Finance Exam Two

You have an annuity of equal annual end-of-year cash flows of $500 that begin two years from today and last for a total of ten cash flows. Using a discount rate of 4%, what are those cash flows worth in today's dollars.

$3899.47

Reginal is about to lease an apartment for the year. The landlord wants him to make the lease at the start of the month. The twelve monthly payments are $1300 per month. The landlord says he will allow Reginal to prepay the rent for the entire year of the discount. The one-time annual payment due at the beginning of the lease is $14,778. The implied monthly discounts rate for the rent is ____. If Reginal is earning 1.5% on his savings monthly, he should make ____.

1%; monthly payments

What is the total future value to the nearest dollar, six years from now of $80 received in one year. $300 received in two years, and $700 received in six years if the discount rate is 7%?

1,205

How much more is a perpetuity of $1,000 worth than in annuity of the same amount for 20 years? Assume a 10% interest rate and cash flows at the end of a period. (round to the nearest cent)

1,486.44

How much more is a perpetuity of 1,000 worth than an annuity of the same amount for 20 years? Assume a 10% interest rate and cash flows at the of period

1,486.44

This question is like SUPER long so i'm going to type out like the first 2-3 sentences. You and your best friend are both 20 years old recently graduated from NIU to start well-paid jobs in Chicago. Since you have taken Dr.Zhous FINA 320, you decide to save for retirement as early as possible.

1,688,869.84

Assume you invested $1,000 in stocks 10 years ago, and that your account is now worth $2,839.42. Determine the annual rate of return that you have earned on this investment.

11%

ssume you invested $1000 in stocks 10 years ago, and that your account is now worth $2839.42. Determine the annual rate of return that you have earned on this investment.

11%

Kevin would like to increase the balance of his savings account by 300%. If the interest rate on the bank account is 12% approximately how long would it take to achieve kevins goal

12 years

Kevin would like to increase the balance of his savings account by300% (for example, increase from $1 to $4). If the interest rate on the bank account is 12%, approximately how long would it take to achieve Kevin's goal? (round to the closest year)

12 years

What is the total future value, to the nearest dollar, six years from now of $80 received in one year, $300 received in two years, and $700.00 received in six years if the discount rate is 7%? (Round to the nearest dollar)

1205

With one point $1.5 million in an account expected to earn 8% annually over the retirees 30 years of life expectancy, what annual annuity can be withdrawn, beginning today? (round to the nearest dollar).

123,371

Imprudential Inc. has an unfunded liability of $650 million that must be paid in 20 years. To assess the value of the firm's stock financial analysts want to discount this liability back to preset. If the relevant discount rate is 8.5% what is the present value of this liability?

127.15 million

Julian was given a gold coin originally purchased for $1 by his great grandfather 50 years ago. Today the coin is worth $450. The rate of return realized on the sale of this coin is approximately equal to:

13%

If you earn 5.25% per year on your investments, how long, exactly, will it take to double your money? (hint: do not use the Rule of 72)

13.55

If you can earn 5.25% per year on your investments, how long exactly, will it take to double your money?

13.55 years

The monthly mortgage payment on your house is 821.69. It is a 30 year mortgage at 6.5% annual interest rate, compounded monthly. How much did the you borrow

130,000

How much will be accumulated in an account with an initial deposit of $100, an which earns 10% interest compounded quarterly for three years? (round to the nearest cent)

134.49

Approximately how long must one wait for an initial investment of $1,000 to triple in value if the investment earns 8% compounded annually?

14 years

You are going to withdraw $5,000 at the end of each year for each year for the next four years from an account that pays interest at a rate of 9% compounded annually. How much must there be in the account today in order for the account to reduce a balance of zero after the last withdrawal?

16,198.60

Your uncle has agreed to deposit $3,000 into your brokerage account at the beginning of each of the next five years ( T = 0, 1, 2, 3 and 4 ). You estimate that you can earn 9% year on your investments. How much will you have in your account right after the last deposit is made? (assume that no money is withdrawn from the account)

17,954.13

Marie has a $1,000,000 investments portfolio, and she wishes to spend $87,500 per year as an ordinary annuity. If the investment account earns 6% annually. How long will her portfolio last?

19.86

Harry decided he was tired of being a poor college student when he visited a local electronics store and experienced its finest home theater system. He determined that he would invest a portion of the remaining money he earned last summer cleaning animal cages at the veterinary clinic. He plans to invest the money into an international mutual fund for 3.5 years and expects to earn an average annual rate of return of 15%. If harry wants to have 4,000 in the account at the end of this time, how much must he invest today

2,435 (typo;actually 2453)

Kant Miss Company is promising its investors that it will double their money every three years. If you invest $250 now and Kant Miss is able to deliver on its promise, how long will it take your investment to reach $32,000? Round your answer to the nearest year. Use the rule of 72.

