FIN 301 ch 5 --all MC
15) At 6 percent compounded monthly, how long will it take to triple your money? A) 221 months B) 175 months C) 102 months D) 48 months
Answer: A
27) What is the present value of $11,463 to be received 7 years from today? Assume a discount rate of 3.5% compounded annually and round to the nearest $1. A) $5,790 B) $6,508 C) $7,210 D) $9,010
Answer: D
3) You won the lottery and can receive either (1) $60,000 today, or (2) $10,000 one year from today plus $25,000 two years from today plus $35,000 three years from today. You plan to use the money to pay for your child's college education in 15 years. You should A) take the $60,000 today because of the time value of money regardless of current interest rates. B) take option two because you get $70,000 rather than $60,000 regardless of current interest rates. C) take the $60,000 today only if the current interest rate is at least 16.67%. D) take the $60,000 today if you can earn 6.81% per year or more on your investments.
Answer: D
27) To compound $100 quarterly for 20 years at 8%, we must use A) 40 periods at 4%. B) 5 periods at 12%. C) 10 periods at 4%. D) 80 periods at 2%.
Answer: D
19) Two sisters each open IRAs in 2011 and plan to invest $3,000 per year for the next 30 years. Mary makes her first deposit on January 1, 2011, and will make all future deposits on the first day of the year. Jane makes her first deposit on December 31, 2011, and will continue to make her annual deposits on the last day of each year. At the end of 30 years, the difference in the value of the IRAs (rounded to the nearest dollar), assuming an interest rate of 7% per year, will be A) $19,837. B) $12,456. C) $6,300. D) $210.
Answer: A
20) If you put $10,000 in an investment that returns 11 percent compounded monthly what would you have after 10 years (rounded to nearest $1)? A) $29,892 B) $27,559 C) $25,486 D) $22,489
Answer: A
20) You have the choice of two equally risk annuities, each paying $5,000 per year for 8 years. One is an annuity due and the other is an ordinary annuity. If you are going to be receiving the annuity payments, which annuity would you choose to maximize your wealth? A) the annuity due B) the ordinary annuity C) Since we don't know the interest rate, we can't find the value of the annuities and hence we cannot tell which one is better. D) either one because they have the same present value
Answer: A
21) If you want to have $5,000 in 10 years, how much money must you put in a savings account today? (Assume that the savings account pays 4% and it is compounded daily; round to the nearest $1). A) $3,352 B) $3,370 C) $4,102 D) $4,207
Answer: A
22) You want $20,000 in 5 years to take your spouse on a second honeymoon. Your investment account earns 7% compounded semiannually. How much money must you put in the investment account today? (Round to the nearest $1.) A) $14,178 B) $12,367 C) $15,985 D) $13,349
Answer: A
24) You charged $1,000 on your credit card for Christmas presents. Your credit card company charges you 26% annual interest, compounded monthly. If you make the minimum payments of $25 per month, how long will it take (to the nearest month) to pay off your balance? A) 94 months B) 79 months C) 54 months D) 40 months
Answer: A
25) At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14 years? A) 6 percent B) 5 percent C) 7 percent D) 8 percent
Answer: A
25) If Cindy deposits $12,000 into a bank account that pays 6% interest compounded semiannually, what will the account balance be in seven years? A) 18,151 B) 14,356 C) 16,987 D) 15,555
Answer: A
26) Assuming two investments have equal lives, a high discount rate tends to favor A) the investment with large cash flow early. B) the investment with large cash flow late. C) the investment with even cash flow. D) neither investment since they have equal lives.
