Q&A Hero

Q: What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?a. $969b. $1,020c. $1,074d. $1,131e. $1,187

Q: What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?a. $1,537.69b. $1,618.62c. $1,699.55d. $1,784.53e. $1,873.76

Q: What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semiannually?a. $3,089b. $3,251c. $3,422d. $3,602e. $3,782

Q: What's the future value of $1,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually?a. $1,819b. $1,915c. $2,016d. $2,117e. $2,223

Q: You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you earn if you bought this asset?a. 4.93%b. 5.19%c. 5.46%d. 5.75%e. 6.05%

Q: Your sister paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $10,000 at the end of the 5th year. What is the expected rate of return on this investment?a. 6.77%b. 7.13%c. 7.50%d. 7.88%e. 8.27%

Q: At a rate of 6.5%, what is the future value of the following cash flow stream?a. $526.01b. $553.69c. $582.83d. $613.51e. $645.80

Q: You sold your motorcycle and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?a. $5,987b. $6,286c. $6,600d. $6,930e. $7,277

Q: What is the present value of the following cash flow stream at a rate of 8.0%?a. $7,917b. $8,333c. $8,772d. $9,233e. $9,695

Q: What is the present value of the following cash flow stream at a rate of 12.0%?a. $9,699b. $10,210c. $10,747d. $11,284e. $11,849

Q: What is the present value of the following cash flow stream at a rate of 6.25%?a. $411.57b. $433.23c. $456.03d. $480.03e. $505.30

Q: What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?a. $77.19b. $81.25c. $85.31d. $89.58e. $94.06

Q: Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today. You need money today to open a new restaurant, and your uncle offers to give you $120,000 for the annuity. If you sell it, what rate of return would your uncle earn on his investment?a. 6.85%b. 7.21%c. 7.59%d. 7.99%e. 8.41%

Q: Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity?a. 3.44%b. 3.79%c. 4.17%d. 4.58%e. 5.04%

Q: Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.a. 7.12%b. 7.49%c. 7.87%d. 8.26%e. 8.67%

Q: Your aunt has $500,000 invested at 5.5%, and she now wants to retire. She wants to withdraw $45,000 at the beginning of each year, beginning immediately. When she makes her last withdrawal (at the beginning of a year), she also wants to have enough left in the account so that you can make a final withdrawal of $50,000 at the end of that year (her last withdrawal is at the beginning of the year, your withdrawal is at the end of that same year). What is the maximum number of $45,000 withdrawals that she can make and still have enough in the account so that you can make a $50,000 withdrawal at the end of the year of her last withdrawal? (Hint: If your solution for N is not an integer, round down to the nearest whole number.)a. 13b. 14c. 15d. 16e. 17

Q: Your Aunt Elsa has $500,000 invested at 6.5%, and she plans to retire. She wants to withdraw $40,000 at the beginning of each year, starting immediately. What is the maximum number of whole payments that can be withdrawn before the account is exhausted, i.e., before the account balance would become negative? (Hint: Round down to the nearest whole number.)a. 18b. 19c. 20d. 21e. 22

Q: Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, beginning at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account. What is the maximum number of $35,000 withdrawals that he can make and still have at least $25,000 left in the account? (Hint: If your solution for N is not an integer, round down to the nearest whole number.)a. 12b. 13c. 14d. 15e. 16

Q: Your uncle just won the weekly lottery, receiving $375,000, which he invested at a 7.5% annual rate. He now has decided to retire, and he wants to withdraw $35,000 at the end of each year, starting at the end of this year. What is the maximum number of whole payments that can be withdrawn before the account is exhausted, i.e., before the account balance would become negative? (Hint: Round down to the nearest whole number.)a. 22b. 23c. 24d. 25e. 26

Q: Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the beginning of each of the next 20 years?a. $22,598.63b. $23,788.03c. $25,040.03d. $26,357.92e. $27,675.82

Q: You were left $100,000 in a trust fund set up by your grandfather. The fund pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?a. $24,736b. $26,038c. $27,409d. $28,779e. $30,218

