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##### Financial Management Chapter 5 Quiz

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Question;1) What is the highest effective rate attainable;with a 12 percent nominal rate?;A) 12.00%;B) 12.55%;C) 12.75%;D) 12.95%;2) The future value of a $2,000 annuity due;deposited at 8 percent compounded annually for each of the next 10 years is;A) $28,974;B) $31,292;C) $14,494;D) $13,420;3) The present value of a $25,000 perpetuity at;a 14 percent discount rate is __________.;A) $178,571;B) $285,000;C) $350,000;D) $219,298;4) A generous philanthropist plans to make a;onetime endowment to a renowned heart research center which would provide the;facility with $250,000 per year into perpetuity. The rate of interest is expected to be 8;percent for all future time periods. How;large must the endowment be?;A) $2,314,814;B) $2,000,000;C) $3,125,000;D) $3,000,000;5) A local bank is offering a zero coupon;certificate of deposit for $25,000. At;maturity, three years from now, the investor will receive $32,000. What is the;rate of return on this investment?;A) 3 percent;B) 6 percent;C) 9 percent;D) 12 percent;6) Entertainer's Aid plans five annual colossal;concerts, each in a different nation's capital. The concerts will raise funds;for an endowment which would provide the World Wide Hunger Fund with $3,000,000;per year into perpetuity. The endowment will be given at the end of the fifth;year. The rate of interest is expected to be 9 percent in all future periods.;How much must Entertainer's Aid deposit each year to accumulate to the required;amount?;A) $5,569,479;B) $3,333,333;C) $1,830,275;D) $8,568,980;7) The rate of interest agreed upon;contractually charged by a lender or promised by a borrower is the;interest rate.;A) effective;B) nominal;C) discounted;D) continuous;8) If a United States Savings bond can be;purchased for $29.50 and has a maturity value at the end of 25 years of $100;what is the annual rate of return on the bond?;A) 5 percent;B) 6 percent;C) 7 percent;D) 8 percent;9) If a United States Savings bond can be;purchased for $14.60 and has a maturity value at the end of 25 years of $100;what is the annual rate of return on the bond?;A) 6 percent;B) 7 percent;C) 8 percent;D) 9 percent;10) The future value of $200 received today and;deposited at 8 percent compounded semiannually for three years is __________.;A) $380;B) $158;C) $253;D) $252;11) The future value of $200 received today and;deposited at 8 percent for three years is __________.;A) $248;B) $252;C) $158;D) $200;12) Chris is planning for her son's college;education to begin five years from today. She estimates the yearly tuition;books, and living expenses to be $5,000 per year for a four year degree. How;much must Chris deposit today, at an interest rate of 8 percent, for her son to;be able to withdraw $5,000 per year for four years of college?;A) $20,000;B) $13,620;C) $39,520;D) $11,277;13) Susan is planning to accumulate $40,000 by;the end of 5 years by making 5 equal annual deposits. If she plans to make her;first deposit today and can earn an annual compound rate of 9 percent on her;investment, how much must each deposit be in order to accumulate the $40,000?;A) $6,132;B) $6,683;C) $23,844;D) $9,434;14) What is the rate of return on an investment;of $124,090 if the company expects to receive $10,000 per year for the next 30;years?;A) 7 percent;B) 4 percent;C) 1 percent;D) 0 percent;15) $1,200 is received at the beginning of year;1, $2,200 is received at the beginning of year 2, and $3,300 is received at the;beginning of year 3. If these cash flows;are deposited at 12 percent, their combined future value at the end of year 3;is __________.;A) $ 6,700;B) $17,000;C) $12,510;D) $ 8,141;16) Pam borrows $19,500 from the bank at 8;percent annually compounded interest to be repaid in 10 equal annual;installments. The interest paid in the third year is __________.;A) $1,336.00;B) $1,560.14;C) $2,906.11;D) $1,947.10;17) A wealthy art collector has decided to endow;her favorite art museum by establishing funds for an endowment which would;provide the museum with $1,000,000 per year for acquisitions into perpetuity.;The art collector will give the endowment upon her fiftieth birthday 10 years;from today. She plans to accumulate the endowment by making annual end-of-year;deposits into an account. The rate of interest is expected to be 6 percent in;all future periods. How much must the art collector deposit each year to;accumulate to the required amount?;A) $1,575,333;B) $736,000;C) $1,264,446;D) $943,396;18) Janice would like to send her parents on a;cruise for their 25th wedding anniversary. She has priced the cruise at $15,000;and she has 5 years to accumulate this money. How much must Janice deposit;annually in an account paying 10 percent interest in order to have enough money;to send her parents on the cruise?;A) $1,862;B) $2,457;C) $3,000;D) $2,234;19) In future value or present value problems;unless stated otherwise, cash flows are assumed to be;A) at the end of a time;period.;B) at the beginning of a;time period.;C) in the middle of a time;period.;D) spread out evenly over a;time period.;20) Donna makes annual end-of-year payments of;$5,043.71 on a four year loan with an interest rate of 13 percent. The original;principal amount was __________.;A) $24,462;B) $15,000;C) $ 3,092;D) $20,175;21) Young Sook owns stock in a company which has;consistently paid a growing dividend over the last 10 years. The first year;Young Sook owned the stock, she received $4.50 per share and in the 10th year;she received $4.92 per share. What is the growth rate of the dividends over the;last 10 years?;A) 5 percent;B) 4 percent;C) 2 percent;D) 1 percent;22) The future value interest factor is;A) always greater than 1.0.;B) sometimes negative.;C) always less than 0.;D) never greater than 25.;23) Teffan borrows $4,500 from the bank at 9;percent annually compounded interest to be repaid in three equal annual;installments. The interest paid in the third year is __________.;A) $277.95;B) $405.00;C) $352.00;D) $147.00;24) Find the present value of the following;stream of cash flows, assuming that the firm's opportunity cost is 9 percent.;Year Amount;1-5 $10,000/yr.;6-10 16,000/yr.;A) $13,252;B) $141,588;C) $10,972;D) $79,348;25) A ski chalet in Aspen now costs $250,000.;Inflation is expected to cause this price to increase at 5 percent per year;over the next 10 years before Barbara and Phil retire from successful;investment banking careers. How large an equal annual end-o-fyear deposit must;be made into an account paying an annual rate of interest of 13 percent in;order to buy the ski chalet upon retirement?;A) $8,333;B) $13,572;C) $25,005;D) $22,109

Paper#45288 | Written in 18-Jul-2015

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