Answer: A
29) A financial advisor tells you that you can make your child a millionaire if you just start saving early. You decide to put an equal amount each year into an investment account that earns 7.5% interest per year, starting on the day your child is born. How much would you need to invest each year (rounded to the nearest dollar) to accumulate a million for your child by the time he is 35 years old? (Your last deposit will be made on his 34th birthday.) A) $6,525 B) $7,910 C) $12,500 D) $20,347
Answer: A
29) Cary's wonderful parents established a college savings plan for him when he was born. They deposited $50 into the account on the last day of each month. The account has earned 10% compounded monthly, tax-free. Now he's off to State U. What equal amount can they withdraw beginning today (his 18th birthday) and each year for three additional years to spend on his education, assuming that the account now earns 7% annually. A) $8,285 B) $8,865 C) $9,486 D) $30,028
Answer: A
30) You are 21 years old today. Your grandparents set up a trust fund that will pay you $25,000 per year for 20 years, starting on your 65th birthday to supplement your retirement. If the trust can earn 7.5% per year, how much will your grandparents need to put in the trust fund today (rounded to the nearest ten dollars)? A) $11,370 B) $22,310 C) $5,250 D) $17,450
Answer: A
34) Your daughter is born today and you want her to be a millionaire by the time she is 35 years old. You open an investment account that promises to pay 12% per year. How much money must you deposit each year, starting on her 1st birthday and ending on her 35th birthday, so your daughter will have $1,000,000 by her 35th birthday? A) $2,317 B) $3,455 C) $5,777 D) $9,450
Answer: A
35) A bond maturing in 10 years pays $80 each year (including year 10) and $1,000 upon maturity. Assuming 10 percent to be the appropriate discount rate, the present value of the bond is A) $877.11. B) $1,000.00. C) $416.39. D) $1,785.67.
Answer: A
36) You sell valuable artifacts from your household estate for $200,000 and want to use the money to supplement your retirement. You receive the money on your 60th birthday, the day you retire. You want to withdraw equal amounts at the end of each of the next 25 years. What constant amount can you withdraw each year and have nothing remaining at the end of 20 years if you are earning 7% interest per year? A) $17,162 B) $28,318 C) $37,574 D) $49,113
Answer: A
39) Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make? A) 15 B) 13 C) 12 D) 19
Answer: A
43) Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment the day he retires. Using an interest rate of 8%, how much must Charlie invest today in order to have his retirement annuity (rounded to nearest $10)? A) $167,130 B) $200,450 C) $256,890 D) $315,240
Answer: A
55) You bought a racehorse that has had a winning streak for six years, bringing in $250,000 at the end of each year before dying of a heart attack. If you paid $1,155,720 for the horse 4 years ago, what was your annual return over this 4-year period? A) 8% B) 33% C) 18% D) 12%
Answer: A
8) One bank offers you 4% interest compounded semiannually. What would the equivalent rate be if interest were compounded quarterly? A) 3.98% B) 3.96% C) 3.92% D) 1.00%
Answer: A
8) You invest $1,000 at a variable rate of interest. Initially the rate is 4% compounded annually for the first year, and the rate increases one-half of one percent annually for five years (year two's rate is 4.5%, year three's rate is 5.0%, etc.). How much will you have in the account after five years? A) $1,276 B) $1,359 C) $1,462 D) $1,338
Answer: A
12) Today is your 21st birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded quarterly. How much will be in the account on your 50th birthday? A) $159,795 B) $162,183 C) $163,832 D) $164,631
Answer: B
18) What is the future value of $500 invested at 8.94% compounded quarterly for 12.5 years (rounded to nearest $1)? A) $670 B) $1,510 C) $1,617 D) $46,739
Answer: B
22) U.S. Savings Bonds are sold at a discount. The face value of the bond represents its value on its future maturity date. Therefore, A) the current price of a $50 face value bond that matures in 10 years will be greater than the current price of a $50 face value bond that matures in 5 years. B) the current price of a $50 face value bond that matures in 10 years will be less than the current price of a $50 face value bond that matures in 5 years. C) the current prices of all $50 face value bonds will be the same, regardless of their maturity dates because they will all be worth $50 in the future. D) the current price of a $50 face value bond will be higher if interest rates increase.
