FINA QUIZ 2

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% a. none of these b. 803 c. 1290 d. 1205 e. 1127

$1,205

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 you borrow a. 128,762 b. 130,000 c. 295,808 d. 10,730 e. none of these are correct

$130,000

How much interest can be accumulated into two years on a $1,000 deposit paying annual interest rate of 10% compounded annually? a. 210 b. 220 c. 200 d. none of these are correct e. 100

$220

You are given the cash flows listed below at Years 3, 5, and 6, but you arent sure about the cash flow at Year 4. Assume that the appropriate interest rate for these cash flows is 12% and that the value of all the cash flows in years 3 to 6, evaluated as of year 10 is $1,982.47. Determine the cash flow at year 4. a. 375 b. 362 c. 350 d. 337.50 e. 325

$375

Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. The loan has an annual interest rate of 8.5% and requires annual installment payment. If the loan is to be completely paid off by the end of year five, what should be the annual payment? a. 325,500 b. 300,000 c. 380,649 d. none of these e. 427,500

$380,649

What is the present value of receiving $100 monthly for two years, followed by $200 monthly for the next three years, payments? Assuming that the annual interest rate is 13%, compounded monthly. a. 6,687 b. 6,995 c. 6,145 d. 5,352 e. 6,593

$6,687

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? a. 214.29 b. none of these are correct c. 714.29 d. 1405.11 e. 905.11

$714.29

How much interest is earned in just the third year on a $1,000 deposit that earns 7% interest compounded annually? A. $70.00 B. $80.14 C. $105.62 D. $225.04

$80.14

For the next 8 years, an investor will deposit $1,000 every year into a special investment funds. The fund pays an annual interest rate of 10% for the first 3 years (or from today to the end of the year) After that, the annual interest rate drops to 5% per year. What is the account balance at the end of year 8? a. 11,435.89 b. none of these are correct c. 9750.12 d. 9549.11 e. 10,466.37

$9,750.12

Reginal is about to lease an apartment for the year. The landlord wants him to make the lease payments at the start of the month. The twelve monthly payments are $1,300 per month. The landlord says he will allow Reginal to prepay the rent for the entire year with a discount. The one-time annual payment due at the beginning of the lease is $14,778. What is the implied monthly discount rate for the rent? If Reginal is earning 1.5% on his savings monthly, should he pay by month or make the single annual payment?

1% monthly payments

MacAfee company will make contributions to a pension plan for 20 years, and then payout 28,000 per year (at the end of each year) for the next 15 years. Assuming money always earns 9% per year, what quarterly contributions must be made (at the end of each quarter) for the next 20 years to meet their obligation a. 1,103 b. 1,167 c. 1,007 d. 1,030 e. 1,236

1,030

Assume that you invested 2,566.70 at year 0 in a project that is promising to return 12 percent per year. The cash flows are expected to be as follows.....determine the expected cash flow at year 4.

1,156.99

How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume an interest rate of 10% and cash flows at the end of each period. A. $297.29 B. $1,486.44 C. $1,635.08 D. $2,000.00 E. None of these are correct

1,486.44

Out of desperation you get a 1000 loan shark, who charges you a daily interest of 1%. you have not made any repayment or borrowed additional money. The loan shark called you today and demanded a repayment. how long ago did you get the loan

162 days

Your parents plan to spend $20,000 on a car for you upon graduation from college. If you will graduate in three years and your parents can earn 4.125% annually on their investment, how much money must they set aside today for your car? a. none of these are correct b. 16,387 c. 20,000 d. 17,716 e. 17,704

17,716

Kant Miss Company is promising its investors that it will double their money every three years. Is this promise too good to be true? What annual rate is Kant Miss promising? 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? Use the Rule of 72. OPEN ENDED

21

you will receive 15,000 in two years when you graduate. you plan to invest this amount at an annual interest of 6.5%. How much will you have 8 years from now? a. 21,887 b. none of these are correct c. 17,013 d. 24,245 e. 20,850

21,887

If 120,000 is borrowed for a home mortgage, to be repaid at 9% annual interest rate over 30 years with monthly payments of 965.55, how much interest is paid over the life of the loan? a. 347,598 b. 227,597 c.10,800 d. 181,458 e. 324,000

227,597

You receive a credit card application from Shady Banks Savings 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 your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year? a. 279.30 b. 43.76 c. 482.26 d. 583.32 e. none of these are correct

279.30

What is the present value of a four-year annuity pf $100 that begins 2 years from today if the discount rate is 9% a. 388.97 b. 272.68 c. 297.22 d. 323.97 e. none of these

297.22

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? a. 3.515% b. 3.490% c. 3.500% d. cannot be determined due to lack of information e. 3.546%

3.515%

Your goal is to have $1 million in your retirement savings on the day you retire at the age of 65. you plan to invest 10,000 every year and your financial advisor estimates 8.28%. What age should you start? a. 25 b. you can never achieve that goal c. 21 d. 37 e. none of these are correct