21

Your credit card balance of $3,000. The bank requires monthly payment of $64.90 and states that it will take 100 months to pay off the balance if you only make minimum payment every month and do not make additional charges on the card, What is the annual interest rate charged by your credit card?

21.60

How much interest can be accumulated in two years on a $1,000 deposit paying annual rate of 10% compounded monthly?

220

How much interest can be accumulated in two years on a $1000 deposit paying annual interest rate of 10%, compounded monthly? (round to the nearest dollar).

220

You expect to receive $10,000 at graduation in 2 years. You plan on investing it at 12% until you have $120,000. How long will you wait from now? Round your answer to the nearest year.

23.93, HW 2 Q12

Harry decided he was tired of being a poor college student when he visited a local electronics store and experienced its finest home theater system. He determined that today he would invest a portion of their meaning money he earned last summer cleaning animal cages at the veterinary clinic. He plans to invest the money into an international mutual fund for 3.5 years and expects to earn an average annual rate of return a 15%. If Harry wants to have $4000 in the account at the end of this time how much must he invest today? (round your answer to the nearest dollar)

2453

The furniture store offers you no money down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end of the year payments of $1,000 each with the first payment to be made one year from today. If the discount rate is 6% what is the present value of furniture payments?

2673.01

You are considering buying a new car. The sticker price $15,000 and you have $2,000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 10 percent and you wish to pay for the car over a 5 year period. What are your monthly car payments?

276.21

You are considering buying a new car. The sticker price is $15,000 and you have $2000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 10% and you wish to pay for the car over a five year., what are your monthly payments?

276.21

You receive a credit card application from shady bank and loan offering an introductory rate of 2.90 percent per year, compounded monthly for the first six months, increasing thereafter to 15 percent compounded monthly. Assuming you transfer the 3,000 balance from our existing credit card and make no subsequent payments, how much interest will you own at the end of the first year

279.30

What is the present value of a four year annuity of $100 per year that begins two years from today if the discount rate is 9%? ( round to the nearest cent ).

297.22

What is the present value of a four-year annuity of $100 per year that begins 2 years from today if the discount rate is 9%?

297.22

Jack and Jill are saving money for a rainy day and decide to put 50$ away in their local bank every year for the next twenty-five years. The local Up-the-Hill-Bank will pay them 7% on their account. If Jack and Jill put their money in the account faithfully at the end of every year how much will they have in it at the end of twenty five years?

3,162.5

How much must be invested today in order to generate a 5 year annuity of 1,000 per year, with the first payment 1 year from today, at an interest rate if 12%

3,604.78

Assume the total expense for your current year in college equals $20,000. Approximately how much would your parents have needed to invest 21 years ago in an account paying 8% to cover this amount?

3,973

You have $100,000 to invest.Your bank offers a one-year certificate of deposit with a stated rate of 3.50% computed quarterly. What rate compounded semiannually would provide you with the same amount of money at the end of one year?

3.515

You have 100,000 to invest. Your bank offers one-year certificates of deposit with a stated rate of 3.50% compounded quarterly. What rate compounded semiannually would provide you with the same amount of money at the end of one year

3.515

Approximately how much should be accumulated by the beginning of retirement to provide a $2,500 monthly check that will last for 25 years, during which time the fund will earn 8% interest with monthly compounding?

323,900.00

How much must be saved annually, beginning 1 year from now, in order to accumulate 50,000 over the next 10 years, earning 9% annually?

3291

Your goal is to have $1 million when you retire at the age of 65. You plan to invest $10,000 every year (at the beginning of each year) and your financial advisor estimates that your annual rate of return will be 8.28%. At what age should you start to invest for your retirement?

37 years

Given the following cash flows, what is the future value at year six when compounded at an interest rate of 8.0%?

38,955.39

Given the following cash flows, what is the future value at year six when compounded at an interest rate of 8.0%? Year 0: 5000, Year 2: 7000 Year 4: 9000, Year 6: 11000

38,955.39

You are interested in saving money for your first home. Your plan is to make regular deposits into a brokerage account that will earn 14 percent. Your first deposit of $5,000 will be made today. You also plan to make four additional deposits at the beginning of each of the next four years. Your plan is to increase your deposits by 10 percent a year. (That is you plan to deposit $5,500 at t=1 and $6,050 at t=2, ect.) How much money will be in your account right after the last deposit is made?