Answer: B
24) If you want to have $12,500 in 57 months, how much money must you put in a savings account today? Assume that the savings account pays 4.5% and it is compounded quarterly; round to nearest $1. A) $8,459 B) $10,106 C) $10,387 D) $11,129
Answer: B
24) You decide you want your child to be a millionaire. You have a son today and you deposit $10,000 in an investment account that earns 7% per year. The money in the account will be distributed to your son whenever the total reaches $1,500,000. How old will your son be when he gets the money (rounded to the nearest year)? A) 82 years B) 74 years C) 60 years D) 49 years
Answer: B
26) If Cathy deposits $12,000 into a bank account that pays 6% interest compounded quarterly, what will the account balance be in seven years? A) 18,001 B) 18,207 C) 19,112 D) 19,344
Answer: B
26) Your grandparents deposit $2,000 each year on your birthday, starting the day you are born, in an account that pays 7% interest compounded annually. How much will you have in the account on your 21st birthday, just after your grandparents make their deposit? A) $101,802 B) $98,016 C) $86,058 D) $79,640
Answer: B
28) A 65 year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year for as long as he lives. Which of the following statements is MOST correct? A) Because of the time value of money, the man will always be better off taking the $500,000 up front. B) The higher the interest rate, the more likely the man will prefer the $500,000 lump sum. C) If the man expects to live more than 10 years, then he will prefer the annuity. D) If the man is certain the company will not default on its future payments, he should select the $50,000 per year.
Answer: B
29) Biff deposited $9,000 in a bank account, and 10 years later he closes out the account, which is worth $18,000. What annual rate of interest has he earned over the 10 years? A) 6.45% B) 7.18% C) 9.10% D) 10.0%
Answer: B
30) You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400. You auction it on eBay and receive $8,000 for your item. What annual rate of return did you earn? A) 200.00% B) 34.93% C) 30.47% D) 20.00%
Answer: B
31) You plan to go to Asia to visit friends in three years. The trip is expected to cost a total of $10,000 at that time. Your parents have deposited $5,000 for you in a Certificate of Deposit paying 6% interest annually, maturing three years from now. Uncle Lee has agreed to pay for all remaining expenses. If you are going to put Uncle Lee's gift in an investment earning 10% over the next three years, how much must he deposit today, so you can visit your friends three years from today? A) $3,757 B) $3,039 C) $5,801 D) $3,345
Answer: B
33) Which of the following conclusions would be true if you earn a higher rate of return on your investments? A) The greater the present value would be for any lump sum you would receive in the future. B) The lower the present value would be for any lump sum you would receive in the future. C) Your rate of return would not have any effect on the present value of any sum to be received in the future. D) The greater the present value would be for any annuity you would receive in the future.
