CFA L1_01 Quant_R01-TVM

What is the present value of a 10-year, $100 annual annuity due if interest rates are 0%?

$1,000

The future value of $1,000 invested for one year at a rate of interest of 12% compounded monthly is closest to:

$1,127

If a $45,000 car loan is financed at 12% over 4 years, what is the monthly car payment?

$1,185.00

An individual borrows $200,000 to buy a house with a 30-year mortgage requiring payments to be made at the end of each month. The interest rate is 8%, compounded monthly. What is the monthly mortgage payment?

$1,468

Five years ago, an investor borrowed $5,000 from a financial institution that charged a 6% annual interest rate, and he immediately took his family to live in Nepal. He made no payments during the time he was away. When he returned, he agreed to repay the original loan plus the accrued interest by making five end-of-year payments starting one year after he returned. If the interest rate on the loan is held constant at 6% per year, what annual payment must the investor make in order to retire the loan?

$1,588.45

Tom Gisard has signed up with the U.S. Peace Corps for a two-year term that begins in 18 months. Gisard has calculated that he will need $1,500 at the beginning of each month for living expenses. The annual rate of return during his time in the Peace Corps is estimated at 7.25%. He will save an equal amount at the end of each month for the next 18 months in an account that returns 6.25%, compounded monthly. Each month, Gisard should save approximately:

$1,786

Jamie Morgan needs to accumulate $2,000 in 18 months. If she can earn 6% at the bank, compounded quarterly, how much must she deposit today?

$1,829.08

Given an 8.5% discount rate, an asset that generates cash flows of $10 in Year 1, -$20 in Year 2, $10 in Year 3, and is then sold for $150 at the end of Year 4, has a present value of:

$108.29

Lois Weaver wants to accumulate $1.5 million in a retirement fund when she retires in 30 years. If Weaver can earn a 9% rate of return on her investments, the amount she must invest at the end of each year for 30 years to reach her goal is closest to:

$11,000

What is the maximum price an investor should be willing to pay (today) for a 10 year annuity that will generate $500 per quarter (such payments to be made at the end of each quarter), given he wants to earn 12%, compounded quarterly?

$11,557

Assuming a discount rate of 10%, which stream of annual payments has the highest present value?

$110, $20, $10, $5

The future value of $10,000 invested for 5 years, if the annual interest rate is 8%, compounded monthly, is closest to:

$14,900

An investor will receive an annuity of $5,000 a year for seven years. The first payment is to be received 5 years from today. If the annual interest rate is 11.5%, what is the present value of the annuity?

$15,000.00

The future value a 10-year annuity paying an annual sum of $10,000 at the end of each year given a discount rate of 10% would be:

$159,374.00

The First State Bank is willing to lend $100,000 for 4 years at 12%. Assuming the loan is fully amortizing repayable in semiannual installments, the first payment is closest to:

$16,100

Elise Corrs, hedge fund manager and avid downhill skier, was recently granted permission to take a 4 month sabbatical. During the sabbatical, (scheduled to start in 11 months), Corrs will ski at approximately 12 resorts located in the Austrian, Italian, and Swiss Alps. Corrs estimates that she will need $6,000 at the beginning of each month for expenses that month. (She has already financed her initial travel and equipment costs.) Her financial planner estimates that she will earn an annual rate of 8.5% during her savings period and an annual rate of return during her sabbatical of 9.5%. How much does she need to put in her savings account at the end of each month for the next 11 months to ensure the cash flow she needs over her sabbatical? Each month, Corrs should save approximately:

$2,080

A firm is evaluating an investment that promises to generate the following annual cash flows: End of Year // Cash Flows 1-5 = $5,000 each year 6-7 = $0 each year 8-9 = $2,000 each year Given BBC uses an 8% discount rate, this investment should be valued at:

$22,043.00

In 10 years, what is the value of $100 invested today at an interest rate of 8% per year, compounded monthly?

$222.00

How much should an investor have in a retirement account on his 65 th birthday if he wishes to withdraw $40,000 on that birthday and each of the following 14 birthdays, assuming his retirement account is expected to earn 14.5%?

$274,422

Natalie Brunswick, neurosurgeon at a large U.S. university, was recently granted permission to take an 18-month sabbatical that will begin one year from today. During the sabbatical, Brunswick will need $2,500 at the beginning of each month for living expenses that month. Her financial planner estimates that she will earn an annual rate of 9% over the next year on any money she saves. The annual rate of return during her sabbatical term will likely increase to 10%. At the end of each month during the year before the sabbatical, Brunswick should save approximately:

$3,356.00

It will cost $20,000 a year for four years when an 8-year old child is ready for college. How much should be invested today if the child will make the first of four annual withdrawals 10- years from today? The expected rate of return is 8%.

$33,138

A loan of $15,000 is to be paid off in monthly payments over 5 years at 12% annual interest. What is the amount of each payment?

