Finance 320F Unit 2

The most recent census for a city indicated that there were 919,716 residents. The population of the city is expected to increase at an annual rate of 3.7 percent each year for the next 13 years. What will the population be at that time?

1,474,951

You want to have $19,000 in 7 years for a dream vacation. If you can earn an interest rate of .3 percent per month, how much will you have to deposit today?

$14,773.22

George Jefferson established a trust fund that will provide $221,500 per year in scholarships. The trust fund earns an annual return of 3.8 percent. How much money did Mr. Jefferson contribute to the fund assuming that only income is distributed?

$5,828,947.37

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 10.7 percent?

$7,873.25

Your credit card company charges you 1.31 percent per month. What is the EAR on your credit card?

16.90%

Fifth Fourth National Bank has a savings program which will guarantee you $15,500 in 13 years if you deposit $80 per month. What APR is the bank offering you on this savings plan?

3.25%

Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value?

4 percent interest, compounded annually

A prominent alumnus of your university has just donated $1,900,000 to fund a scholarship that will distribute $77,000 per year forever beginning in one year. For this to be true, what rate of return is expected on the donation?

4.05%

You made an investment of $10,500 into an account that paid you an annual interest rate of 2.2 percent for the first 5 years and 6.6 percent for the next 9 years. What was your annual rate of return over the entire 14 years?

5.01 percent

Jenny needs to borrow $5,500 for four years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?

6.5 percent simple interest

Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years:

Kurt will have a larger account value than Stacey will.

Realization Principle

Revenue is realized when services are rendered to customers or when goods sold are delivered to customers.

Jessica invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested?

She could have the same future value and invest less than $2,000 initially if she could earn more than 6.5 percent interest.

Cost Principle

acquired assets and services should be recorded at their actual cost.

Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the:

future value.

The future value of a lump-sum investment will increase if you:

increase the time period

All else held constant, the future value of a lump-sum investment will decrease if the:

interest is changed to simple interest from compound interest.

The accrual method

revenue is recognized (recorded) when earned, and expenses are recognized when incurred.