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##### Accounting Homework Assignment

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Question;Which one of the following statements related to annuities and perpetuities is correct?A perpetuity comprised of $100 monthly payments is worth more than an annuity comprised of $100 monthlypayments, given an interest rate of 12 percent, compounded monthly.Most loans are a form of a perpetuity.Perpetuities are finite but annuities are not.An ordinary annuity is worth more than an annuity due given equal annual cash flows for ten years at 7 percentinterest, compounded annually.The present value of a perpetuity cannot be computed, but the future value can.A preferred stock pays an annual dividend of $2.60. What is one share of this stock worth today if the rate of return is 11.75percent?$18.48$28.80$30.55$22.13$20.00Which one of the following statements correctly states a relationship?Time and future values are inversely related, all else held constant.Interest rates and time are positively related, all else held constant.An increase in the discount rate increases the present value, given positive rates.An increase in time increases the future value given a zero rate of interest.Time and present value are inversely related, all else held constant.You want to have $65,000 in your savings account 9 years from now, and you're prepared to make equal annualdeposits into the account at the end of each year.Required:If the account pays 6.5 percent interest, what amount must you deposit each year?$7,222.22$4,224.98$4,225.01$5,540.47$9,851.25Which one of the following terms is used to describe a loan wherein each payment is equal in amount and includes both interestand principal?pure discount loanmodified loaninterest-only loanballoon loanamortized loanAn investment will pay you $23,000 in 7 years. The appropriate discount rate is 10 percent compounded daily.Required: What is the present value?$11,765.23$11,422.56$10,851.43$11,802.64$11,993.68A monthly interest rate expressed as an annual rate would be an example of which one of the following rates?stated rateeffective annual ratediscounted annual rateperiodic monthly rateconsolidated monthly rateWhich of the following statements related to interest rates are correct?I. Annual interest rates consider the effect of interest earned on reinvested interest payments.II. When comparing loans, you should compare the effective annual rates.III. Lenders are required by law to disclose the effective annual rate of a loan to prospective borrowers.IV. Annual and effective interest rates are equal when interest is compounded annually.I and II onlyII and III onlyI, II, and III onlyII and IV onlyII, III, and IV onlyThe entire repayment of which one of the following loans is computed simply by computing a single future value?interest-only loanamortized loanpure discount loanbullet loanballoon loanWhat is the interest rate charged per period multiplied by the number of periods per year called?annual percentage rateperiodic interest ratedaily interest rateeffective annual ratecompound interest rateWhich one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principalpayment?interest-only loanamortized loanballoon loanmodified loanpure discount loanWhich one of the following terms is defined as a loan wherein the regular payments, including both interest and principalamounts, are insufficient to retire the entire loan amount, which then must be repaid in one lump sum?interest-only loanremainder loanballoon loanamortized loancontinuing loanWhich one of the following statements concerning interest rates is correct?The effective annual rate decreases as the number of compounding periods per year increases.Savers would prefer annual compounding over monthly compounding.Borrowers would prefer monthly compounding over annual compounding.The effective annual rate equals the annual percentage rate when interest is compounded annually.For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.You are comparing two annuities which offer quarterly payments of $2,500 for five years and pay 0.75 percent interest permonth. Annuity A will pay you on the first of each month while annuity B will pay you on the last day of each month. Which oneof the following statements is correct concerning these two annuities?These two annuities have equal present values as of today and equal future values at the end of year five.Annuity A has a smaller future value than annuity B.Annuity B is an annuity due.Annuity B has a smaller present value than annuity A.These two annuities have equal present values but unequal futures values at the end of year five.Dinero Bank offers you a $31,000, 7-year term loan at 8 percent annual interest.Required:What will your annual loan payment be? (Do not round your intermediate calculations.)$5,176.50$5,954.24$5,752.15$6,159.41$6,371.04Given an interest rate of 6.0 percent per year, what is the value at date t = 10 of a perpetual stream of $600payments that begins at date t = 18?$6,650.57$10,000.00$6,274.12$6,517.56$6,783.58An ordinary annuity is best defined by which one of the following?equal payments paid at regular intervals over a stated time periodincreasing payments paid for a definitive period of timeunequal payments that occur at set intervals for a limited period of timeincreasing payments paid foreverequal payments paid at regular intervals of time on an ongoing basisYou're prepared to make monthly payments of $320, beginning at the end of this month, into an account that pays12 percent interest compounded monthly.Required:How many payments will you have made when your account balance reaches $24,425? (Do not round yourintermediate calculations.)51.362.7520.4657Which one of the following accurately defines a perpetuity?unending equal payments paid at either equal or unequal time intervalsa limited number of equal payments paid in even time incrementsunending equal payments paid at equal time intervalspayments of equal amounts that are paid irregularly but indefinitelyvarying amounts that are paid at even intervals foreverThe appropriate discount rate for the following cash flows is 6 percent compounded quarterly.Year1Cash Flow$90080023401,400Required:What is the present value of the cash flows?$2,714.37$2,669.98$1,286.84$2,661.15$2,607.93Suppose an investment offers to triple your money in 36 months (don't believe it).Required:What rate of return per quarter are you being offered?7.15%12.98%8.63%9.59%10.55%You want to buy a new sports car from Muscle Motors for $52,000. The contract is in the form of a 36-monthannuity due at a 9.50 percent APR.Required:What will your monthly payment be?$1,665.71$1,619.58$1,570.00$1,652.63$1,685.68You are planning to make monthly deposits of $140 into a retirement account that pays 9 percent interestcompounded monthly. If your first deposit will be made one month from now, how large will your retirementaccount be in 27 years?$172,574.87$201,024.55$191,451.95$181,879.35$2,297,423.39Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 13 percent per year. Thebank uses daily compounding on its loans.Required:What interest rate is the bank required by law to report to potential borrowers?13.45%11.00%12.22%13.88%13.00%An amortized loan:requires that all payments be equal in amount and include both principal and interest.requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term.may have equal or increasing amounts applied to the principal from each loan payment.repays both the principal and the interest in one lump sum at the end of the loan term.requires the principal amount to be repaid in even increments over the life of the loan.You are looking at a one-year loan of $10,000. The interest rate is quoted as 10 percent plus 5 points. A point on aloan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common withhome mortgages. The interest rate quotation in this example requires the borrower to pay 5 points to the lender upfront and repay the loan later with 10 percent interest.Required:What rate would you actually be paying here?17.37%14.21%4.50%10.00%15.79%What is the present value of $1,600 per year, at a discount rate of 7 percent, if the first payment is received 4 yearsfrom now and the last payment is received 27 years from now?$2,993.76$14,680.23$14,979.83$18,350.93$14,722.34What is the future value of $500 in 23 years assuming an interest rate of 11 percent compounded semiannually?$709.24$5,575.79$617.92$5,869.26$5,513.13If you put up $24,000 today in exchange for a 8.00 percent, 17-year annuity, what will the annual cash flow be?$2,809.11$2,458.20$5,704.56$2,631.11$1,411.76You need a 15-year, fixed-rate mortgage to buy a new home for $180,000. Your mortgage bank will lend you themoney at a 9 percent APR for this 180-month loan. However, you can afford monthly payments of only $950, soyou offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.Required:How large will this balloon payment have to be for you to keep your monthly payments at $950?$75,227.5$86,336.26$321,421.44$331,362.31$344,616.8

Paper#42371 | Written in 18-Jul-2015

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