39,363

Rasputin, Inc. has identified an investment project with the following cash flows. If the discount rate is 8 percent, what is the future value at a discount rate of 11 percent? Year 1: 900 Year 2: 1,000 Year 3: 1,100 Year 4: 1,200

4,688.14

The present value of $100 to be received 10 years from today, assuming an opportunity cost of capital of 9 percent is?

42

A local government is about to run a lottery, but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust (probably a local bank) to pay the annual payments. The first winner of the lottery chooses the annuity and will receive 150,000 a year for the next twenty-five years. The local government will give the trust 2,000,000 to pay for this annuity. What investment rate must the trust earn to break even on this arrangement

5.56

You finance your college education with student loans. Every month, you borrow $1,000 to pay forliving expenses. While in college you do not have to pay interest on the loan, nor do you need to pay back any loan principal. However, the interest occurs to your loan balance. Assume an annual interest rate of 6% on your student loan, what will be your loan balance when you graduate in four years?

54,098

After winning the lottery you state you are indifferent between receiving twenty $500,000 end of the year payments or a lump sum of $5,734,961 today. What interest rate are you using in your decision making process such that you are indifferent between the two choices?

6%

After winning the lottery, you state that you are indifferent between receiving 20 $500,000 end of the year payments (first payment one year from today) , or a lump sum of $5,734,961 today. What interest rate are you using in your decision-making process such that you are indifferent between the two choices?

6%

Your employer has agreed to place year-end deposits of 1,000, 2,000, and 3,000 into your retirement account. The 1,000 deposit will be one year from today, the 2,000 deposit two years from today, and the 3,000 deposit three years from today. If your account earns 5% per year, how much money will you have in the account at the end of year three when the last deposit is made

6,202.50

Your car loan requires payment of $200 per month for the first year and payments of $400 per month during the second year. The annual interest rate is 12% and payments begin in one month. What is the present vale of this 2-year loan?

6,246.34

What is the present value of receiving 100 monthly for two years, followed by 200 monthly for the next three years, payment? Assuming that the annual interest is 13%, compound monthly

6,687

Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year. The annual interest rate is 12% and payments begin in one month. What is the present value of this 2-year loan? (Round to the nearest cent)

6246.34

You plan to save $650 per year for the next eight years. If your bank offers you an annual interest rate of 10%, how much money (round to the nearest dollar) will you have at the end of year 8? Assume each cash flow is deposited into your account at the end of the year.

7,433

You plan to save 650 per year for the next 8 years. If your bank offers you an annual interest rate of 10% how much money will you have at the end of year 8

7,433

Assume that you just bought a house and took out a 30 year mortgage loan of 225,000 and must make monthly payments of $1,527.28. Given this information, determine the annual interest rate on your mortgage.

7.20%

You own a bond issued by the Canadian Pacific railroad that promises to pay the holder $50 annually forever. You plan to sell the bond 10 years from now. If similar investments yield 7% at that time, how much will the bond be worth in year 10 when you try to sell it?

714.29

Assume you are to receive a 20 year annuity with annual payments of $50. The first payment will be received at the end of year 1 and the last payment will be received at the end of year 20. You will invest each payment in an account that pays 10 percent. What will be the value in your account at the end of year 30?

7428

Assume that a 10 year regular annuity has a present value of 3,755.50 when evaluated at an interest rate of 0%. Determine the interest rate that would give this same annuity a future compound value of 5,440 at year 10

8%

Marty received an offer for an injury settlement of $10,000 payable in three years. He wants to know what the present value of the injury settlements is if his opportunity cost is 5% (the opportunity cost is the interest rate in this problem period) Round to the nearest dollar.

8,638

Assume that you have taken out a 30-year mortgage of $240,000 in that your monthly payments are $1853.90. What is your annual interest rate on the mortgage loan? (find the closest answer)

8.55%

How much interest is earned in just the third year on a 1,000 deposit that earns 7% interest compounded annually

80.14

You have just made your first $2000 contribution to your individual retirement account. Assuming you earn a 9% rate of return and make no additional contributions, what will your account be worth when you retire in 45 years? Round your answer to the nearest dollar. (NOTE: do NOT include the dollar sign in your answer.)

96,654.5

You have just made your first 2,000 contributions to your individual retirement account. Assuming you earn a 9% rate of return and make no additional contributions, what will your account be worth when you retire in 45 years? Round your answer to the nearest dollar.

96,654.50,HW 2 Q7

Your company just sold a product with the following payment plan: $50,000 today, 25,000 next year, and $10,000 the following year. If your firm places the payments into an account earning 10% per year, how much will be in the account after collecting the last payment

98,000

A stream of equal cash payments lasting forever is termed.

