Finance Test bank chapter 4

2) F oragi v enpos i t i v ei nt e r e s tr a t e ,t hef ut ur ev al ueof$ 10 0i nc r e a s e swi t ht hepa s s a geoft i me .Thus , t he l onge rt hepe r i odoft i me ,t hegr e a t e rt hef ut ur ev al ue . Answer :

TRUE T o p i c :

F ut ur eVa l ue Que s t i o nS t a t us :

Pr e v i o usEd i t i o n

3) Thegr e a t e rt hei nt e r e s tr a t ea ndt hel onge rt hepe r i odoft i me ,t hehi ghe rt hepr e s e ntva l ue . Answer :

F ALSE T o p i c :

Pr e s e ntVa l ue Que s t i o nS t a t us :


4) Ev er y t hi nge l s ebe i nge qua l ,t hehi ghe rt hei nt e r e s tr a t e ,t hehi ghe rt hef ut ur ev al ue . Answer :

TRUE T o p i c :



5) Fut ur ev al uei nc r e a s e swi t hi nc r e a s e si nt hei nt e r e s tr a t eort hepe r i odoft i mef undsa r el e f tonde pos i t . 4

TRUE T o p i c :



6) Ev er y t hi nge l s eb ei nge qua l ,t hehi ghe rt hedi s c o untr a t e ,t hehi ghe rt hepr e s e ntv al ue . Answer :

F ALSE T o p i c :



7) Ev er y t hi ngel s eb e i nge qua l ,t hel ong ert hepe r i odoft i me ,t hel o we rt hepr e s e ntva l ue . Answer :

TRUE T o p i c :



8) Thepr e s e ntva l uei nt e r e s tf a c t orf oripe r c e n ta ndnpe r i odsi st hei nv e r s eoft hef u t ur ev al uei nt e r e s t f a c t orf oripe r c e nta ndnpe r i ods . Answer :

TRUE T o p i c : 5



9) Gi v e nadi s c o untr a t eo fz e r ope r c e nta ndnpe r i odso ft i me ,t hepr e s e nt a l uei nt e r e s tf a c t ora ndf ut ur e -v va l uei nt e r e s tf a c t o ra r eequa l . Answer :

TRUE T o p i c :



6

1 0 ) Whent heamountear nedonadepos i thasbec omepar toft hepr i nci palatt heendofas pec i fiedt i me pe r i odt hec onc e pti sc a l l e d A)

di s c ounti nt e r e s t . B) c o mpo undi nt e r e s t . C)

pr i ma r yi nt e r e s t . D)

f ut ur ev al ue . Answer :

B T o p i c :

Ba s i cTi meVa l ueCo n c e p t s Que s t i o nS t a t us :


1 1 ) Forpos i t i vei nt e r e s tr a t e s ,t hef ut ur eva l uei nt e r e s tf a c t o ri s A)

a l wa ysg r e a t e rt ha n1 . 0 . B) s o me t i me sne g a t i v e . C)

a l wa ysl e s st ha n0 . D)

7

ne v ergr e a t e rt ha n2 5 . Answer :

A T o p i c :

F ut ur eVa l ue( Eq ua t i o n4 . 5 ) Que s t i o nS t a t us :


1 2 ) Thef ut ur ev al ueof$ 1 0 0r e c e i v e dt o da ya ndde pos i t e da t6pe r c e ntf o rf o ury e a r si s A)

$ 1 2 6 . B) $79 . C)

$ 1 2 4 . D)

$ 1 1 6 . Answer :

A T o p i c :

F ut ur eVa l ue( Eq ua t i o n4 . 4 ,4 . 5 ,a nd4 . 6 ) Que s t i o nS t a t us :


1 3 ) I ft hei nt e r e s tr a t ei sz e r o,t hef ut ur eva l uei nt e r e s tf a c t o re qua l s_ __ __ __ _. A) 8

. 0 -1 B) 0 . 0 C)

1 . 0 D)

2 . 0 Answer :

C T o p i c :



1 4 ) Ast hei nt e r e s tr a t ei nc r e a s e sf ora nygi ve npe r i od,t hef ut ur eva l uei nt e r e s tf a c t orwi l l A)

de c r e a s e . B) i nc r e as e . C)

r emai nunchanged. D)

movet owar d1. Answer :

