FIN EXAM 2 (CHP 5)
Freya plans to invest $3,200 a year for 25 years starting at the end of this year. How much will this investment be worth at the end of the 25 years if she earns an average annual rate of return of 8.2 percent?
$240,885.11
How much money does Yvette need to have in her retirement savings account today if she wishes to withdraw $36,000 a year for 30 years? She expects to earn an average rate of return of 8.25 percent.
$395,904.99 (I keep getting some #s off)
Karley's setting aside $32,000 each quarter for the next three years for an expansion project. How much money will the firm have at the end of the three years if it can earn an average of 5.45 percent on its savings?
$414,123.86
Moonlight Industries just signed a sales contract with a new customer. JK will receive annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the firm earns 3.75 percent on its savings?
$424,786.07. (For these longer non CF problems, we calcluate for FV, leave PMT as 0, and put N as one less than the amount of years each time (3,2,1,0)
(i get this one a little off) What is the future value of $25 a week for 40 years at 8.5 percent interest? Assume the first payment occurs at the end of this week.
$441,710.03
???? Tiger Trucking Company is considering a project that will produce cash inflows of $18,000 at the end of Year 1, $32,000 in Year 2, and $45,000 in Year 3. What is the present value of these cash inflows at a discount rate of 9 percent?
$78.195.78
How to solve annuity due?
(1+r) times (regular annuity)
Sporting Goods charges .85 percent interest per month. What rate of interest are its credit customers actually paying?
10.69
You want to buy a new sports car from Roy's Cars for $51,800. The contract is in the form of a 48-month annuity due at an APR of 7.8 percent, compounded monthly. What would be your monthly payment?
1251.6
Dixie's Markets offers credit to its customers and charges interest of 1.2 percent per month. What is the effective annual rate?
15.39%
What is the effective annual rate of 14.9 percent compounded quarterly?
15.75
City Loans wants to earn an effective annual return on its consumer loans of 18.9 percent per year. The bank applies daily compounding. What interest rate is the firm required by law to report to potential borrowers?
17.32
Kate plans to save $100 a month, starting today, for 20 years. Jane plans to save $100 a month for 20 years, starting one month from today. Both Kate and Jane expect to earn an average return of 5.5 percent on their savings. At the end of the 20 years, Kate will have approximately _________blank more than Jane.
299.66
the going rate on student loans is at 9% apr, the terms say they must be monthly, so what is the EAR?
2nd #2 9.3807
How to calculate EAR?
2nd, then press #2, then put I/Y, then two down and put how much per year then cpt EFF
tandards Life Insurance offers a perpetuity that pays annual payments of $12,000. This contract sells for $250,000 today. What is the interest rate?
4.8
You want to borrow $3,600 for 36 months and can afford monthly payments of $110, but no more. Assuming monthly compounding, what is the highest APR rate you can afford?
6.29
Industrial Tools owes you $38,600. This amount is seriously delinquent, so you have offered to accept weekly payments for one year at an interest rate of 6.24 percent to settle this debt in full. What is the amount of each payment?
766.15
What is the effective annual rate of 8.25 percent compounded quarterly?
8.51
Uptown Insurance offers an annuity due with semiannual payments for 20 years at 6 percent interest. The annuity costs $200,000 today. What is the amount of each annuity payment?
8400.46
The manager of Furniture For Less has approved Mac's application for 36 months of credit with maximum monthly payments of $32. If the APR is 20.2 percent, what is the maximum initial purchase that Mac can buy on credit?
858.7
Which statement is true? Multiple Choice An annuity with payments at the beginning of each period is called an ordinary annuity. All else equal, an ordinary annuity is more valuable than an annuity due. All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity. All else equal, a decrease in the number of payments increases the future value of an annuity due. All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity.
All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.
Letitia borrowed $6,000 from her bank two years ago. The loan term is four years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have? Multiple Choice Pure discount Amortized Blended discount Complex Interest-only
Amortized
Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms? Multiple Choice Annuity Present value Lump sum Perpetuity Consol
Annuity
You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? Multiple Choice Annuity B will pay one more payment than Annuity A will. The future value of Annuity A is greater than the future value of Annuity B. Annuity A has a higher future value but a lower present value than Annuity B. Annuity B has both a higher present value and a higher future value than Annuity A. The present value of Annuity A is equal to the present value of Annuity B.