$334

Steve Hall wants to give his son a new car for his graduation. If the cost of the car is $15,000 and Hall finances 80% of the value of the car for 36 months at 8% annual interest, his monthly payments will be:

$376

Optimal Insurance is offering a deferred annuity that promises to pay 10% per annum with equal annual payments beginning at the end of 10 years and continuing for a total of 10 annual payments. For an initial investment of $100,000, the amount of the annual payments will be closest to:

$38,375

If 10 equal annual deposits of $1,000 are made into an investment account earning 9% starting today, how much will you have in 20 years?

$39,204

Given the following cash flow stream: EOY // Annual cash flow 1 = $4,000 2 = $2,000 3 = $0 4 = $-1,000 Using a 10% discount rate, the present value of this cash flow stream is:

$4,606.00

Given a 5% discount rate, the present value of $500 to be received three years from today is:

$432

Wortel Industries has preferred stock outstanding that paying an annual dividend of $3.75 per share. If an investor wants to earn a rate of return of 8.5%, how much should he be willing to pay for a share of Wortel preferred stock?

$44.12

Sarah Parker is buying a new $25,000 car. Her trade-in is worth $5,000 so she needs to borrow $20,000. The loan will be paid in 48 monthly installments and the annual interest rate on the loan is 7.5%. If the first payment is due at the end of the first month, what is Sarah's monthly car payment?

$483.58

An annuity will pay eight annual payments of $100, with the first payment to be received one year from now. If the interest rate is 12% per year, what is the present value of this annuity?

$496.76

Suppose you are going to deposit $1,000 at the start of this year, $1,500 at the start of next year, and $2,000 at the start of the following year in a savings account. How much money will you have at the end of three years if the rate of interest is 10% each year?

$5,346.00

A local bank offers a certificate of deposit (CD) that earns 5.0% compounded quarterly for three and one half years. If a depositor places $5,000 on deposit, what will be the value of the account at maturity?

$5,949.77

If $2,500 is invested at the end of each year for the next 10 years, earning 15% interest compounded annually, the value at the beginning of the eleventh year is be closest to:

$50,760

A successful investor has decided to set up a scholarship fund for deserving students at her alma mater. Her plan is for the fund to be capable of awarding $25,000 annually in perpetuity. The first scholarship is to be awarded and paid out exactly four years from today. The funds will be deposited into an account immediately and will grow at a rate of 4%, compounded semiannually, for the foreseeable future. How much money must the investor donate today to fund the scholarship?

$549,487

Paul Kohler inherits $50,000 and deposits it immediately in a bank account that pays 6% interest. No other deposits or withdrawals are made. In two years, what will be the account balance assuming monthly compounding?

$56,400

An investor wants to receive $1,000 at the beginning of each of the next ten years with the first payment starting today. If the investor can earn 10 percent interest, what must the investor put into the account today in order to receive this $1,000 cash flow stream?

$6,759

What is the maximum an investor should be willing to pay for an annuity that will pay out $10,000 at the beginning of each of the next 10 years, given the investor wants to earn 12.5%, compounded annually?

$62,285

A $500 investment offers a 7.5% annual rate of return. How much will it be worth in four years?

$668

An investment product promises to pay a lump sum of $25,458 at the end of 9 years. If an investor feels this investment should produce a rate of return of 14%, compounded annually, the present value is closest to:

$7,829.00

Given investors require an annual return of 12.5%, a perpetual bond (i.e., a bond with no maturity/due date) that pays $87.50 a year in interest should be valued at:

$700

Compute the present value of a perpetuity with $100 payments beginning four years from now. Assume the appropriate annual interest rate is 10%.

$751

The value in 7 years of $500 invested today at an interest rate of 6% compounded monthly is closest to:

$760

How much would the following income stream be worth assuming a 12% discount rate? $100 received today. $200 received 1 year from today. $400 received 2 years from today. $300 received 3 years from today.

$810.98

Bill Jones is creating a charitable trust to provide six annual payments of $20,000 each, beginning next year. How much must Jones set aside now at 10% interest compounded annually to meet the required disbursements?

$87,105.21

An investor purchases a 10-year, $1,000 par value bond that pays annual coupons of $100. If the market rate of interest is 12%, what is the current market value of the bond?

$887

Three years from now, an investor will deposit the first of eight $1,000 payments into a special fund. The fund will earn interest at the rate of 5% per year until the third deposit is made. Thereafter, the fund will return a reduced interest rate of 4% compounded annually until the final deposit is made. How much money will the investor have in the fund at the end of ten years assuming no withdrawals are made?

$9,251.82

Assuming an annual rate of interest of 11% compounded quarterly, the future value of $8,000 invested for two years is closest to:

$9,939

If $2,000 a year is invested at the end of each of the next 45 years in a retirement account yielding 8.5%, the amount the investor will have after 45 years is closest to:

$900,000

What is the present value of $200 to be received one year from now, $300 to be received 3 years from now, and $600 to be received 5 years from now assuming an interest rate of 5%?