B T o p i c :

9



10

1 5 ) Thef ut ur eva l ueof$ 2 0 0r e c e i v e dt o da ya ndde pos i t e da t8pe r c e ntf o rt hr e eye a r si s A)

$ 2 4 8 . B) $ 2 5 2 . C)

$ 1 5 8 . D)

$ 2 0 0 . Answer :

B T o p i c :



1 6 ) Thepr e s e ntv al ueo f$ 1 00t ober e c e i v e d1 0ye a r sf r o mt o da y , a s s umi nga no ppo r t uni t yc os tof9pe r c e n t , i s A)

$ 2 3 6 . B) $ 6 9 9 . C)

$42 . D)

$75 . 11

C T o p i c :

Pr e s e n tVa l ue( Eq ua t i o n4 . 9 ,4 . 1 1,4 . 1 2) Que s t i o nS t a t us :


1 7 ) Thea mo unto fmo ne yt ha two ul dha v et obei n ve s t e dt o da ya tag i v e ni nt e r e s tr a t eo v e ras pe c i fie dpe r i o d i no r de rt oe qua laf ut ur ea mounti sc a l l e d A)

f ut ur ev al ue . B) pr e s e ntv al ue . C)

f ut ur eva l uei nt e r e s tf a c t o r . D)

pr e s e ntva l uei n t e r e s tf a c t o r . Answer :

B T o p i c :



1 8 ) Thepr e s e ntv al ueo f$ 2 00t ober e c e i v e d1 0ye a r sf r o mt o da y , a s s umi nga no ppo r t uni t yc os tof1 0pe r c e n t , i s A)

$50 . 12

B) $ 2 0 0 . C)

$ 5 1 8 . D)

$77 . Answer :

D T o p i c :

Pr e s e n tVa l ue( Eq ua t i o n4 . 9 ,4 . 1 1,4 . 1 2) Que s t i o nS t a t us :


1 9 ) Forpos i t i vei nt e r e s tr a t e s , t hepr e s e ntva l uei nt e r e s tf a c t o ri s A)

be t we e n2 . 0and0. 0. B) a l wa ysne ga t i v e. C)

a l wa ysl e s st ha n1 . 0 . D)

adi s c o untr a t e . Answer :

C T o p i c :

Pr e s e ntVa l ue( Eq ua t i o n4 . 1 1) 13

Que s t i o nS t a t us :


14

2 0 ) Thef ut ur ev a l ueofadol l a r_ _ __ __ __a st hei nt e r e s tr a t ei nc r e a s e sa nd_ __ __ _ __t hef a r t he ri nt hef ut ur e a ni ni t i a lde pos i ti st ober e c ei ve d. A)

de c r e a s e s ;de c r e a s e s B) de c r e a s e s ;i nc r e a s e s C)

i nc r e as e s ;i nc r e as e s D)

i nc r e a s e s ;de c r e a s e s Answer :

C T o p i c :



2 1 ) Thea nnua lr a t eofr e t ur ni sv ar i ous l yr e f e r r e dt oa st he A)

di s c o untr a t e . B) oppor t uni t yc o s t . C)

c os to fc api t al . D)

15

a l loft heabo ve . Answer :

D T o p i c :

Ba s i cTi meVa l ueCo n c e p t s Que s t i o nS t a t us :


2 2 ) I ft hepr e s e nt a l uei nt e r e s tf a c t orf oripe r c e nta ndnpe r i odsi s0 . 2 70 ,t hef ut ur e-va l uei nt e r e s tf a c t o rf o r -v t hes ameiandni s A)

0 . 7 3 0 . B) 3 . 7 9 7 . C)

3 . 7 0 4 . D)

c a n no tb ede t e r mi ne d. Answer :

C T o p i c :

Ba s i cTi meVa l ueCo nc e p t s( Eq ua t i o n4 . 5 ) Que s t i o nS t a t us :


2 3 ) Forag i ve ni nt e r e s tr a t e ,a st hel e ngt hoft i meunt i lr e c e i ptoft hef undsi nc r e a s e s ,t hepr e s e ntva l ue i nt e r es tf ac t or 16

A)

c ha ng espr o por t i ona l l y . B) i nc r e as e s . C)

de c r e a s e s . D)

r emai nsunchanged. Answer :