37 years old

You are interested in saving money for your first house. Your plan is to make regular deposits into a brokerage account that will earn 14%. Your first deposit of $5,000 will be made today. You also plan to make four additional deposits at the beginning of the next four years, your plan is to increase your deposit by 10% a year. (That is, you plan to deposit $5,500 at t=1 a. 23,306 b. 37,678 c. 44,874 d. 39,363 e. cannot be solved because not enough info

39,363

Cooley Landscaping Company needs to borrow $30,000 for a new front-end dirt loader. The bank is willing to loan the funds at 8.5% interest with annual payments at the end of the year for the next ten years. The loan is fully amortized, i.e., the loan will be fully paid off at the end of year ten. What is the annual payment on this loan for Cooley Landscaping? OPEN ENDED

4,572.5

You currently have $67,000 in an interest-earning account. From this account you make twenty year end payments of $5,000 each. What annual rate of return must you make on this account to meet your objective? a. 5.03 b. none of these are correct c. 4.16 d. 7.32 e. 6.42

4.16%

A local government is about to run a lottery........What investment rate must the trust earn to break even on this arrangement OPEN ENDED

5.56

You finance your college education with student loans. Every month, you borrow 1,000 to pay for living 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 accrues to your loan balance. Assume an annual interest rate of 6% on your student loan, what will b your loan balancr when you graduate? a. 48,000 b. 54,098 c. 52,495 d. none of these e. 50,880

54,098

After winning the lottery, you state that you are indifferent between receiving twenty $500,000 end of the year payments (first payment one year from today) and receiving a lump sum payment 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? a. 4% b. 7% c. 6% d. 8% e. 5%

6%

Assume that you just bought a house and took out a 30 year (360 months) loan of 225,000 and must make monthly payments of 1,527.28. Determine annual interest rate on mortgage a. .68% b. 6.15% c. .60% s. 7.20% e. none of these

7.20%

Tony is offering two repayment plans to Phil for long overdue loan. Offer 1 is to receive a visit from the an enforcer and the debt is due in full at once. Offer two is to pay back 3,900 per year at 20% interest rate until phil pays off the loan principal. Phil owes tony 15,000. How many years will it take to pay off the loan if he takes offer 2? OPEN ENDED

8 years

Assume that you have taken out a 30-year mortgage of $240,000 and that your monthly payments are $1,853.90. What is your annual interest rate on the mortgage loan? (find the closest answer) a. 9.45% b. 8.55% c.8.89% d. 8.61% e. 9.14%

8.55%

The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate. By approximately how much the value change if these were annuities due? (Round to the nearest dollar) a)None of these are correct b. unknown without knowing numbers of payments c. an increase of 100 d. an increase of 62 e. an increase of 10

An increase of $61

A financial contract that pays $2,000 at the beginning of each year for 50 years is called a _________ and has a value today of $_______ at a required rate of return at 12%

Annuity due, $18,602

Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years? A. lower than 6% B. greater than 10% C. Between 6 and 8% D. between 8 and 10%

Between 6 and 8%

Dan would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. His wife argues that the realistic long-run average return is only 7%

Dan needs to invest about 20% more than if the annual return is 8%

You are helping your aging parents, who had taken out a fixed interest rate mortgage loan many years ago. The most recent mortgage statement shows a remaining balance of $100,000 and a monthly payment of $1,760.16. Your parents told you that the annual interest rate on the mortgage loan is 6%. They would like to know when the mortgage loan will be completely paid off A. none of these are correct b. i cannot tell because there is not enough info c. in 60 months d. in 67 months e. in 57 months

In 67 monthsHow

A cash strapping young professional offers to buy your car with four, equal annual payments of 3,000 a. yes; present value is 9,510 b. none of these c. no; present value is 7,461 d. yes present value is 11,372 e. no; present value is 8,645

No; present value is $8,645

Assume that you deposit $1,250 at Year 0 and that the annual interest rate is 6.842%, compounded quarterly. Given this info, determine what your balance will be at Year 38. a. 14,955.41 b. 13, 595.83 c. none of these are correct d. 15,635.20 e. 14,275.62

None of these are correct

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment?

The interest earned in year one is $8.00 and the interest earned in year two is $8.64.

Zhou's FINA 320, you decide to save for retirement, who will you have more money you or your friend?

You will have 1,198,812.45 more than your friend

A stream of equal cash payments lasting forever is termed:

a perpetuity

Skippy had been offered two alternative oayment 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........ in todays dollars/ alternative 1 is:

cheaper by about $83.

As the time period until receipt of a cash flow increases, the present value of cash flow

decreases

your subscription to jogger's world monthly is about to run out.....how many years would you have to live to make the lifetime a. 10 years b. 18 years. c. never d. none of these are correct e. 11 years

none of these are correct

The main variables of the TVM equation are

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

A furniture store is offering free credit on purchases over $1,000. You observe that a big-screen television can be purchased for nothing down and $4,000 due in one year. The store next door offers an identical television for $3,650 but does not offer credit terms. Which statement below best describes the cost of the "free" credit? A. 8.75% B. 9.13% C. 9.59% D. 0%

the "free" credit costs about 9.59%

increasing the number of periods will increase all of the following EXCEPT

the present value of $1 received in the future