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finance problems




Question;1. Assume;that you purchase a 6-year, 8 percent savings certificate for $1,000. If interest is compounded an?nually, what;will be the value of the certificate when it matures?;a. $630.17 b. $1,469.33 c. $1,677.10 d. $1,586.87 e. $1,766.33;2. A savings certificate similar to the one;in the previous problem is available with the exception that interest is;compounded semiannually. What is the;difference between the ending value of the savings certificate compounded;semiannually and the one compounded annually?;a. The;semiannual certificate is worth $14.16 more than the annual certificate.;b. The semiannual;certificate is worth $14.16 less than the annual certificate.;c. The;semiannual certificate is worth $21.54 more than the annual certificate.;d. The;semiannual certificate is worth $21.54 less than the annual certificate.;e. The;semiannual certificate is worth the same as the annual certificate.;3. A;friend promises to pay you $600 two years from now if you loan him $500 today. What annual interest rate is your friend;offering?;a. 7.55% b. 8.50% c. 9.54% d. 10.75% e. 11.25%;4. At an;inflation rate of 9 percent, the purchasing power of $1 would be cut in half in;just over 8 years (some calculators round to 9 years). How long, to the nearest year, would it take;for the purchasing power of $1 to be cut in half if the inflation rate were;only 4 percent?;a. 12;years b. 15 years c. 18 years d. 20;years e. 23 years;5. You are offered an investment opportunity;with the ?guar?antee? that your investment will double in 5 years. Assuming annual compounding, what annual rate;of return would this investment provide?;a. 40.00% b. 100.00% c. 14.87% d. 20.00% e. 18.74%;6. You decide to begin saving toward the;purchase of a new car in 5 years. If you;put $1,000 at the end of each of the next 5 years in a savings account paying 6;percent compounded annually, how much will you accumulate after 5 years?;a. $6,691.13 b. $5,637.09 c. $1,338.23 d. $5,975.32 e. $5,731.94;7. Refer to Self-Test Problem 6. What would be the ending amount if the;payments were made at the beginning of each year?;a. $6,691.13 b. $5,637.09 c. $1,338.23 d. $5,975.32 e. $5,731.94;8. Refer to Self-Test Problem 6. What would be the ending amount if $500;payments were made at the end of each 6-month period for 5 years and the;account paid 6 percent compounded semi?annually?;a. $6,691.13 b. $5,637.09 c. $1,338.23 d. $5,975.32 e. $5,731.94;9. Calculate the present value of $1,000 to;be received at the end of 8 years.;Assume an interest rate of 7 percent.;a. $582.01 b. $1,718.19 c. $531.82 d. $5,971.30 e. $649.37;10. Jane Smith has $20,000 in a;brokerage account, and she plans to contribute an additional $7,500 to the;account at the end of every year. The;brokerage account has an expected annual return of 8 percent. If Jane?s goal is to accumulate $375,000 in;the account, how many years will it take for Jane to reach her goal?;a. 5.20 b. 10.00 c. 12.50 d. 16.33 e. 18.40;11. How much would you be willing to pay today for an;invest?ment that would return $800 each year at the end of each of the next 6;years? Assume a discount rate of 5;percent.;a. $5,441.53 b. $4,800.00 c. $3,369.89 d. $4,060.55 e. $4,632.37;12. You have applied for a mortgage of;$60,000 to finance the purchase of a new home. The bank will require you to;make annual payments of $7,047.55 at the end of each of the next 20 years. Determine the interest rate in effect on this;mortgage.;a. 8.0% b. 9.8% c. 10.0% d. 5.1% e. 11.2%;13. If you would like to accumulate $7,500;over the next 5 years, how much must you deposit each six months, starting six;months from now, given a 6 percent interest rate and semiannual compounding?;a. $1,330.47 b. $879.23 c. $654.23 d. $569.00 e. $732.67;14. A company is offering bonds that pay $100;per year inde?finitely. If you require a;12 percent return on these bonds (that is, the discount rate is 12 percent), what;is the value of each bond?;a. $1,000.00 b. $962.00 c. $904.67 d. $866.67 e. $833.33;15. What is the present value (t = 0) of the;following cash flows if the discount rate is 12 percent?;12%;0 1 2 3 4 5;0 2,000;2,000 2,000 3,000 -4,000;a. $4,782.43 b. $4,440.51 c. $4,221.79 d. $4,041.23 e. $3,997.98;16. What is the effective annual percentage rate (EAR) of 12;percent compounded monthly?;a. 12.00% b. 12.55% c. 12.68% d. 12.75% e. 13.00%;17. Martha Mills, manager of Plaza Gold Emporium, wants to sell on;credit, giving customers 3 months in which to pay. However, Martha will have to borrow from her;bank to carry the accounts receivable.;The bank will charge a simple 16 percent, but with monthly compounding. Martha wants to quote a simple interest rate;to her customers (all of whom are expected to pay on time at the end of 3;months) which will exactly cover her;financing costs. What simple;annual rate should she quote to her credit customers?;a. 15.44% b. 19.56% c. 17.23% d. 16.21% e. 18.41%;18. Self-Test Problem 12 refers to a 20-year mortgage of;$60,000. This is an amortized loan. How;much principal will be repaid in the second year?;a. $1,152.30 b. $1,725.70 c. $5,895.25 d. $7,047.55 e. $1,047.55;19. You have $1,000 invested in an account that pays 16 percent;compounded annually. A commission agent;(called a ?finder?) can locate for you an equally safe deposit that will pay 16;percent, compounded quarterly, for 2 years.;What is the maximum amount you should be willing to pay him now as a fee;for locating the new account?;a. $10.92 b. $13.78 c. $16.14 d. $16.78 e. $21.13;20. The present value (t = 0) of the following cash flow stream is;$11,958.20 when discounted at 12 percent an?nually. What is the value of the missing t = 2 cash;flow?;12%;0 1 2 3 4;PV = 11,958.20 2,000? 4,000;4,000;a. $4,000.00 b. $4,500.00 c. $5,000.00 d. $5,500.00 e. $6,000.00


Paper#51265 | Written in 18-Jul-2015

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