C T o p i c :

Pr e s e ntVa l ue( Eq ua t i o n4 . 1 1) Que s t i o nS t a t us :


2 4 ) Ca l c ul a t et hef ut ur ev al ueof$ 4, 6 00r e c e i ve dt oda yi fi ti sde pos i t e da t9pe r c e ntf ort hr e ey ea r s . Answer :

FV= $ 4, 6 00 ( 1 . 2 95 )= $ 5, 9 5 7 T o p i c :



2 5 ) Ca l c ul a t et hepr e s e n tv a l ueof$ 8 9, 0 0 0t ober e c e i v e di n1 5y e a r s , a s s umi nga no ppo r t uni t yc o s to f1 4 pe r c e nt . Answer : 17

PV= 89 , 0 00 ( 1 . 4 0)= $ 1 2, 4 6 0 T o p i c :

F ut ur eVa l ue( Eq ua t i o n4 . 9 ,4 . 1 1,a nd4. 1 2) Que s t i o nS t a t us :


2 6 ) AuntTi l l i eha sde pos i t e d$ 3 3 , 0 0 0t o da yi na na c c o untwhi c hwi l le a r n10pe r c e nta nnua l l y .S hepl a nst o l e a vet hef undsi nt hi sa c c ountf ors e ve nye ar se ar ni ngi nt e r e s t .I ft hegoa loft hi sde pos i ti st oc o ve ra f ut ur eo bl i g a t i o no f$ 6 5 , 0 0 0 ,wha tr e c o mme nda t i o nwo ul dy ouma k et oAuntTi l l i e ? Answer :

FV= 3 3, 0 00 ( 1 . 9 49 )= $ 64 , 3 17 AuntTi l l i ewi l lo nl yha v e$ 6 4 , 3 1 7a tt hee ndo fs e v e ny e a r sunde rt hes t a t e da r r a ng e me nt .S hemus tfind a na c c o untwi t hahi ghe ri nt e r e s tr a t eorde pos i tal a r g e rs um t o da y . T o p i c :



2 7 ) Chi naMa nuf a c t ur i ngAg e nt s , I nc . i sp r e p a r i ngafiv e-y e arpl a n.T oda y , s a l e sa r e$1 , 0 00 , 0 00 .I ft hegr o wt h r a t ei ns a l e si spr o j e c t e dt obe1 0pe r c e nto ve rt hene x tfi vey ea r s , wha twi l lt hedol l a ra mountofs a l e sb e i ny e a rfiv e ? Answer :

FV= 1, 0 00 , 0 00 ( 1 . 6 11 )= $ 1, 6 11 , 0 00 T o p i c :



2 8 ) Col i nhasi nher i t ed$6, 000f r om t hedeat hofGr andmaAnna.Hewoul dl i ket ous et hi smoneyt obuyhi s 18

mom Hayl eyanew s coot erc os t i ng$7, 0002year sf r om now.Wi l lCol i nhaveenoughmoneyt obuyt he gi f ti fhedepos i t shi smoneyi nanacc ountpayi ng8per ce ntcompoundeds emi nnua l l y? -a Answer :

n= 2, m = 2,i= 8% FV= PV( FVI F4%, 4)= 6, 0 00 ( 1 . 1 70 )= $ 7, 0 20 Ye s ,Co l i nwi l lha v ee no ug hmo ne yt obuyt hes c o o t e r . T o p i c :



2 9 ) DanandJ i aar enewl ywedsandhavej us tpur chas edacondomi ni um f or$70, 000.Si ncet hec ondoi sver y s ma l l ,t he yho pet omo vei nt oas i ngl e-f ami l yhous ei n5year s .How muchwi l lt hei rcondowort hi n5 y e ar si fi nfla t i oni se x pe c t e dt obe8pe r c e nt ? Answer :

PV= $70, 0 00,i= 8%,n= 5 FV= PV( FVI F)= 7 0, 0 00 ( 1 . 4 69 )= $1 02 , 8 30 . T o p i c :



