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##### You invest $1,000 in an account that pays interest at 12 percent annual rate. How much would your investment....

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Question;You invest $1,000 in an account that pays interest at 12;percent annual rate. How much would your investment grow to in 5 years?;a. 1,806;b. 1,762;c. 1,600;d. 1,272;You invest $1,000 in an account that pays interest at 12;percent annual rate, compounded quarterly. How much would your investment;grow to in 5 years?;a. 1,762;b. 1,272;c. 1,806;d. 1,600;You invest $1,000 in an investment that grew to $60,000 in;35 years. What annual rate of interest did you earn?;a. 5.25%;b. 12.41%;c. 10.17%;d. 8.24%;You plan to purchase a BMW M5 sedan in six years for;$85,000. You have saved $30,000 for the car and plan to invest this money to;purchase the car. What rate of interest would you have to;earn to be able to purchase the car after six years?;a. 17%;b. 13%;c. 15%;d. 19%;You plan to purchase a BMW M5 sedan for $85,000. You have;saved $30,000 for the car and plan to invest this money to purchase the car.;How many years would you have to wait if you can earn 12;percent annual rate, compounded quarterly?;a. 8.81;b. 35.23;c. 6.53;d. 19.54;How long would it take to quadruple your money at an annual;rate of 8 percent?;a. 19 years;b. 18 years;c. 17 years;d. 16 years;You purchased a rare baseball card for $6,000 as an;investment. Three years later you accidentally spilled coffee on it while;working on;your finance homework, and were forced to sell it for;$4,500. What rate of return did you earn? (Hint: It is negative!);a. ?8.86%;b. ?14.22;c. ?9.14%;d. ?11.1%;Your rich uncle has promised to pay you $20,000 as a gift;upon graduation in 2 years. You plan to invest it for 5 more years at 8.5;percent;compounded monthly and use the money you have after 7 years;as a down payment to purchase a house. What will be the amount of the;down payment?;a. 36,180;b. 28,500c. 30,540;d. 40,400;Shady Investment Company offers an investment that promises;to double your money in 15 months. This investment promises to credits;interest to your account every quarter. What quarterly rate;must the investment earn to meet the promised return?;a. 22.59;b. 14.87;c. 59.48;d. 36.99;Loan Shark Company provides short term loans. They will loan;you $4 today and expect $5 back in one week! What is the APR for this;loan?;a. 25%;b. 1,300%;c. 1,125%;d. 125%;Loan Shark Company provides short term loans. They will loan;you $4 today and expect $5 back in one week! What is the EAR for this;loan?;a. 1,300,000.00%;b. 67,600.00%;c. 10,947,544.25%;d. 875,287.42%;Recently, the Islanders signed Rick DiPietro to a 15 year;contract. The contract is for equal payments of $4.5 million each year for the;next 15 years. If you assume a 10 percent discount rate;what is the true value (i.e. PV) of this contract?;a. $85 million;b. $34 million;c. $67.5 million;d. $143 million;Recently, the Islanders signed Rick DiPietro to a 15 year;contract. The contract is for equal payments of $4.5 million each year for the;next 15 years. If you assume a 10 percent discount rate;what is the future value of this contract?;a. $67.5 million;b. $34 million;c. $143 million;d. $85 million;You plan to retire with $500,000 savings. You can make a;deposit of $150 per month into a retirement saving account that pays 12;percent annual interest compounded monthly. How many years;will you have to wait to retire?;a. 98 years;b. 30 years;c. 18 years;d. 277 years;You plan to retire with $500,000 savings. How much should;you deposit annually into a retirement saving account that pays 10 percent;annual interest if you plan to retire in 15 years?;a. $47,258;b. $15,737;c. $33,333;d. $18,415You buy a house worth $350,000 with 