Answer: B
34) You have a savings bond that will be worth $750 when it matures in 3 years, but you need cash today. If the current going rate of interest is 5%, what is your bond worth if you sell it today (rounded to the nearest dollar)? A) $675 B) $648 C) $625 D) $612
Answer: B
46) If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years, how much will be in the account at the end of the 20th year? Assume that the account earns 10% and round to the nearest $100. A) $8,300 B) $9,100 C) $8,900 D) $9,700
Answer: B
56) Jimmy just bought a new Ford SUV for his business. The price of the vehicle was $40,000. Jimmy made a $5,000 down payment and took out an amortized loan for the rest. The car dealership made the loan at 8% interest compounded monthly for five years. He is to pay back the principal and interest in equal monthly installments beginning one month from now. Determine the amount of Jimmy's monthly payment. A) $634.56 B) $709.67 C) $745.87 D) $809.33
Answer: B
59) You are ready to retire. A glance at your 401(k) statement indicates that you have $750,000. If the funds remain in an account earning 9.0%, how much could you withdraw at the beginning of each year for the next 25 years? A) $55,620 B) $70,050 C) $35,830 D) $2,500
Answer: B
6) An investment is expected to yield $300 in three years, $500 in five years, and $300 in seven years. What is the present value of this investment if our opportunity rate is 5%? A) $735 B) $864 C) $885 D) $900
Answer: B
63) Your daughter is born today and you want her to be a millionaire by the time she is 40 years old. open an investment account that promises to pay 11.5% per year. How much money must you deposit today so your daughter will have $1,000,000 by her 35th birthday? A) $28,575 B) $22,150 C) $20,100 D) $18,940
Answer: B
10) You believe in the power of compounding and decide to save $1 per day by avoiding the purchase of a soda. You deposit the $1 at the end of each day in a bank account that pays 8% interest compounded daily. You are going to take a trip in 20 years with the money you have accumulated. How much money will you have in 20 years, assuming 365 days per year? A) $7,500 B) $12,438 C) $18,032 D) $22,456
Answer: C
13) Today is your 21st birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded monthly. How much will be in the account on your 50th birthday? A) $159,795 B) $162,183 C) $163,823 D) $164,631
Answer: C
16) If you invest $750 every six months at 8 percent compounded semiannually, how much would you accumulate at the end of 10 years? A) $10,065 B) $10,193 C) $22,334 D) $21,731
Answer: C
17) You are currently earning 12% compounded semiannually. Your investment company is switching all accounts to daily compounding. What rate will give you the same effective annual rate of return as you are receiving now? A) 10.83% B) 10.97% C) 11.66% D) 11.89%
Answer: C
19) If you put $2,000 in a savings account that yields 8% compounded semiannually, how much money will you have in the account in 20 years (rounded to nearest $10)? A) $6,789 B) $8,342 C) $9,602 D) $9,972
Answer: C
21) D'Anthony borrowed $50,000 today that he must repay in 15 annual end-of-year installments of $5,000. What annual interest rate is D'Anthony paying on his loan? A) 2.222% B) 3.333% C) 5.556% D) 33.33%
Answer: C
21) The present value of a single future sum A) increases as the number of discount periods increases. B) is generally larger than the future sum. C) depends upon the number of discount periods. D) increases as the discount rate increases.
Answer: C
23) If you want to have $3,575 in 29 months, how much money must you put in a savings account today? Assume that the savings account pays 12% and it is compounded monthly; round to nearest $1. A) $3,147 B) $3,008 C) $2,679 D) $2,438
Answer: C
23) The present value of $1,000 to be received in 5 years is ________ if the discount rate is 12.78%. A) $368 B) $494 C) $548 D) $687
Answer: C
23) You deposit $5,000 per year at the end of each of the next 25 years into an account that pays 8% compounded annually. How much could you withdraw at the end of each of the 20 years following your last deposit if all withdrawals are the same dollar amount? (The twenty-fifth and last deposit is made at the beginning of the 20-year period. The first withdrawal is made at the end of the first year in the 20-year period.) A) $18,276 B) $27,832 C) $37,230 D) $43,289
Answer: C
27) You can buy a $50 savings bond today for $25 and redeem the bond in 10 years for its full face value of $50. You could also put your money in a money-market account that pays 7% interest per year. Which option is better, assuming they are of equal risk? A) The money-market account is better because it pays more interest. B) The money-market account is better because it requires a smaller investment. C) The savings bond is better because it earns a higher interest rate. D) The money market and savings bond both earn 7% interest, so they are equal in value.