A perpetuity

Which of the following will result in a future value of greater than 100

All of the future values are greater than 100

Which of the following statements is most correct

All of the statements above are correct

The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate. By approximately how much would the value change if these annuities are due?

An increase of $61

The present value of an annuity stream of 100 per year is 614 when valued at 10% rate. How much would the value change if these were annuities due

An increase of 61

Marie is 65 years old and ready to retire. She has a 1 million nest egg and wishes to spend 90,000 per year as an ordinary annuity. If her investment portfolio earns 6% annually, at what age will she run out of money

Around 84 years old

Which of the following factors is fixed and thus cannot change for a specific perpetuity?

Cash payment of a perpetuity

Skippy had been offered two alternative payment options to pay for his new speed boat. Alternative 1 involves an initial payment of $3,000 and monthly payments of $250 for 3 years. Alternative 2 involves $0 initial payment but monthly payment of $500 for 2 years. For both alternatives, the first monthly payment occurs at the end of the month 1. Assume the relevant discount rate is 9% annual interest compounded monthly. In today's dollars, alternative 1 is:8

Cheaper by about $83

Two mutual fund managers, Martha and David, have been discussing whose fund is the top performer. Martha states that investors bought shares in her mutual fund ten years ago for $21 and those shares are now worth $65. David states that investors bought shares in his mutual fund for only $3 six years ago and they are now worth $7.30 which mutual fund manager had the higher growth rate for the management period?

David's Fund, HW Q10

Two mutual fund managers, Martha and Dave, have been discussing whose fund is the top performer. Martha states that investors bought shares in her mutual fund 10 years ago for $21 and those shares are now worth $65. David states that investors bought shares in his mutual fund for only $3 six years ago and they are now worth $7.30 which mutual fund manager had the higher growth rate 4 the management period?

Davids fund

Which of the following actions will increase the present value of an investment

Decrease the interest rate

To determine the present value of a future amount, one should _____ the future cash flows.

Discount

The present value of a perpetuity can be determined by

Dividing the payment by the interest rate

What is the present value of a stream of annual end of the year annuity cash flows if the discount rate is 0% and the cash flows of $50 lasts for 20 years?

Exactly 1000

Which of the statements in INCORRECT?

If the discounted (or interest) rate is positive, the future value of an annuity due will always be less than the future value of an equivalent regular annuity, and the present value of an annuity due will always be less than the present value of an equivalent regular annuity.

Assume that you deposit 1,250 at year 0 and that the annual interest rate is 6.482% compounded quarterly. Given the information, determine what your balance will be at year 38

None of the above

The State of Confusion wants to change the current retirement policy for the state employees. To do so, however, the state must pay the current pension fund members the present value of their promised future payments.There are 240,000 current employees in the state pension fund. The average employee is twenty-two years away from retirement, and the average promised future retirement benefit is $400,000 per employee. If the state has a discount rate of %5 on all its funds, how much money will the state have to pay to the employees before it can start a new pension plan?

None of the above

Your subscription to jogger's world monthly is about to run out and you have the choice of renewing it by sending in the $10 a year regular rate or of getting a lifetime subscription to the magazine by paying $100. Your cost of capital is 7%. How many years would you have to live to make the lifetime subscription the better buy? Payments for the regular subscription are made at the beginning of each year. (round up if necessary, to obtain a whole number of years.)

None of the above

The concept of compound interest refers to

Payment of interest on previously earned interest

The concept of compound interest refers to:

Payment of interest on previously earned interest

The main variable of the TVM equation are:

Present value, future value, time, interest rate, and payment

Which is greater, the present value of 1,000 five-year ordinary annuity discounted at 10% or the present value of a 1,000 five-year annuity due discounted at 10%

The PV of annuity due is worth 379.08 more

A two year investment of $3,500 is made today at an annual interest rate of 5.75%. Which of the following statements is true?

The future value would be greater if the interest rate was higher

A two year investment of $3500 is made today at an annual interest rate of 5.75% which of the following statements is true?

The future value would be greater if the interest rate was higher

A two-year investment of 3500 is made today at an annual interest rate of 5.75%. Which of the following statements is true?

The future value would be greater if the interest rate was higher

Which of the following is not an example of annuity cash flows

The grocery bill that changes every week

Under which of the following conditions will a future value calculated with simple interest exceed a future value calculated with compound interest at the same rate

This is not possible with positive interest rates

A stream of equal cash payments lasting forever is termed:

a perpetuity

Which of the following is not an example of annuity cash flows?

all of the examples above are annuity cash flows

The future value of one dollar in five year *blank* as the interest rate increases

increases

Under which of the following conditions will a future value calculated with simple interests exceed a future value calculated with compound interest at the same rate?

this is not possible with positive interest rates