Q: Your aunt wants to retire and has $375,000. She expects to live for another 25 years, and she also expects to earn 7.5% on her invested funds. How much could she withdraw at the beginning of each of the next 25 years and end up with zero in the account?a. $28,243.21b. $29,729.70c. $31,294.42d. $32,859.14e. $34,502.10

Q: Your aunt wants to retire and has $375,000. She expects to live for another 25 years and to earn 7.5% on her invested funds. How much could she withdraw at the end of each of the next 25 years and end up with zero in the account?a. $28,843.38b. $30,361.46c. $31,959.43d. $33,641.50e. $35,323.58

Q: Suppose you earned a $275,000 bonus this year and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years?a. $28,532b. $29,959c. $31,457d. $33,030e. $34,681

Q: What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%?a. $8,509b. $8,957c. $9,428d. $9,924e. $10,446

Q: Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave her as well off financially as with the annuity?a. $225,367b. $237,229c. $249,090d. $261,545e. $274,622

Q: A salt mine you inherited will pay you $25,000 per year for 25 years, with the first payment being made today. If you think a fair return on the mine is 7.5%, how much should you ask for it if you decide to sell it?a. $284,595b. $299,574c. $314,553d. $330,281e. $346,795

Q: Now that your uncle has decided to retire, he wants to buy an annuity that will provide him with $85,000 of income a year for 25 years, with the first payment coming immediately. The going rate on such annuities is 5.15%. How much would it cost him to buy the annuity today?a. $1,063,968b. $1,119,966c. $1,178,912d. $1,240,960e. $1,303,008

Q: Because your mother is about to retire, she wants to buy an annuity that will provide her with $75,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%. How much would it cost her to buy the annuity today?a. $825,835b. $869,300c. $915,052d. $963,213e. $1,011,374

Q: Your father is considering purchasing an annuity that pays $5,000 at the beginning of each year for 5 years. He could earn 4.5% on his money in other investments with equal risk. What is the most he should pay for the annuity?a. 20,701b. $21,791c. $22,938d. $24,085e. $25,289

Q: A new investment opportunity for you is an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?a. $1,412.84b. $1,487.20c. $1,565.48d. $1,643.75e. $1,725.94

Q: A perpetuity pays $85 per year and costs $950. What is the rate of return?a. 8.95%b. 9.39%c. 9.86%d. 10.36%e. 10.88%

Q: What's the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%?a. $4,750b. $5,000c. $5,250d. $5,513e. $5,788

Q: What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?a. $11,262.88b. $11,826.02c. $12,417.32d. $13,038.19e. $13,690.10

Q: An uncle of yours who is about to retire wants to sell some of his stock and buy an annuity that will provide him with income of $50,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost him to buy such an annuity today?a. $574,924b. $605,183c. $635,442d. $667,214e. $700,575

Q: After receiving a reward for information leading to the arrest of a notorious criminal, you are considering investing it in an annuity that pays $5,000 at the end of each year for 20 years. You could earn 5% on your money in other investments with equal risk. What is the most you should pay for the annuity?a. $50,753b. $53,424c. $56,236d. $59,195e. $62,311

Q: Your friend offers to pay you an annuity of $2,500 at the end of each year for 3 years in return for cash today. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?a. $5,493.71b. $5,782.85c. $6,087.21d. $6,407.59e. $6,744.83

Q: What is the PV of an ordinary annuity with 5 payments of $4,700 if the appropriate interest rate is 4.5%?a. $16,806b. $17,690c. $18,621d. $19,601e. $20,633

Q: What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate interest rate is 5.5%?a. $16,576b. $17,449c. $18,367d. $19,334e. $20,352

Q: You want to open a sushi bar 3 years from now, and you plan to save $7,000 per year, beginning immediately. You will make 3 deposits in an account that pays 5.2% interest. Under these assumptions, how much will you have 3 years from today?a. $20,993b. $22,098c. $23,261d. $24,424e. $25,645