Answer: C
28) Andre's wonderful parents established a college savings plan for him when he was born. They deposited $50 into the account on the last day of each month. The account has earned 10.9% compounded monthly, tax-free. How much can they withdraw on his 18th birthday to spend on his education? A) $27,560 B) $30,028 C) $33,307 D) $43,730
Answer: C
28) How much money must be put into a bank account yielding 6.42% (compounded annually) in order to have $1,671 at the end of 11 years (round to nearest $1)? A) $921 B) $886 C) $843 D) $798
Answer: C
30) How much money do I need to place into a bank account that pays a 1.08% rate in order to have $500 at the end of 7 years? A) $332.54 B) $751.81 C) $463.78 D) $629.51
Answer: C
31) Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly. Credit Onion is offering you a loan where payments are to be made semiannually; the rate on the loan is also 10%. Local Bank down the street is also offering a loan at 10% where the payments are made quarterly. Which loan has the lowest annual cost? A) Last National Bank's loan B) Local Bank's loan C) Credit Onion's loan D) All of the loans will have the same annual cost.
Answer: C
31) You estimate you'll need $200,000 per year for 25 years starting on your 65th birthday to live on during your retirement. Today is your 50th birthday and you want to make equal deposits into an account paying 9% interest per year, the first deposit today and the last deposit on your 64th birthday. How much must each deposit be (rounded to the nearest $10)? A) $99,920 B) $85,840 C) $66,909 D) $49,380
Answer: C
32) It is your 6th birthday today. You have a trust fund with $50,000 that is earning 8% per year. You expect to withdraw $30,000 per year for 7 years starting on your 22nd birthday for graduate school. How much money will be left in the trust fund after your last withdrawal (rounded to the nearest $10)? A) $125,660 B) $35,780 C) $4,140 D) You will not have enough money to pay for graduate school.
Answer: C
33) You own an annuity due contract that will pay you $3,000 per year for 12 years. You need money to pay back a loan in 5 years, and you are afraid if you get the annuity payments annually you will spend the money and not be able to pay back your loan. You decide to sell your annuity for a lump sum of cash to be paid to you five years from today. If the interest rate is 8%, what is the equivalent value of your 12-year annuity if paid in one lump sum five years from today? A) $22,008 B) $18,000 C) $35,876 D) $38,880
Answer: C
35) You borrow $25,000 to be repaid in 12 monthly installments of $2,292.00. The annual interest rate is closest to A) 1.5 percent. B) 12 percent. C) 18 percent. D) 24 percent.
Answer: C
37) You inherit $300,000 from your parents and want to use the money to supplement your retirement. You receive the money on your 65th birthday, the day you retire. You want to withdraw equal amounts at the end of each of the next 20 years. What constant amount can you withdraw each month and have nothing remaining at the end of 20 years if you are earning 7% interest compounded monthly? A) $1,200 B) $1,829 C) $2,326 D) $2,943
Answer: C
4) You have just purchased a share of preferred stock for $50.00. The preferred stock pays an annual dividend of $5.50 per share forever. What is the rate of return on your investment? A) 0.055 B) 0.010 C) 0.110 D) 0.220
Answer: C
42) A deferred annuity will pay you $500 at the end of each year for 10 years, however the first payment will not be made until three years from today (payments will be made at the end of years 3 through 12). What amount will you have to deposit today to fund this deferred annuity? Use an 8% discount rate and round your answer to the nearest $100. A) $2,200 B) $2,400 C) $2,900 D) $3,400
Answer: C
44) It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the end of the 40th year? Assume that the account pays 12% interest compounded annually and round to nearest $1000. A) $93,000 B) $766,000 C) $767,000 D) $850,000
Answer: C
45) If you put $10 in a savings account at the beginning of each month for 15 years, how much money will be in the account at the end of the 10th year? Assume that the account earns 12% compounded monthly and round to the nearest $1. A) $1,200 B) $2,323 C) $5,046 D) $3,485
Answer: C
48) How much money must you pay into an account at the beginning of each of 20 years in order to have $10,000 at the end of the 20th year? Assume that the account pays 12% per year, and round to the nearest $1. A) $1,195 B) $111 C) $124 D) $139