3 0 ) Congr a t ul a t i o ns ! Yo uha v ej us twont hel o t t e r y !Ho we v e r ,t hel o t t e r ybur e a uha sj us ti nf or me dy out ha t y ouc a nt a k eyo urwi nni ng si no neo ft wowa y s . Cho i c eXpa y s$ 1 , 0 0 0 , 0 0 0 .Cho i c eYpa y s$ 1 , 7 5 0 , 0 0 0a tt he endoffiveyear sf r om now.Us i ngadi s countr at eof5per ce nt , basedonpr es entval ues ,whi chwoul dyou c h oo s e ?Us i ngt hes a medi s c o untr a t eo f5pe r c e n t ,b as e do nf ut ur ev a l ue s ,whi c hwo ul dy ouc h oo s e ? Wha tdoy ourr e s ul t ss u gg e s ta sag e ne r a lr ul ef o ra ppr o a c hi ngs uc hpr o bl e ms ?( Ma key o urc h oi c e sb a s e d pur e l yo nt het i mev a l ueo fmo ne y . ) Answer :

ThePVofA = $ 1 , 0 0 0 , 0 0 0 ;ThePVo fB= $ 1 , 3 7 1 , 0 0 0 ;TheF Vo fA = $ 1 , 2 7 6 , 0 0 0 ;TheFVo fB= $1 , 5 00 , 0 00 . Ba s e do nb ot hpr e s e ntv al ue sa ndf ut ur eva l ue s , Bi st hebe t t e rc h oi c e . Thes t ude nts h oul dr e c o gni z et ha t findi ngpr e s e ntv a l ue sa n dfindi ngf ut ur ev al ue sa r es i mpl yr e v e r s epr o c e s s e so fo nea no t he r ,a ndt ha t 19

c hoosi ngbet wee nt wol umps umsbas edonPVwi l lal waysgi vet hesamer es ul tasc hoosi ngbet weent he s amet wol umps umsbas e donFV. T o p i c :

Pr e s e n tVa l uea ndFut ur eVa l ue( Eq ua t i o n4 . 4 ,4 . 5 ,4 . 6 ,4 . 9 ,4 . 1 1,4 . 1 2) Que s t i o nS t a t us :


Le a r ni ngGo al3 :

F i ndt hef ut ur ev a l uea ndt hepr e s e ntv a l ueo fbo t ha no r di na r ya nnui t yanda na nnui t y due , a ndfindt hepr e s e ntv a l ueo fape r pe t ui t y . 1) Ana nnui t yduei sa na mo untt ha to c c u r sa tt heb e gi nni ngofe a c hpe r i o d. Answer :

TRUE T o p i c :

Annui t i e s Que s t i o nS t a t us :


2) F ut ur eVa l ueI nt e r e s tF a c t o rAnnui t y( FVI F A)i st hef ut ur ev a l ueof$ 1or di na r ya nnui t yf o rnpe r i o d compoundedatiper ce nt . Answer :

TRUE T o p i c :

F ut ur eVa l ueo f a nAnnui t y Que s t i o nS t a t us :


20

3) Ano r di na r ya nnui t yi sa na nnui t yi nwhi c hc a s hflo wso c c ur sa tt heb e gi nni ngofe a c hpe r i o d. Answer :

F ALSE T o p i c :



4) Thef ut ur ev al ueofa na nnui t yduei sa l wa y sgr e a t e rt ha nt hef ut ur ev a l ueofa no t he r wi s ei de nt i c a l or di na r ya nnui t yf ori nt e r e s tr a t e sgr e a t e rt ha nz er o . Answer :

TRUE T o p i c :

F ut u r eVa l u eo f a nAn nu i t yDu e Que s t i o nS t a t us :


5) I ndi c a t ewhi c hoft hef ol l o wi ngi st r uea bouta nnui t i e s . A)

Ano r di na r ya nnui t yi sa ne qua lpa y me ntpa i do rr e c e i v e da tt heb e gi nni ngo fe a c hpe r i o d. B) Ana nnui t yduei sap a yme ntpa i do rr e c e i v e da tt heb e gi nni ngofe a c hpe r i o dt ha ti nc r e a s e sb ya ne q ua l amounteac hper i od. C)

Ana nnui t yduei sa ne qua lpa y me ntpa i do rr e c e i v e da tt heb e gi nni ngofe a c hpe r i o d. D) 21

Ano r di na r ya nnui t yi sa ne qua lpa y me ntpa i do rr e c e i v e da tt hee ndo fe a c hpe r i o dt ha ti nc r e a s e sb ya n equalamounteac hper i od. Answer :