Q: You want to purchase a motorcycle 4 years from now, and you plan to save $3,500 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today?a. $16,112b. $16,918c. $17,763d. $18,652e. $19,584

Q: You would like to travel in South America 5 years from now, and you can save $3,100 per year, beginning one year from today. You plan to deposit the funds in a mutual fund that you think will return 8.5% per year. Under these conditions, how much would you have just after you make the 5th deposit, 5 years from now?a. $18,369b. $19,287c. $20,251d. $21,264e. $22,327

Q: You want to buy new kitchen appliances 2 years from now, and you plan to save $8,200 per year, beginning one year from today. You will deposit your savings in an account that pays 6.2% interest. How much will you have just after you make the 2nd deposit, 2 years from now?a. $15,260b. $16,063c. $16,908d. $17,754e. $18,642

Q: You are hoping to buy a new boat 3 years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the 3rd deposit, 3 years from now?a. $11,973b. $12,603c. $13,267d. $13,930e. $14,626

Q: Your investment advisor has recommended your invest in bonds that pay 6.0%, compounded annually. If you invest $10,000 today, how many years will it take for your investment to grow to $30,000?a. 12.37b. 13.74c. 15.27d. 16.97e. 18.85

Q: Your investment account pays 8.0%, compounded annually. If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20?a. 5.14b. 5.71c. 6.35d. 7.05e. 7.84

Q: Brockman Corporation's earnings per share were $3.50 last year, and its growth rate during the prior 5 years was 9.0% per year. If that growth rate were maintained, how many years would it take for Brockman's EPS to triple?a. 9.29b. 10.33c. 11.47d. 12.75e. 14.02

Q: Your bank pays 4% interest annually. You have $2,500 invested in the bank. How long will it take for your funds to double?a. 14.39b. 15.15c. 15.95d. 16.79e. 17.67

Q: You have $5,000 invested in a bank that pays 3.8% annually. How long will it take for your funds to triple?a. 23.99b. 25.26c. 26.58d. 27.98e. 29.46

Q: Wildwoods, Inc. earned $1.50 per share five years ago. Its earnings this year were $3.20. What was the growth rate in earnings per share (EPS) over the 5-year period?a. 15.54%b. 16.36%c. 17.18%d. 18.04%e. 18.94%

Q: Ten years ago, Kronan Corporation earned $0.50 per share. Its earnings this year were $2.20. What was the growth rate in earnings per share (EPS) over the 10-year period?a. 15.17%b. 15.97%c. 16.77%d. 17.61%e. 18.49%

Q: You have purchased a U.S. Treasury bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000. What interest rate will you earn on this bond?a. 3.82%b. 4.25%c. 4.72%d. 5.24%e. 5.77%

Q: You have just purchased a U.S. Treasury bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate will you earn on this bond?a. 4.37%b. 4.86%c. 5.40%d. 6.00%e. 6.60%

Q: Suppose a Google.com bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today?a. $2,819.52b. $2,967.92c. $3,116.31d. $3,272.13e. $3,435.74

Q: The going rate of interest on a 5-year treasury bond is 4.25%. You have one that will pay $2,500 five years from now. How much is the bond worth today?a. $1,928.78b. $2,030.30c. $2,131.81d. $2,238.40e. $2,350.32

Q: You expect to receive $5,000 in 25 years. How much is it worth today if the discount rate is 5.5%?a. $1,067.95b. $1,124.16c. $1,183.33d. $1,245.61e. $1,311.17

Q: How much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?a. $438.03b. $461.08c. $485.35d. $510.89e. $537.78

Q: Suppose a State of New Mexico bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?a. $651.60b. $684.18c. $718.39d. $754.31e. $792.02

Q: Suppose a State of North Carolina bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 5.5%, how much is the bond worth today?a. $585.43b. $614.70c. $645.44d. $677.71e. $711.59

Q: Your bank offers a savings account that pays 3.5% interest, compounded annually. How much will $500 invested today be worth at the end of 25 years?a. $1,122.54b. $1,181.62c. $1,240.70d. $1,302.74e. $1,367.88

