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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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