Answer: C
49) You are going to pay $800 into an account at the beginning of each of 20 years. The account will then be left to compound for an additional 20 years until the end of year 40, when it will turn into a perpetuity. You will receive the first payment from the perpetuity at the end of the 41st year. If the account pays 14%, how much will you receive from the perpetuity each year (rounded to nearest $1,000)? A) $140,000 B) $150,000 C) $160,000 D) $170,000
Answer: C
52) You have been accepted to study international economy at the European Central Bank (ECB) in Frankfurt. You will need $10,500 every 6 months (beginning today) for the next three years to cover tuition and living expenses. Mom and Dad have agreed to pay for your education, and want to make one deposit today in a bank account earning 6% interest, compounded semiannually. How much must they deposit now so that you can withdraw $10,500 at the beginning of each semester over the next 3 years? A) $54,187 B) $55,797 C) $58,587 D) $56,639
Answer: C
60) How much would you be willing to pay (rounded to the nearest dollar) for a 20-year annuity due if the payments are $4,500 per year and you want to earn a rate of return equal to 5.5% per year? A) $84,500 B) $63,445 C) $56,734 D) $53,777
Answer: C
62) Manny and Irene will be retiring in fifteen years and would like to buy a Mexican villa. The villa costs $500,000 today, and housing prices in Mexico are expected to increase by 6% per year. Manny and Irene want to make fifteen equal annual payments into an account, starting today, so there will be enough money to purchase the villa in fifteen years. If the account earns 10% per year, what is the amount of each deposit? A) $79,885 B) $72,623 C) $34,286 D) $32,947
Answer: C
64) Your son is born today and you want to make him a millionaire by the time he is 50 years old. You deposit $10,700 in an investment account and want to know what annual interest rate must you earn in order to have the account value equal to $1,000,000 on your son's 50th birthday. A) 17.8% B) 12.4% C) 9.5% D) 6.2%
Answer: C
65) A bond matures in 20 years, at which time it pays the owner $1,000. It also pays $70 at the end of each of the next 20 years. If similar bonds are currently yielding 7%, what is the market value of the bond? A) over $1,000 B) under $1,000 C) exactly $1,000 D) cannot be determined from the information given
Answer: C
11) Today is your 20th birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded semiannually. How much will be in the account on your 50th birthday? A) $159,795 B) $162,183 C) $163,823 D) $170,351
Answer: D
14) Today is your 21st birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded daily. How much will be in the account on your 50th birthday? A) $159,795 B) $162,183 C) $163,823 D) $164,631
Answer: D
20) Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year. A) The change will have no impact on the value of the company because its cash flow over time will be the same. B) The change will decrease the value of the company because investors don't like changes in accounting methods. C) The change will decrease the value of the company because lower tax payments this year result from lower reported income. D) The change will increase the value of the company because the value of the cash savings this year exceeds the cost of the cash payments next year.
Answer: D
22) Assume you are to receive a 10-year annuity with annual payments of $1000. The first payment will be received at the end of Year 1, and the last payment will be received at the end of Year 10. You will invest each payment in an account that pays 9 percent compounded annually. Although the annuity payments stop at the end of year 10, you will not withdraw any money from the account until 25 years from today, and the account will continue to earn 9% for the entire 25-year period. What will be the value in your account at the end of Year 25 (rounded to the nearest dollar)? A) $48,359 B) $35,967 C) $48,000 D) $55,340
Answer: D
25) You decide to borrow $250,000 to build a new home. The bank charges an interest rate of 8% compounded monthly. If you pay back the loan over 30 years, what will your monthly payments be (rounded to the nearest dollar)? A) $1,123 B) $1,237 C) $1,687 D) $1,834
Answer: D