Q: Your bank offers a savings account that pays 3.5% interest, compounded annually. If you invest $1,000 in the account, then how much will it be worth at the end of 25 years?a. $2,245.08b. $2,363.24c. $2,481.41d. $2,605.48e. $2,735.75

Q: How much would $100, growing at 5% per year, be worth after 75 years?a. $3,689.11b. $3,883.27c. $4,077.43d. $4,281.30e. $4,495.37

Q: How much would $1, growing at 3.5% per year, be worth after 75 years?a. $12.54b. $13.20c. $13.86d. $14.55e. $15.28

Q: Cochrane Associate's net sales last year were $525 million. If sales grow at 7.5% per year, how large (in millions) will they be 8 years later?a. $845.03b. $889.51c. $936.33d. $983.14e. $1,032.30

Q: Cyberhost Corporation's sales were $225 million last year. If sales grow at 6% per year, how large (in millions) will they be 5 years later?a. $271.74b. $286.05c. $301.10d. $316.16e. $331.96

Q: Your bank offers a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. If you invest $2,000 in the CD, how much will you have when it matures?a. $3,754.27b. $3,941.99c. $4,139.09d. $4,346.04e. $4,563.34

Q: JG Asset Services is recommending that you invest $1,500 in a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures?a. $1,781.53b. $1,870.61c. $1,964.14d. $2,062.34e. $2,165.46

Q: How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?a. $591.09b. $622.20c. $654.95d. $689.42e. $723.89

Q: Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?a. $205.83b. $216.67c. $228.07d. $240.08e. $252.08

Q: You plan to invest some money in a bank account. Which of the following banks provides you with the highest effective rate of interest?a. Bank 1; 6.1% with annual compounding.b. Bank 2; 6.0% with monthly compounding.c. Bank 3; 6.0% with annual compounding.d. Bank 4; 6.0% with quarterly compounding.e. Bank 5; 6.0% with daily (365-day) compounding.

Q: Which of the following bank accounts has the lowest effective annual return?a. An account that pays 8% nominal interest with daily (365-day) compounding.b. An account that pays 8% nominal interest with monthly compounding.c. An account that pays 8% nominal interest with annual compounding.d. An account that pays 7% nominal interest with daily (365-day) compounding.e. An account that pays 7% nominal interest with monthly compounding.

Q: Which of the following bank accounts has the highest effective annual return?a. An account that pays 8% nominal interest with daily (365-day) compounding.b. An account that pays 8% nominal interest with monthly compounding.c. An account that pays 8% nominal interest with annual compounding.d. An account that pays 7% nominal interest with daily (365-day) compounding.e. An account that pays 7% nominal interest with monthly compounding.

Q: Which of the following statements is CORRECT? a. If CF0 is positive and all the other CFs are negative, then you can still solve for I. b. If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0. c. If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost. d. To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs. It is impossible to find the value of I without a computer or financial calculator. e. If you solve for I and get a negative number, then you must have made a mistake.

Q: Which of the following statements is CORRECT? a. If CF0 is positive and all the other CFs are negative, then you cannot solve for I. b. If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0. c. If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost. d. To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise. e. If you solve for I and get a negative number, then you must have made a mistake.

Q: You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? a. If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant. b. A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ. c. The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD. d. The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE. e. The present value of ORD exceeds the present value of DUE, while the future value of DUE exceeds the future value of ORD.

Q: You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? a. If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant. b. The present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE. c. The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD. d. The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE. e. The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD.

Q: Which of the following statements is CORRECT? a. An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. b. The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due. c. If a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%. d. If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. e. The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

Q: Which of the following statements is CORRECT? a. An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. b. The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity. c. If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%. d. If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. e. The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

Q: Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? a. Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit. b. The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity. c. A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage. d. A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate. e. If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%.

Q: Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? a. Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit. b. The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity. c. A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage. d. A bank loan's nominal interest rate will always be equal to or less than its effective annual rate. e. If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.