C T o p i c :



6) I ndi c a t ewhi c hf or mul ai sc o r r e c tt ode t e r mi net hef ut ur ev a l ueofa na nnui t ydue . A)

FVAs = PMT × FVIFAi,n B) FVAs= PMT× [ FVI F Ai 1+ i ) ] , n× ( C)

FVAs= PMT× [ FVI F Ai 1+ i ) ] , n/( D)

FVAs= PMT× FVI FAi , n+ 1 Answer :

B T o p i c :

F ut ur eVa l ueo f a nAnnui t y( Eq ua t i o n4 . 1 7) Que s t i o nS t a t us :


22

7) Thepr e s e ntva l ueofa$ 25 , 0 00pe r pe t ui t yata1 4pe r c e n tdi s c o untr a t ei s A)

$ 1 7 8 , 5 7 1 . B) $ 2 8 5 , 0 0 0 . C)

$ 3 5 0 , 0 0 0 . D)

$ 2 1 9 , 2 9 8 . Answer :

A T o p i c :

Pe r p e t ui t i e s( Eq ua t i o n4. 1 9) Que s t i o nS t a t us :


8) Ana nnui t ywi t ha ni nfini t el i f ei sc a l l e da ( n) A)

pe r pe t ui t y . B) pr i mi a . C)

i nde fini t e . D)

de e pdi s c o unt . 23

A T o p i c :

Pe r p e t ui t i e s Que s t i o nS t a t us :


9) Thepr e s e ntva l ueofa$ 20 , 0 00pe r pe t ui t yata7pe r c e ntdi s c o untr a t ei s A)

$ 1 8 6 , 9 1 5 . B) $ 2 8 5 , 7 1 4 . C)

$ 1 4 0 , 0 0 0 . D)

$ 3 2 5 , 0 0 0 . Answer :

B T o p i c :



1 0 ) _ _ _ _ _ _ __i sa na nnui t ywi t ha ni nfini t el i f ema ki ngc o nt i nua la nnua lpa y me nt s . A)

Anamor t i zedl oan B) 24

Apr i nc i pa l C)

Ape r pe t ui t y D)

AnAPR Answer :

C T o p i c :



1 1 ) Bi l lpl a nst of undhi si ndi vi dua lr e t i r e me nta c c o unt( I RA)wi t ht hema x i mum c o nt r i b ut i o no f$ 2 , 0 0 0a tt he e ndofe a c hy e a rf ort hene x t2 0ye a r s .I fBi l lc a ne a r n12pe r c e n to nhi sc ont r i b ut i o ns , ho w muc hwi l lhe ha v ea tt hee ndo ft het we nt i e t hy e a r ? A)

$ 19 , 2 9 2 B) $ 14 , 9 3 8 C)

$ 40 , 0 0 0 D)

$ 1 4 4, 1 0 4 Answer :

D T o p i c :

F ut ur eVa l ueo f a nAnnui t y( Eq ua t i o n4 . 1 3,4 . 1 4) 25

Que s t i o nS t a t us :


26

1 2 ) Da npl a nst of undhi si ndi vi dua lr e t i r e me nta c c o unt( I RA)wi t ht hema x i mum c o nt r i b ut i o no f$ 2 , 0 0 0a t t hee ndo fe a c hy e a rf o rt hene x t1 0ye a r s . I fDa nc a ne a r n1 0pe r c e n to nhi sc o nt r i b ut i o ns , ho w muc hwi l l heha v ea tt hee ndoft het e nt hy e ar ? A)

$ 12 , 2 9 0 B) $ 20 , 0 0 0 C)

$ 31 , 8 7 4 D)

$ 51 , 8 8 0 Answer :

C T o p i c :

F ut ur eVa l ueo f a nAnnui t y( Eq ua t i o n4 . 1 3,4 . 1 4) Que s t i o nS t a t us :


1 3 ) I nc o mpa r i nga no r di na r ya nnui t yanda na nnui t ydue , whi c hoft hef o l l o wi ngi st r ue ? A)

