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Question;41. Theo needs $40,000 as a down payment for a house 6;years from now. He earns 3.5 percent on his savings. Theo can either deposit;one lump sum today for this purpose or he can wait a year and deposit a lump;sum. How much additional money must he deposit if he waits for one year rather;than making the deposit today?;A. $878.98;B. $911.13;C. $1,138.90;D. $1,348.03;E. $1,420.18;42. One year ago, you invested $1,800. Today it is;worth $1,924.62. What rate of interest did you earn?;A. 6.59 percent;B. 6.67 percent;C. 6.88 percent;D. 6.92 percent;E. 7.01 percent;43. According to the Rule of 72, you can do which one;of the following?;A. double your money in five years at 7.2 percent interest;B. double your money in 7.2 years at 8 percent interest;C. double your money in 8 years at 9 percent interest;D. triple your money in 7.2 years at 5 percent interest;E. triple your money at 10 percent interest in 7.2 years;44. Forty years ago, your mother invested $5,000.;Today, that investment is worth $430,065.11. What is the average annual rate of;return she earned on this investment?;A. 11.68 percent;B. 11.71 percent;C. 11.78 percent;D. 11.91 percent;E. 12.02 percent;45. Sixteen years ago, Alicia invested $1,000. Eight;years ago, Travis invested $2,000. Today, both Alicia's and Travis' investments;are each worth $2,400. Assume that both Alicia and Travis continue to earn;their respective rates of return. Which one of the following statements is;correct concerning these investments?;A. Three years from today, Travis' investment will be worth more than;Alicia's.;B. One year ago, Alicia's investment was worth less than Travis;investment.;C. Travis earns a higher rate of return than Alicia.;D. Travis has earned an average annual interest rate of 3.37 percent.;E. Alicia has earned an average annual interest rate of 6.01 percent.;46. Penn Station is saving money to build a new;loading platform. Two years ago, they set aside $24,000 for this purpose.;Today, that account is worth $28,399. What rate of interest is Penn Station;earning on this investment?;A. 6.39 percent;B. 7.47 percent;C. 8.78 percent;D. 9.23 percent;E. 9.67 percent;47. Fifteen years ago, Jackson Supply set aside;$130,000 in case of a financial emergency. Today, that account has increased in;value to $330,592. What rate of interest is the firm earning on this;money?;A. 5.80 percent;B. 6.42 percent;C. 6.75 percent;D. 7.28 percent;E. 7.53 percent;48. Fourteen years ago, your parents set aside $7,500;to help fund your college education. Today, that fund is valued at $26,180.;What rate of interest is being earned on this account?;A. 7.99 percent;B. 8.36 percent;C. 8.51 percent;D. 9.34 percent;E. 10.06 percent;49. Some time ago, Julie purchased eleven acres of land;costing $36,900. Today, that land is valued at $214,800. How long has she owned;this land if the price of the land has been increasing at 10.5 percent per;year?;A. 13.33 years;B. 16.98 years;C. 17.64 years;D. 19.29 years;E. 21.08 years;50. On your ninth birthday, you received $300 which;you invested at 4.5 percent interest, compounded annually. Your investment is;now worth $756. How old are you today?;A. age 29;B. age 30;C. age 31;D. age 32;E. age 33;Essay Questions;51. You want to deposit sufficient money today into a;savings account so that you will have $1,000 in the account three years from;today. Explain why you could deposit less money today if you could earn 3.5;percent interest rather than 3 percent interest.;52. You are considering two separate investments. Both;investments pay 7 percent interest. Investment A pays simple interest and;Investment B pays compound interest. Which investment should you choose, and;why, if you plan on investing for a period of 5 years?;53. What lesson does the future value formula provide;for young workers who are looking ahead to retiring some day?;54. You are considering two lottery payment options;Option A pays $10,000 today and Option B pays $20,000 at the end of ten years.;Assume you can earn 6 percent on your savings. Which option will you choose if;you base your decision on present values? Which option will you choose if you;base your decision on future values? Explain why your answers are either the;same or different.;55. At an interest rate of 10 percent and using the;Rule of 72, how long will it