$919.74

Justin Banks just won the lottery and is trying to decide between the annual cash flow payment option or the lump sum option. He can earn 8% at the bank and the annual cash flow option is $100,000/year, beginning today for 15 years. What is the annual cash flow option worth to Banks today?

$924,423.70

A local loan shark offers 4 for 5 on payday. What it involves is that you borrow $4 from him and repay $5 on the next payday (one week later). What would the stated annual interest rate be on this loan, with weekly compounding? Assuming 52 weeks in one year, what is the effective annual interest rate on this loan? Select the respective answer choices closest to your numbers.

1,300%; 10,947,544%

What is the effective annual rate if the stated rate is 12% compounded quarterly?

12.55%

If an investment has an APR of 18% and is compounded quarterly, its effective annual rate (EAR) is closest to:

19.25%

Vega research has been conducting investor polls for Third State Bank. They have found the most investors are not willing to tie up their money in a 1-year (2-year) CD unless they receive at least 1.0% (1.5%) more than they would on an ordinary savings account. If the savings account rate is 3%, and the bank wants to raise funds with 2-year CDs, the yield must be at least:

4.5%, and this represents a required rate of return

A local bank advertises that it will pay interest at the rate of 4.5%, compounded monthly, on regular savings accounts. What is the effective rate of interest that the bank is paying on these accounts?

4.59%

A share of George Co. preferred stock is selling for $65. It pays a dividend of $4.50 per year and has a perpetual life. The rate of return it is offering its investors is closest to:

6.9%

A recent ad for a Roth IRA includes the statement that if a person invests $500 at the beginning of each month for 35 years, they could have $1,000,000 for retirement. Assuming monthly compounding, what annual interest rate is implied in this statement?

7.411%

Renee Fisher invests $2,000 each year, starting one year from now, in a retirement account. If the investments earn 8% or 10% annually over 30 years, the amount Fisher will accumulate is closest to: (8% // 10%)

8% = $225,000 / 10% = $330,000

A local bank offers an account that pays 8%, compounded quarterly, for any deposits of $10,000 or more that are left in the account for a period of 5 years. The effective annual rate of interest on this account is:

8.24%

An investor makes 48 monthly payments of $500 each beginning today into an account that will have a value of $29,000 at the end of four years. The stated annual interest rate is closest to:

9.00%

A stated annual interest rate of 9% compounded semiannually results in an effective annual rate closest to:

9.2%

A stated interest rate of 9% compounded quarterly results in an effective annual rate closest to:

9.3%

Peter Wallace wants to deposit $10,000 in a bank certificate of deposit (CD). Wallace is considering the following banks: - Bank A offers 5.85% annual interest compounded annually. - Bank B offers 5.75% annual interest rate compounded monthly. - Bank C offers 5.70% annual interest compounded daily. Which bank offers the highest effective interest rate and how much?

Bank B, 5.90%

Other things equal, as the number of compounding periods increases, what is the effect on the effective annual rate (EAR)?

EAR increases

An investor has the choice of two investments. Investment A offers interest at 7.25% compounded quarterly. Investment B offers interest at the annual rate of 7.40%. Which investment offers the higher dollar return on an investment of $50,000 for two years, and by how much?

Investment A offers a $53.18 greater return

An investor who requires an annual return of 12% has the choice of receiving one of the following: - Option A: 10 annual payments of $1,225.00 to begin at the end of one year. - Option B: 10 annual payments of $1,097.96 beginning immediately. Which option has the highest present value (PV) and approximately how much greater is it than the other option?

Option B's PV is $27 greater than option A's.

Concerning an ordinary annuity and an annuity due with the same payments and positive interest rate, which of the following statements is most accurate?

The present value of the ordinary annuity is less than an annuity due

Which one of the following statements best describes the components of the required interest rate on a security?

The real risk-free rate, the expected inflation rate, the default risk premium, a liquidity premium and a premium to reflect the risk associated with the maturity of the security.

Which of the following is the most accurate statement about stated and effective annual interest rates?

The stated annual interest rate is used to find the effective annual rate.

An annuity will pay eight annual payments of $100, with the first payment to be received three years from now. If the interest rate is 12% per year, what is the present value of this annuity? The present value of:

a lump sum discounted for 2 years, where the lump sum is the present value of an ordinary annuity of 8 periods at 12%.

A major brokerage house is currently selling an investment product that offers an 8% rate of return, compounded monthly. Based on this information, it follows that this investment has:

a periodic interest rate of 0.667%

Selmer Jones has just inherited some money and wants to set some of it aside for a vacation in Hawaii one year from today. His bank will pay him 5% interest on any funds he deposits. In order to determine how much of the money must be set aside and held for the trip, he should use the 5% as a:

discount rate

As the number of compounding periods increases, what is the effect on the EAR? EAR:

increases at a decreasing rate

T-bill yields can be thought of as:

nominal risk-free rates because they contain an inflation premium

Wei Zhang has funds on deposit with Iron Range bank. The funds are currently earning 6% interest. If he withdraws $15,000 to purchase an automobile, the 6% interest rate can be best thought of as a(n):

opportunity cost