Thef ut ur ev al ueofa na nnui t yduei sa l wa y sgr e a t e rt ha nt hef ut ur ev a l ueofa no t he r wi s ei de nt i c a l or di na r ya nnui t y . B) Thef ut ur eva l ueofa no r di na r yannui t yi sa l wa y sgr e a t e rt ha nt hef ut ur eva l ueofa no t he r wi s ei de nt i c a l a nnui t ydue . C)

Thef ut ur ev al ueofa na nnui t yduei sa l wa y sl e s st ha nt hef ut ur eva l ueofa no t he r wi s ei de nt i c a lor di na r y 27

a nnui t y , s i nc eo nel e s spa y me nti sr e c e i v e dwi t ha na nnui t ydue . D)

Al lt hi ng sbe i nge q ua l ,o newo ul dpr e f e rt or e c e i v ea no r d i na r ya nnui t yc o mpa r e dt oa na nnui t ydue . Answer :

A T o p i c :

F ut u r eVa l u eo f a nAn nu i t yDu e Que s t i o nS t a t us :


1 4 ) Thef ut ur ev a l ueo fa$ 2 , 0 0 0a nnui t yduede po s i t e da t8pe r c e n tc o mpo unde da nnua l l yf o re a c ho ft hen e xt 1 0y ea r si s A)

$ 2 8 , 9 7 4 . B) $ 3 1 , 2 9 2 . C)

$ 1 4 , 4 9 4 . D)

$ 1 3 , 4 2 0 . Answer :

B T o p i c :

F ut ur eVa l ueo f a nAnnui t yDu e( Eq u a t i o n4 . 1 7 ) Que s t i o nS t a t us :


28

1 5 ) Thef ut ur ev a l ueo fa$ 1 0 , 0 0 0a nnui t yduede po s i t e da t1 2pe r c e n tc o mpo unde da nnua l l yf o re a c ho ft he ne xt5ye ar si s A)

$ 3 6 , 0 5 0 . B) $ 6 3 , 5 3 0 . C)

$ 4 0 , 3 7 6 . D)

$ 7 1 , 1 5 4 . Answer :

D T o p i c :



29

1 6 ) Thef ut ur ev a l ueofa nor di na r yannui t yof$ 1 , 0 00e a c hy e arf or1 0ye a r s , de pos i t e da t3pe r c e n t , i s A)

$ 1 1 , 8 0 8 . B) $ 1 1 , 4 6 4 . C)

$8 , 5 30 . D)

$ 1 0 , 0 0 0 . Answer :

B T o p i c :



1 7 ) Thef ut ur ev a l ueofa nor di na r yannui t yof$ 2 , 0 00e a c hy e arf or1 0ye a r s , de pos i t e da t1 2pe r c e n t , i s A)

$ 3 5 , 0 9 8 . B) $ 2 0 , 0 0 0 . C)

$ 3 9 , 3 1 0 . D)

$ 1 1 , 3 0 0 . 30

A T o p i c :



1 8 ) Ac o l l e g er e c e i v e dac o nt r i but i o nt oi t se n do wme ntf undo f$ 2mi l l i o n.The yc a nne v e rt ouc ht hepr i nc i pa l , butt he yc a nus et hee ar ni ngs .Atanas s ume di nt e r e s tr at eof9. 5pe r c e nt ,how muc hc ant hec ol l e gee ar n t ohe l pi t so pe r a t i onse a c hy ea r ? A)

$ 95 , 0 0 0 B) $ 19 , 0 0 0 C)

$ 1 9 0, 0 0 0 D)

$ 18 , 0 0 0 Answer :

C T o p i c :



1 9 ) I ft hepr e s e ntv al ueofape r p e t ua li nc o mes t r e a mi si nc r e a s i ng,t hedi s c o untr a t emus tb e A)

i nc r e as i ng. 31

B) de c r e a s i ng. C)

c h angi ngunpr e d i c t a bl y . D)

i nc r e a s i ngpr o por t i ona l l y . Answer :

B T o p i c :



2 0 ) Thepr e s e ntv a l ueo fa nor di na r ya nnui t yo f$ 3 5 0e a c hy e a rf o rfiv eye a r s , a s s umi nga no ppo r t uni t yc o s to f 4pe r c e nt ,i s A)

$ 2 8 8 . B) $ 1 , 8 9 6 . C)

$ 1 , 7 5 0 . D)

$ 1 , 5 5 8 . Answer :

D T o p i c :