Annuity B has both a higher present value and a higher future value than Annuity A.
Which one of the following qualifies as an annuity payment? Multiple Choice Auto loan payment Medical bills Weekly grocery bill Clothing purchases Car repairs
Auto loan payment
You want to create a scholarship fund that pays a non-finance major $5000 a year and you want the fund to *exist forever*. How much must you contribute to create this fund if you believe your investment can earn 3% annually?
Formula: CF/R 5000/.03 (not 3% this time) 166,666
How to calculate APR?
I/y times the amount of times per yr (52,4,12)
Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan term is six years. Since he borrowed the money, Travis has been making annual payments of $700 to the bank. Which type of loan does he have? Multiple Choice Complex Compound Amortized Pure discount Interest-only
Interest-only
You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of three years. What type of loan did you obtain? Multiple Choice Interest-only Pure discount Perpetual Amortized Lump sum
Interest-only
If you deposit $100 in one year, $200 in two years and $300 in three years. How much will you have in three years at 7 percent interest? How much in five years if you don't add additional amounts?
N=2, i/y=7, PV=-100, PMT (blank), then CPT FV =114.49 after 5 you will have 719.56 Do this for all of them, but make N 1 for 200 and 0 for 300 (WHY?)
How to calculate perpetuity?
PV=CF/R
Which one of the following statements is correct? Multiple Choice The APR on a monthly loan is equal to (1 + monthly interest rate)12raise to the power of 12 − 1. The EAR, rather than the APR, should be used to compare both investment and loan options. The EAR is always greater than the APR. The APR is the best measure of the actual rate you are paying on a loan. The APR is equal to the EAR for a loan that charges interest monthly.
The EAR, rather than the APR, should be used to compare both investment and loan options.
Which one of the following features distinguishes an ordinary annuity from an annuity due? Timing of the annuity payments Frequency of the payments Annuity interest rate Number of equal payments Amount of each payment
Timing of the annuity payments
Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 6.3 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase? Multiple Choice To compute the initial loan amount, you must use a monthly interest rate. The future value of the loan is equal to 36 × $450. The present value of the car is equal to $500 + (36 × $450). The $500 is the present value of the purchase. The car loan is an annuity due.
To compute the initial loan amount, you must use a monthly interest rate.
The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships are: Multiple Choice an ordinary annuity. a perpetuity due. an annuity due. amortized payments. a perpetuity.
a perpetuity.
Bill just financed a used car through his credit union. His loan requires payments of $275 a month for five years. Assuming that all payments are paid on time, his last payment will pay off the loan in full. What type of loan does Bill have? Multiple Choice Amortized Complex Pure discount Lump sum Interest-only
amoritized
Which one of the following has the highest effective annual rate? Multiple Choice 6 percent compounded semiannually 6 percent compounded daily 6 percent compounded annually 6 percent compounded every 2 years 6 percent compounded quarterly
daily
All else held constant, the present value of an annuity will decrease if you: Multiple Choice decrease the discount rate. increase the time period. decrease the annuity payment. increase the payment amount. increase the annuity's future value.
decrease the annuity payment.
All else held constant, the present value of an annuity will decrease if you: Multiple Choice increase the time period. increase the payment amount. decrease the discount rate. increase the annuity's future value. decrease the annuity payment.
decrease the annuity payment.
Anna pays .85 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded annually, the rate would be referred to as the:
effective annual rate.
The stated interest rate is the interest rate expressed: Multiple Choice in terms of the interest payment made each period. as if it were compounded one time per year. in terms of an effective rate. as the quoted rate compounded by 12 periods per year. in terms of the rate charged per day.
in terms of the interest payment made each period.
nah
nah
A 30-year home mortgage is a classic example of: Multiple Choice a perpetuity. a set of unequal cash flows. an annuity due. an ordinary annuity. a consol.
ordinary