20% down;payment and a 30-year mortgage on the remaining value. If your monthly payment;is;$1,500, what is the annual percentage rate (APR) for the;mortgage?;a. 2.82%;b. 4.98%;c. 6.12%;d. 5.10%;You buy a house worth $350,000 with 20% down payment and a;30-year mortgage on the remaining value. If your monthly payment is;$1,500, what is the effective annual rate (EAR) for the;mortgage?;a. 6.12%;b. 5.10%;c. 4.98%;d. 2.82%;You borrow $350,000 at 8 percent compounded monthly. How;many years will it take to pay back the loan if the monthly payment is;$2,960?;a. 10;b. 19.5;c. 156;d. 233.6;Note: Use this information for next two questions.;Ms. Patricia Sullivan plans to create a fund from her;lottery winnings to meet three objectives. First, she wants to create a fund so;that her;mother can withdraw $20,000 per month for the remainder of;her expected life of 20 years. Second, she wants to pay the down payment;for her brother to buy a house upon graduation from college;four years from now. She expects that he will need $100,000 for down;payment at that time. Finally, she wants to retire after 15;years and be able to withdraw $30,000 per month starting a month from her;retirement. She expects to live for 30 years after;retirement. All monies earn 8 percent compounded monthly and all cash flows;occur at;the end of the relevant period.;How much money does she need to invest today to meet her first;objective?;a. $3.7 million;b. $2.4 million;c. $4.5 million;d. $3.2 million;How much money does she need to invest today to meet all;three objectives?;a. $2.4 million;b. $3.2 million;c. $4.5 million;d. $3.7 million;You plan to purchase a car. The dealer is offering special;financing at an annual percentage rate (APR) of 8 percent for 100 percent of;the;car value. The inflation premium is 3.5 percent. If the pure;rate in the market is 3 percent, what is the risk premium using the;multiplicative form?;a. 4.72%;b. 2.69%;c. 7.48%;d. 1.31%;e. 6.24%;The real rate is 4.2 percent and the nominal APR is 7;percent. What is the expected inflation premium? Use exact formulation.;a. 7.48%b. 6.24%;c. 2.69%;d. 1.31%;e. 4.72%;The pure rate of interest is 2.5 percent and the inflation;premium is 5 percent. If you require a risk premium of 3.5 percent, what is the;nominal APR rate? Use exact formulation.;a. 11.00%;b. 8.75%;c. 11.39%;d. 6.09%;e. 6.00%;The pure rate of interest is 2.5 percent and the inflation;premium is 5 percent. If you require a risk premium of 3.5 percent, what is the;real rate? Use exact formulation.;a. 8.75%;b. 11.00%;c. 6.09%;d. 6.00%;e. 11.39%;The pure rate of interest is 2.5 percent and the inflation;premium is 5 percent. If you require a risk premium of 3.5 percent, what is the;risk-free rate? Use exact formulation. (Hint: Set risk;premium equal to zero!);a. 6.09%;b. 7.50%;c. 8.75%;d. 7.62%;e. 6.00%;The APR on a financial security is 12 percent. If the;inflation premium is 4 percent and the pure rate is 3 percent, what risk;premium is;required by the market?;a. 4.74%;b. 3.81%;c. 5.00%;d. 5.37%;e. 4.56%;Use the following information for this and the following;three questions.;A bank wishes to earn a pure rate of 2 percent, and the;inflation premium is 1.6%. The bank uses the Fair Issac Corporation (FICO);score;to determine car loan rate for its customers. Based on an;automobile loan applicant?s FICO score, it uses the following risk premium;adjustment to the rate it quotes.;FICO Score Risk Premium %;>740 1.00%;720-739 1.10%;700-719 1.30%;680-699 1.60%;660-679 1.90%;640-659 2.20%620-639 2.50%;740;e. 700-719;The average FICO score in the United States is about 692. What;is the APR rate offered by the bank to the average customer?;a. 5.29%;b. 5.91%;c. 6.22%;d. 11.40%;e. 5.60%

Paper#37856 | Written in 18-Jul-2015

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