32

Pr e s e ntVa l ueo fa nAnnui t y( Eq ua t i o n4 . 1 5,4 . 1 6) Que s t i o nS t a t us :


33

2 1 ) Thepr e s e ntv al ueo fa no r di na r ya nnui t yof$ 2 , 3 5 0e ac hye a rf o re i ghty e a r s , a s s umi nga no ppo r t uni t y c os tof1 1pe r c e nt ,i s A)

$1 , 0 20 . B) $ 2 7 , 8 6 9 . C)

$ 1 8 , 8 0 0 . D)

$ 1 2 , 0 9 3 . Answer :

D T o p i c :



2 2 ) Ag e ne r o usb e ne f a c t o rt ot hel o c a lb al l e tpl a nst oma keaone-t i mee ndowmentwhi c hwoul dpr ovi det he bal l e twi t h$150, 000pe rye a ri nt ope r pe t ui t y . Ther at eofi nt e r e s ti se xpe c t e dt obe5pe r c e ntf oral lf ut ur e t i meper i ods .How l ar gemus tt heendowmentbe? A)

$30 0 , 0 0 0 B) $ 3 , 0 0 0 , 0 0 0 C)

$75 0 , 0 0 0 D) 34

$ 1 , 4 2 8 , 5 7 1 Answer :

B T o p i c :



2 3 ) Agener ousphi l ant hropi s tpl anst omakeaone-t i meendowmentt oar enownedhear tr es ear chce nt er whi c hwoul dpr o vi det hef a c i l i t ywi t h$ 2 50 , 0 00pe ry e a ri nt ope r pe t ui t y .Ther a t eofi nt e r e s ti se x pe c t e dt o be8pe r c e ntf ora l lf ut ur et i mepe r i ods .How l ar gemus tt hee ndowme ntbe ? A)

$ 2 , 3 1 4 , 8 1 4 B) $ 2 , 0 0 0 , 0 0 0 C)

$ 3 , 1 2 5 , 0 0 0 D)

$ 3 , 0 0 0 , 0 0 0 Answer :

C T o p i c :



2 4 ) Ma r ywi l lr e c e i v e$1 2 , 0 0 0pe ry e a rf o rt hene x t1 0ye a r sa sr o y al t yf o rhe rwo r konafina nc eb oo k.Wha ti s 35

t hepr e s e ntva l ueofhe rr o y al t yi nc o mei ft heoppor t uni t yc o s ti s1 2pe r c e n t ? A)

$ 1 2 0, 0 0 0 B) $6 7, 8 00 C)

$3 8, 6 40 D)

Noneoft heabove. Answer :

B T o p i c :



36

2 5 ) T opa yf o rhe rc o l l e g ee duc a t i on,Gi nai ss a vi ng$ 2 , 0 0 0a tt hebe gi nni ngofe a c hy e a rf ort hene x te i ght y e a r si nab a nkac c o untpa y i ng1 2pe r c e n ti nt e r e s t .Ho w muc hwi l lGi naha v ei nt ha ta c c o unta tt hee n do f 8 t hy e a r ? A)

$ 16 , 0 0 0 B) $ 17 , 9 2 0 C)

$ 24 , 6 0 0 D)

$ 27 , 5 5 2 Answer :

D T o p i c :



2 6 ) J ame spl anst of undhi si ndi vi dua lr e t i r e me ntac c ount ,be gi nni ngt oda y ,wi t h2 0a nnualde pos i t sof $ 2 , 0 0 0 ,whi c hhewi l lc o nt i nuef o rt hene x t2 0ye a r s . I fhec a ne a r na na nnua lc o mpo undr a t eof8pe r c e n t o nhi sde po s i t s , t hea mo unti nt hea c c o untupo nr e t i r e me ntwi l lb e A)

$ 1 9 , 6 3 6 . B) $ 9 1 , 5 2 4 . C)

$ 9 8 , 8 4 6 . 37

D)

$ 2 1 , 2 0 7 . Answer :

C T o p i c :



2 7 ) Yo uha v ebe e no ffe r e dapr o j e c tpa y i ng$ 3 0 0att hebe g i nni ngo fe a c hye a rf o rt hene x t2 0y e a r s . Wha ti s t hema x i mum a mo unto fmo ne yy ouwo ul di n ve s ti nt hi spr o j e c ti fy oue x pe c t9pe r c e n tr a t eo fr e t ur nt o y ouri n ve s t me nt ? A)

