

You are buying a pre-owned car today at a price of $8,500. You are paying $300 down in cash and financing the balance for 36 months at 7.75 percent. What is the amount of each monthly loan payment? A. $256.01 B. $312.23 C. $318.47 D. $265.37 E. $284.40

A. $256.01

51. Racing Engines wants to save $750,000 to buy some new equipment four years from now. The plan is to set aside an equal amount of money on the first day of each quarter starting today. The firm can earn 4.75 percent on its savings. How much does the firm have to save each quarter to achieve its goal? A. $42,337.00 B. $42,969.70 C. $43,192.05 D. $43,419.29 E. $43,911.08

A. $42,337.00

You have been investing $250 a month for the last 13 years. Today, your investment account is worth $73,262. What is your average rate of return on your investments? A. 8.94 percent B. 9.23 percent C. 9.36 percent D. 9.41 percent E. 9.78 percent

A. 8.94 percent

You estimate that you will owe $39,950 in student loans by the time you graduate. The interest rate is 3.75 percent. If you want to have this debt paid in full within 10 years, how much must you pay each month? A. $411.09 B. $399.74 C. $414.28 D. $436.05

B. $399.74

Your car dealer is willing to lease you a new car for $190 a month for 36 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 6.5 percent, what is the current value of the lease? A. $10,331.03 B. $6,232.80 C. $9,197.74 D. $7,203.14 E. $11,008.31

B. $6,232.80

Travis International has a one-time expense of $2.86 million that must be paid three years from now. Since the firm cannot raise that amount in one day, it wants to save an equal amount each month over the next three years to fund this expense. If the firm can earn 2.1 percent on its savings, how much must it save each month? A. $78,416.20 B. $77,037.69 C. $91,300.05 D. $87,411.08 E. $73,901.15

B. $77,037.69

Jogging Gear is considering a project with an initial cash requirement of $238,400. The project will yield cash flows of $4,930 monthly for 65 months. What is the rate of return on this project? A. 9.97 percent B. 11.38 percent C. 14.28 percent D. 13.41 percent E. 10.56 percent

B. 11.38 percent

MBM estimates its expansion cost at $18.63 million and wants it fully funded upfront. Management has decided to save $1.1 million a quarter for this purpose. The firm earns 6.25 percent, compounded quarterly, on its savings. How long does the firm have to wait before expanding its operations? A. 3.09 years B. 3.79 years C. 4.46 years D. 4.82 years E. 4.91 years

B. 3.79 years

You borrow $230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay A. $160,408 B. $147,027 C. $153,524 D. $164,319 E. $141,406

C. $153,524

49. Your great aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,400 on the first day of each year, starting immediately and continuing for 20 years. What is the value of this inheritance today if the applicable discount rate is 6.75 percent? A. $24,890.88 B. $26,311.16 C. $27,677.34 D. $28,909.29 E. $29,333.33

C. $27,677.34

An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn a rate of return of 6.5 percent, what is the most you are willing to pay as a lump sum today to buy this annuity? A. $32,008.24 B. $34,208.16 C. $44,591.11 D. $43,008.80 E. $38,927.59

C. $44,591.11

Your insurance agent is trying to sell you an annuity that costs $50,000 today. By buying this annuity, your agent promises that you will receive payments of $250 a month for the next 20 years. What is the rate of return on this investment? A. 3.75 percent B. 2.47 percent C. 1.88 percent D. 2.45 percent E. 3.67 percent

C. 1.88 percent

The Art Gallery is notoriously known as a slow-payer. The firm currently needs to borrow $25,000 and only one company will loan to them. The terms of the loan call for weekly payments of $500 at a weekly interest rate of .45 percent. What is the loan term? A. 42.5 weeks B. 45.00 weeks C. 56.77 weeks D. 31.65 weeks E. 43.33 weeks

C. 56.77 weeks

Today, you borrowed $6,200 on your credit card to purchase some furniture. The interest rate is 14.9 percent, compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly payments of $120? A. 5.87 years B. 6.40 years C. 6.93 years D. 7.23 years E. 7.31 years

C. 6.93 years

Today, you are retiring. You have a total of $289,416 in your retirement savings. You want to withdraw $2,500 at the beginning of every month, starting today and expect to earn 4.6 percent, compounded monthly. How long will it be until you run out of money? A. 29.97 years B. 8.56 years C. 22.03 years D. 12.71 years E. 18.99 years

D. 12.71 years

53. You are considering an annuity that costs $160,000 today. The annuity pays $17,500 a year at an annual interest rate of 7.5 percent. What is the length of the annuity time period? A. 13 years B. 14 years C. 15 years D. 16 years E. 17 years

D. 16 years

Nadine is retiring today at age 66 and expects to live to age 82. She has $136,000 in her retirement savings account. She is somewhat conservative with her money and expects to earn 6 percent during her retirement years. How much can she withdraw from her retirement savings each month if she plans to spend her last penny on the morning of her death? A. $909.92 B. $847.78 C. $919.46 D. $1,416.08 E. $1,103.56

E. $1,103.56

52. Stephanie is going to contribute $250 on the first of each month, starting today, to her retirement account. Her employer will provide a 50 percent match. In other words, her employer will add $125 to the amount Stephanie saves. If both Stephanie and her employer continue to do this and she can earn a monthly interest rate of .5 percent, how much will she have in her retirement account 25 years from now? A. $336,264 B. $204,286 C. $199,312 D. $268,418 E. $261,172

E. $261,172

You just received an insurance settlement offer related to an accident you had three years ago. The offer provides you with three choices: Option A: $1,500 a month for 6 years Option B: $1,025 a month for 10 years Option C: $85,000 as a lump sum payment today You can earn 7.5 percent on your investments and do not care if you personally receive the funds or if they are paid to your heirs should you die within the settlement period. Which option should you select and why is that option justified? A. Option A: It provides the largest monthly payment. B. Option B: It pays the largest total amount. C. Option C: It is all paid today. D. Option B: It pays the greatest number of payments. E. Option A: It has the greatest value today.

E. Option A: It has the greatest value today.