32) A zero coupon bond pays no annual coupon interest payments. When it matures at the end of 7.5 years it pays out $1,000. If investors wish to earn 2.35% per year on this bond investment, what is the current price of the bond? (Round to the nearest dollar.) A) $533 B) $561 C) $875 D) $840
Answer: D
38) Auto Loans R Them loans you $24,000 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 9 percent. What is the monthly payment? A) $500.92 B) $543.79 C) $563.82 D) $597.24
Answer: D
40) What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today, and the discount rate is 9% (round to nearest $1). A) $36,288 B) $35,712 C) $25,699 D) $24,132
Answer: D
41) What is the present value of an annuity of $120 received at the end of each year for 11 years? Assume a discount rate of 7%. The first payment will be received one year from today (round to nearest $1). A) $250 B) $400 C) $570 D) $900
Answer: D
47) How much money must you pay into an account at the end of each of 20 years in order to have $100,000 at the end of the 20th year? Assume that the account pays 6% per year, and round to the nearest $1. A) $1,840 B) $2,028 C) $2,195 D) $2,718
Answer: D
50) You are going to pay $100 into an account at the beginning of each of the next 40 years. At the beginning of the 41st year you buy a 30 year annuity whose first payment comes at the end of the 41st year (the accounts earn 12%). How much will you receive at the end of the 41st year (i.e., the first annuity payment). Round to nearest $100. A) $93,000 B) $7,800 C) $11,400 D) $10,700
Answer: D
51) A retirement plan guarantees to pay you or your estate a fixed amount for 25 years. At the time of retirement you will have $100,000 to your credit in the plan. The plan anticipates earning 7% interest annually over the period you receive benefits. How much will your annual benefits be assuming the first payment occurs one year from your retirement date? A) $6,182 B) $7,272 C) $8,101 D) $8,581
Answer: D
53) You are thinking of buying a craft emporium. It is expected to generate cash flows of $30,000 per year in years 1 through 5, and $40,000 per year in years 6 through 10. If the appropriate discount rate is 8%, what amount are you willing to pay for the emporium? A) $135,288 B) $167,943 C) $215,048 D) $228,476
Answer: D
54) You have contracted to buy a house for $250,000, paying $30,000 down and taking out a fully amortizing loan for the balance, at a 5.7% annual rate for 30 years. What will your monthly payment be if they make equal monthly installments over the next 30 years (to the nearest dollar)? A) $1,035 B) $1,123 C) $1,189 D) $1,277
Answer: D
57) You just graduated and landed your first job in your new career. You remember that your favorite finance professor told you to begin the painless job of saving for retirement as soon as possible, so you decided to put away $2,000 at the end of each year in a Roth IRA. Your expected annual rate of return on the IRA is 7.5%. How much will you accumulate at retirement after 40 years of investing? (Note: this may assume that you are even retiring early.) A) $94,426 B) $247,921 C) $1,088,632 D) $454,513
Answer: D
58) Congratulations! You are the proud winner of the multi-state Sour Ball Lottery. You are to receive $2,000,000 at the end of each year for the next 20 years. While the Lottery Commission refers to this as a $40,000,000 jackpot, if you choose the "cash option" they will give you much less than that; you can receive a lump sum payment today equal to the present value of the ordinary annuity instead of the 20 annual payments. If the discount rate that the Lottery Commission uses to determine the lump sum payoff is 7%, what is your payoff if you select the cash option? A) $26,945,332 B) $39,707,503 C) $42,977,401 D) $21,188,028
Answer: D
61) How much would you be willing to pay (rounded to the nearest dollar) for a 20-year ordinary annuity if the payments are $4,500 per year and you want to earn a rate of return equal to 5.5% per year? A) $84,500 B) $63,445 C) $56,734 D) $53,777
Answer: D
7) Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.) A) a bank CD that pays 7.00 percent interest compounded daily B) a bank CD that pays 7.10 percent compounded monthly C) a bank CD that pays 7.30 percent annually D) a bank CD that pays 7.25 percent compounded semiannually
Answer: D
9) A financial analyst tells you that investing in stocks will allow you to double your money in 7 years. What annual rate of return is the analyst assuming you can earn? A) 8.76% B) 9.87% C) 10.01% D) 10.41%
Answer: D