take to double the value of a lump sum invested;today? How long will it take after that until the account grows to four times;the initial investment? Given the power of compounding, shouldn't it take less;time for the money to double the second time?;Multiple Choice Questions;56. Assume the total cost of a college education will;be $300,000 when your child enters college in 16 years. You presently have;$75,561 to invest. What rate of interest must you earn on your investment to;cover the cost of your child's college education?;A. 7.75 percent;B. 8.50 percent;C. 9.00 percent;D. 9.25 percent;E. 9.50 percent;57. At 11 percent interest, how long would it take to;quadruple your money?;A. 6.55 years;B. 6.64 years;C. 13.09 years;D. 13.28 years;E. 13.56 years;58. Assume the average vehicle selling price in the;United States last year was $41,996. The average price 9 years earlier was;$29,000. What was the annual increase in the selling price over this time;period?;A. 3.89 percent;B. 4.20 percent;C. 4.56 percent;D. 5.01 percent;E. 5.40 percent;59. You're trying to save to buy a new $160,000;Ferrari. You have $56,000 today that can be invested at your bank. The bank;pays 6 percent annual interest on its accounts. How many years will it be;before you have enough to buy the car? Assume the price of the car remains;constant.;A. 16.67 years;B. 17.04 years;C. 17.41 years;D. 17.87 years;E. 18.02 years;60. Imprudential, Inc. has an unfunded pension;liability of $850 million that must be paid in 25 years. To assess the value of;the firm's stock, financial analysts want to discount this liability back to;the present. The relevant discount rate is 6.5 percent. What is the present;value of this liability?;A. $159,803,162;B. $171,438,907;C. $176,067,311;D. $184,519,484;E. $191,511,367;61. You have just received notification that you have;won the $1.4 million first prize in the Centennial Lottery. However, the prize;will be awarded on your 100th birthday, 70 years from now. The;appropriate discount rate is 8 percent. What is the present value of your;winnings?;A. $4,288.16;B. $6,404.20;C. $15,309.91;D. $23,333.33;E. $25,000.00;62. Your coin collection contains fifty-four 1941;silver dollars. Your grandparents purchased them for their face value when they;were new. These coins have appreciated at a 10 percent annual rate. How much;will your collection be worth when you retire in 2060?;A. $3,611,008;B. $3,987,456;C. $4,122,394;D. $4,421,008;E. $4,551,172;63. In 1895, the winner of a competition was paid;$110. In 2006, the winner's prize was $70,000. What will the winner's prize be;in 2040 if the prize continues increasing at the same rate?;A. $389,400;B. $421,122;C. $479,311;D. $505,697;E. $548,121;64. Suppose that the first comic book of a classic;series was sold in 1954. In 2000, the estimated price for this comic book in;good condition was about $340,000. This represented a return of 27 percent per;year. For this to be true, what was the original price of the comic book in;1954?;A. $5.00;B. $5.28;C. $5.50;D. $5.71;E. $6.00;65. Suppose you are committed to owning a $140,000;Ferrari. You believe your mutual fund can achieve an annual rate of return of 9;percent and you want to buy the car in 7 years. How much must you invest today;to fund this purchase assuming the price of the car remains constant?;A. $74,208.16;B. $76,584.79;C. $77,911.08;D. $78,019.82;E. $79,446.60;66. You have just made a $1,500 contribution to your;individual retirement account. Assume you earn a 12 percent rate of return and;make no additional contributions. How much more will your account be worth when;you retire in 25 years than it would be if you waited another 10 years before;making this contribution?;A. $8,306.16;B. $9,658.77;C. $16,311.18;D. $16,907.17;E. $17,289.75;67. You are scheduled to receive $30,000 in two years.;When you receive it, you will invest it for 5 more years, at 8 percent per;year. How much money will you have 7 years from now?;A. $39,909.19;B. $41,381.16;C. $44,079.84;D. $47,209.19;E. $51,414.73;68. You expect to receive $9,000 at graduation in 2;years. You plan on investing this money at 10 percent until you have $60,000.;How many years will it be until this occurs?;A. 18.78 years;B. 19.96 years;C. 21.90 years;D. 23.08 years;E. 25.00 years

Paper#44087 | Written in 18-Jul-2015

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