Finance Ch5 Practice Problems and Vocab
$21,163.57
Appalachian Bank offers you a $135,000, nine-year term loan at 7.5 percent annual interest. What will your annual loan payment be?
$14,880
Billingsley, Inc. is borrowing $60,000 for five years at an APR of 8 percent. The principal is to be repaid in equal annual payments over the life of the loan with interest paid annually. Payments will be made at the end of each year. What is the total payment due for year 3 of this loan?
$2,818.74 (FV = $2,500 × [1 + (0.008/365)] 15 × 365 = $2,818.74)
Compass Bank is offering 0.8 percent compounded daily on its savings accounts. If you deposit $2,500 today, how much will you have in the account in 15 years?
$9,672.48
Karl can afford car payments of $235 a month for 48 months. The bank will lend him money to buy a car at 7.75 percent interest. How much money can he afford to borrow?
$1,401.49 (amount borrowed=0.80x$84,000=$67,200)
Katie's Dinor spent $84,000 to refurbish its current facility. The firm borrowed 80 percent of the refurbishment cost at 9.2 percent interest for five years. What is the amount of each monthly payment?
$43,066.22
Kris will receive $800 a month for the next five years from an insurance settlement. The interest rate is 4 percent, compounded monthly, for the first two years and 5 percent, compounded monthly, for the final three years. What is this settlement worth to him today?
Future value of a perpetuity
Which one of the following cannot be computed?
22.22 years
A new financial services company just opened in your town. To attract customers, it is offering a "9-11" loan special. The company will lend $9 today in exchange for a payment of $11 one year from today. What is the APR on this loan?
$242,681.25 (FV = $210,000 × (1 + 0.075) 2 = $242,681.25)
Amish Bakery needs $210,000 today to fund a new project. The project will not produce any cash flows for two years and thus the firm agreed to a two-year, pure discount loan at 7.5 percent interest. How much will the firm owe on this loan at the time it must be repaid?
5.55 years
Cromwell Enterprises is acquiring Athens, Inc. for $899,000. Athens has agreed to accept annual payments of $210,000 at an interest rate of 8.5 percent. How many years will it take Cromwell Enterprises to pay for this purchase?
$12,750.00 (Payment Year 1 = $150,000 × 0.085 = $12,750)
Hometown Builders is borrowing $150,000 today for five years. The loan is an interest-only loan with an APR of 8.5 percent. Payments are to be made annually. What is the amount of the first annual payment?
9.94 percent
Hughes Motors will sell you a $15,000 car for $380 a month for 48 months. What is the interest rate?
$4,971.10
If you put up $46,000 today in exchange for a 6.75 percent 15-year annuity, what will the annual cash flow be?
$54,000.00 (Payment Year 3 = $50,000 + ($50,000 × 0.08) = $54,000 OR $50,000 x 1.08)
Popeye's Fried Chicken just took out an 8 percent interest-only loan of $50,000 for three years. Payments are to be made at the end of each year. What is the amount of the payment that will be due at the end of year 3?
$629,925.66 (Quarterly payment = 29600 number of payments n = 7*4 = 28 interest quarterly = 8/4 = 2) (purchase price = 29600/1.02 + 29600/1.02^2 + 29600/1.02^3 ......+29600/1.02^28 ( GP)))
Webster Mining is considering the purchase of a new sorting machine. The quote consists of a quarterly payment of $29,600 for seven years at 8 percent interest. What is the purchase price of the equipment?
annual percentage rate
Lee pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:
$2,022,709.37 (PV = $0.6m + ($0.8m/1.082) + ($0.8m/1.082 2) = $2,022,709.37)
Doris's Fashions has just signed a $2.2 million contract. The contract calls for a payment of $0.6 million today, $0.8 million one year from today, and $0.8 million two years from today. What is this contract worth today if the firm can earn 8.2 percent on its money?
$2,028.39
Janice plans to save $75 a month, starting today, for 20 years. Kate plans to save $80 a month for 20 years, starting one month from today. Both Janice and Kate expect to earn an average return of 5.5 percent on their savings. At the end of the 20 years, Kate will have approximately _____ more than Janice.
annuity due
Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments?
$5.66
West Coast Builders is offering preferred stock for sale with a 6.75 percent rate of return. What is the amount of the annual dividend on this stock if the current market price per share is $83.87?
10.25 percent (EAR = [1 + (0.10/2)] 2 - 1 = 10.25 percent)
What is the effective annual rate of 10 percent compounded semiannually?
10.25% (EAR = [1 + (0.10/2)] 2 - 1 = 10.25 percent)
What is the effective annual rate of 10 percent compounded semiannually?
15.75% (EAR = [1 + (0.149/4)] 4 - 1 = 15.75 percent)
What is the effective annual rate of 14.9 percent compounded quarterly?
highest effective annual rate
When comparing savings accounts, you should select the account that has the:
I and IV only
Which of the following characteristics apply to a perpetuity? I. Constant cash flow dollar amount II. Unequal cash flow dollar amount III. Limited time period IV. Infinite time period