Question 1

How much money must you pay into an account at the beginning of each of 30 years in order to have $10,000 at the end of the 30th year? Assume that the account pays 11% per annum,and round to the nearest $1.

Accepted Answer

A)  $39
B)  $46
C)  $50
D)  None of the above D

Question 2

Your investment goal is to have $3,000,000 in 40 years for retirement.You decide to invest in a mutual fund today that pays 12% per year compounded monthly.How much must you invest at the end of each month to meet your investment goal? Round to the nearest $1.

Accepted Answer

A)  $245
B)  $255
C)  $285
D)  $305
E)  $315 B

Question 3

You wish to borrow $12,000 to be repaid in 60 monthly installments of $257.93.The annual interest rate is

Accepted Answer

A)  10.50%.
B)  12.75%.
C)  15.25%.
D)  6.50%.
E)  8.80%. A

Question 4

The present value of an annuity increases as the discount rate increases.

Accepted Answer

A) True 
 B)False

Question 5

What is the present value of $300 received at the beginning of each year for five years? Assume that the first payment is not received until the beginning of the third year (thus the last payment is received at the beginning of the seventh year).Use a 10% discount rate,and round your answer to the nearest $100.

Accepted Answer

A)  $1,100
B)  $1,000
C)  $900
D)  $1,200

Question 6

What is the present value of an annuity of $100 received at the end of each year for seven years? The first payment will be received one year from today (round to nearest $10).The discount rate is 13%.To solve this problem with a financial calculator,the correct choice is

Accepted Answer

A)  N=7,i=13,PMT= 100,FV=0,solve for PV
B)  N=7,i=13,PV= 100,FV=0,solve for FV
C)  N=7,i=13,PMT= 100,FV=100,solve for PV
D)  N=7,i=.13,PMT= 100,FV=0,solve for PV

Question 7

A friend of yours plans to begin saving for retirement by depositing $2,000 at the end of each year for the next 25 years.If she can earn 10% annually on her investment,how much will she have accumulated at the end of 25 years?

Accepted Answer

A)  $50,000
B)  $196,692
C)  $100,000
D)  $216,361

Question 8

If you put $10 in a savings account at the beginning of each year for 11 years,how much money will be in the account at the end of the 11th year? Assume that the account earns 11%,and round to the nearest $100.

Accepted Answer

A)  $220
B)  $200
C)  $190
D)  $180

Question 9

What is the value (price)of a bond that pays $400 semiannually for 10 years and returns $10,000 at the end of 10 years? The market discount rate is 10% paid semiannually.

Accepted Answer

The answer of What is the value (price)of a bond...

Question 10

Michael Bilkman has an opportunity to buy a perpetuity that pays $24,350 annually.His required rate of return on this investment is 14.25%.At what price would Michael be indifferent to buying or not buying the investment? Round off to the nearest $1.

Accepted Answer

A)  $83,470
B)  $170,877
C)  $95,621
D)  $121,709

Question 11

Ingrid Birdman can earn a nominal annual rate of return of 12%,compounded semiannually.If Ingrid made 40 consecutive semiannual deposits of $500 each,with the first deposit being made today,how much will she accumulate at the end of Year 20? Round off to the nearest $1.

Accepted Answer

A)  $52,821
B)  $57,901
C)  $82,024
D)  $64,132

Question 12

A commercial bank will loan you $7,500 for two years to buy a car.The loan must be repaid in 24 equal monthly payments.The annual interest rate on the loan is 12% of the unpaid balance.What is the amount of the monthly payments?

Accepted Answer

A)  $282.43
B)  $390.52
C)  $369.82
D)  $353.05

Question 13

To repay a $2,000 loan from your bank,you promise to make equal payments every six months for the next five years totaling $3,116.20.What annual rate of interest will you be paying?

Accepted Answer

The answer of To repay a $2,000 loan from your...

Question 14

What is the present value of $250 received at the beginning of each year for 21 years? Assume that the first payment is received today.Use a discount rate of 12%,and round your answer to the nearest $10.

Accepted Answer

A)  $1,870
B)  $2,090
C)  $2,117
D)  $3,243

Question 15

If you put $510 in a savings account at the beginning of each year for 30 years,how much money will be in the account at the end of the 30th year? Assume that the account earns 5%,and round to the nearest $100.

Accepted Answer

A)  $33,300
B)  $32,300
C)  $33,900
D)  None of the above

Question 16

Jay Coleman just graduated.He plans to work for five years and then leave for the Australian "Outback" country.He figures that he can save $3,500 a year for the first three years and $5,000 a year for the next two years.These savings will start one year from now.In addition,his family gave him a $2,500 graduation gift.If he puts the gift,and the future savings when they start,into an account that pays 7.75% compounded annually,what will his financial "stake" be when he leaves for Australia five years from now? Round off to the nearest $1.

Accepted Answer

A)  $36,082
B)  $24,725
C)  $30,003
D)  $27,178

Question 17

What is the value on 1/1/14 of the following cash flows? Use a 10% discount rate,and round your answer to the nearest $1.00.
Date Cash Received Amount of Cash
1/1/16 $100
1/1/17 $200
1/1/18 $300
1/1/19 $400
1/1/20 $500

Accepted Answer

A)  $1,500
B)  $880
C)  $968
D)  $1,065

Question 18

If a loan of $10,000 is paid back in equal annual end-of-year payments of $2,570.69 during the next five years,what is the annual interest rate on the loan?

Accepted Answer

A)  2%
B)  5%
C)  9%
D)  12%

Question 19

What is the value today of an investment that pays $500 every year at year-end during the next 15 years if the annual interest rate is 9%?

Accepted Answer

A)  $4,030.50
B)  $7,500.00
C)  $3,500.00
D)  $7,000.00

Question 20

What is the present value of an investment that pays $10,000 every year at year-end for the next five years and $15,000 every year at year-end for years six through 10? The annual rate of interest for the investment is 9%.

Accepted Answer

A)  $125,000.00
B)  $97,250.00
C)  $135,173.00
D)  $76,827.50

Exam 6: The Time Value of Money-Annuities and Other Topics