Financial Mathematics Unit 4: Investments
What is the present value of $4000 received at the end of the year for the next three years, with a discount rate of 8%?
$10,308.40
How much simple interest would Micah earn if he has a 10-year Treasury note with a 10%10% rate and a $1000 par value?
$1000
Juanita bought a $9000.00 savings bond that pays 4.75% annual simple interest. When she cashes in the bond, she will have to pay 16% federal income tax on the earned interest. How much money will she net if she cashes in the bond after 6 years?
$11,154.60
Pat is a 23-year-old man. He earns a taxable income of $70,000.00, and the effective tax rate on his income is 19%. He contributes 10% of his earnings into a Roth IRA account with 3% return. What is his estimated Roth IRA balance when he is 50 years old?
$12,594.71
Jewel, Tracy, and Sam are friends who jointly own 1/4 of AB PLC total outstanding shares. AB PLC has a total of 100,000 shares outstanding, and the current share price is $5. At the end of the year, the company's total earnings were $250,000. What is the total value of the shares held by the three friends?
$125,000
Hadley is a 25-year-old recent graduate who has started a new career. He plans to invest 19% of his $60,000 salary into a 403(b) that returns 5% annually. How much will Hadley accumulate in his 403(b) after 5 years of employment, assuming there is no salary increase. Round your answer to the nearest whole dollar.
$14,550
At 50 years old, Margie gets her first job that requires 3% pre-tax income deposits to Social Security. Margie makes $35,000 a year. Assuming she retires at 62, and Social Security offers a 2.5% rate to offset inflation, what will be the balance of Margie's Social Security when she retires?
$14,847.46
Wren's investment manager informed her that she has a dividend yield of 6 from her investment with AB PLC. If the shares of the company currently trade for $20 on the Stock Exchange, what is the total dividend Wren receives if she has 2000 shares in AB PLC?
$2400
Teyvin made an initial investment of $17,550$17,550 in a mutual fund. He invests an additional $525$525 each month in the mutual fund. What are the possible totals of his investment in the mutual fund? Select all that apply.
$30,675 $21,225 $19,650
Trey purchased a 30-year Zero-Coupon bond. It has a value of $20,000.00 at maturity and is offered at 5.5% interest compounded semiannually. How much will he need to invest to buy this bond?
$3927.54
Adella wants to have $10,000.00 saved in 5 years. Her local bank offers an account at 4% APR compounding monthly. How much would she need to deposit to reach her goal?
$8191.67
Jesse owns 65 shares of stock in an entertainment company. Last month, the price of the stock was $26.47 per share. Today, the price of the stock is $11.63. By how much did the value of Jesse's shares decrease?
$964.60
Consider the following terms. Choose whether saving or investing best describes the term.
0.67 of 1 Savings Accounts: Saving Corporate Bonds: Investing Savings Bonds: Saving xxx Stocks: Saving xxx Certificates of Deposit: Investing Mutual Funds: Investing
Johnson had 22,000 shares in a blue chip company before a stock split of 2:1. How many shares does Johnson have after the stock split?
44,000
Jeff owns 77 shares of common stock in a pharmaceutical company. The pharmaceutical company recently paid a cash dividend of $0.49 per share. If the current price of the stock is $9.80, what is the dividend yield of the stock?
5%
Harley bought a one year $1000 treasury bond. He paid $950 for the treasury bond. What is his rate of return? Round to one decimal, such as: 6.7%.
5.3%
Carl and Florence Lyles have the option of investing their $20,000 in a four-year CD with 5.15% interest compounded annually, 5% interest compounded daily, 5.25% interest compounded monthly, or 5.5% interest compounded quarterly. Which would be the best investment?
5.5% compounded quarterly
Nick owns 500 shares in a manufacturing company. The company pays a dividend of $1.05 per share. The shares currently trade for $15.00 in the stock market. What is the current dividend yield on Nick's investment?
7%
Approximately how long would it take Belinda's $800 investment to double in value if she has a bond with a 8.75% interest rate? Use the Rule of 72 to estimate the answer.
8.23
Sam leaves a large company with a pension to start his own business. He no longer has access to his pension account, but he wants to continue saving for his retirement. Which retirement fund makes the most sense for him now as a small business owner?
A traditional IRA makes the most sense for Sam.
What is a disadvantage of annuities?
An annuity has penalties for withdrawing early before retirement.
Lesson 20
Annuities
Lesson 17
Bonds and Treasury Notes
Keller has $20,000 to invest. He plans to use it for retirement in 20 years. He has two options for his investment. City Bank offers a CD with simple interest at a rate of 8%. Broker B has a treasury note that offers an interest rate of 8% compounded yearly. Which bank should he choose to give himself the highest rate of return?
Broker B, because the interest rate is compounded yearly
Lesson 16
Certificates of Deposit and Mutual Funds
Debby, Ella, and Unique invest $10,000 each into an oil company. Debby owns 2000 $1 common stocks, Ella owns 1000 of 5% $50 preferred stocks, and Unique owns 2000 of 4% $20 preferred stocks. If the company pays $0.80 per share to common stockholders in the current year. Who will have the greatest return in the current year?
Ella
Alyssa has $200 to invest for 10 years. Mutual Fund A pays 7% interest compounded annually. Mutual Fund B pays 5% interest compounded quarterly. What is the difference balance after 10 years?
Mutual Fund A's balance is $64.71 greater than Mutual Fund B.
Jesse has two options for retirement funds. Option A requires an initial investment of $7000 and additional deposits of $150 a month, and it expects to earn 8% interest compounded annually. Option B requires an initial investment of $4000 and additional deposits of $200 a month, and it expects to earn 6% interest compounded annually. Which will be worth more after 15 years?
Option A will be worth more after 15 years.
Lesson 19
Retirement Funds
Lesson 18
The Stock Market
The Smith family wants to invest $10,000.$10,000. Using the data given, which option has the greatest return on their investment?
The traditional CD has the greatest ROI because its 2%2% interest is compounded daily over 55 years with no added fees.
How are traditional IRAs different from Roth IRAs?
Traditional IRA contributions are pre-tax dollars; Roth IRA contributions are post-tax dollars.
There are some bonds that are hard to track. These types of bonds can be cashed by whoever has possession of them, and they are almost impossible to replace. To avoid the possibility of losing her bond and not being able to replace it, Amanda decides to purchase a bond that is trackable and has serial numbers. Which type of bond does Amanda purchase?
a registered bond
Tommy is 58-year-old and has operated his Roth IRA account for 7 years. He intends to retire at 60.60. Exactly six months ago, he withdrew 2/3 of his Roth IRA balance and invested in the stocks of a company that just filed for bankruptcy. He wants a steady income when he is retired. What retirement plan is best for Tommy?
an annuity
What type of annuity is a hybrid that allows for market participation?
fixed index annuity
Sunshine wants to invest $2500 for her retirement. She has four investment options. Which has the greatest return on investment?
money market savings: compounds monthly
There are various types of retirement plans and pensions to consider for later on in life. Match each retirement plan to its feature.
pension plan which guarantees retirement income for life: defined benefit plan free future withdrawals: Roth IRA immediate tax benefit: traditional IRA not-for-profit organization: 403(b) retirement and disability benefit: Social Security
Uma will be retiring in 5 years. She needs a low-risk place to put her money that will earn interest. Where should she invest?
savings