$2 , 7 38 . 7 0 B) $2 , 9 85 . 1 8 C)

$ 1 5 , 3 4 7 . 7 0 D)

$6 , 0 00 . 0 0 Answer :

B T o p i c :

Pr e s e n tVa l ueo fa nAnnui t yDue( Eq ua t i o n4. 1 8) Que s t i o nS t a t us :


38

2 8 ) Ca l c ul a t et hepr e s e ntva l ueofa$1 0, 0 0 0pe r pe t ui t ya ta6pe r c e ntdi s c o untr a t e . Answer :

PV= 1 0 , 0 0 0/0 . 0 6= $ 16 6 , 6 6 7 T o p i c :



2 9 ) Ca l c ul a t et hef ut ur ev a l ueofa na nnui t yof$ 5 , 0 0 0e a c hy ea rf o re i ghty ea r s ,de pos i t e da t6pe r c e nt . Answer :

FV= 5, 0 00 ( 9 . 8 97 )= $ 4 9, 4 8 5 T o p i c :



3 0 ) Ca l c ul a t et hepr e s e n tv al ueofa na nnui t yof$ 3 , 9 0 0ea c hy e a rf orf oury e a r s , a s s umi nga no ppo r t uni t yc os t of1 0pe r c e nt . Answer :

PV= 3, 9 00 ( 3 . 1 70 )= $ 1 2, 3 6 3 T o p i c :



3 1 ) Do t t i eha sde c i de dt os e tupa na c c o untt ha twi l lpa yhe rg r a n dda ught e r( Le x i )$ 5 , 0 0 0ay ea ri nde fini t e l y . 39

How muchshoul dDot t i edepos i ti nanacc ountpayi ng8per ce ntannuali nt er es t ? Answer :

PV= 5 , 0 00 /0 . 0 8= $ 6 2, 5 00 T o p i c :



3 2 ) Awe a l t hyi ndus t r i a l i s twi s he st oe s t a bl i s ha$2 , 0 00 , 0 00t r us tf undwhi c hwi l lpr o vi dei nc o mef orhi s gr a ndc hi l di nt ope r pe t ui t y .Hes t i pul a t e si nt het r us ta gr e e me ntt ha tt hepr i nc i pa lma yno tb edi s t r i but e d. Thegr a ndc hi l dma yonl yr e c e i v et hei nt e r e s te a r ne d.I ft hei nt e r e s tr a t ee ar n edont het r u s ti se x pe c t e dt o bea tl e as t7pe r c e nti nal lf ut ur epe r i ods ,how muc hi nc omewi l lt hegr a ndc hi l dr e c e i vee ac hye ar ? Answer :

$ 2 , 0 0 0 , 0 0 0× 0 . 0 7= $1 4 0 , 0 0 0 T o p i c :



3 3 ) Ni c oes t a bl i s h esas e v e n-y e a r ,8pe r c e n tl o a nwi t haba nkr e q ui r i nga nnua le nd-of earpayment sof -y $ 96 0 . 4 3 .Ca l c ul a t et h eo r i gi na lpr i nc i pa la mount . Answer :

PVA = 9 60 . 4 3( 5 . 2 06 )= $ 5, 0 0 0 T o p i c :



3 4 ) 40

Al o t t e r ya dmi ni s t r a t orha sj us tc o mp mpl e t e dt hes t a t e ' smo mos tr e c e nt$ 50mi l l i onl o t t e r y . Re c e i pt sf r o ml o t t e r y s a l e swe r e$ 5 0m mi i l l i ona ndt hepa y outwi l lbe$ 5mi mi l l i ona tt hee ndo fe a c hy e a rf o r1 0y e ar s . Thee x pe ns e s o fr unni ngt hel o t t e r ywe we r e$ 8 0 0 , 0 0 0 .Thes t a t ec a ne a r na na nnua lc o mp mpo undr a t eo f8pe r c e n to na n y f undsi n ve s t e d. ( a )C )Ca l c ul a t et hegr o s spr o fitt ot hes t a t ef r o mt hi sl o t t e r y . ( b)Ca l c ul a t et h ene tpr o fitt ot hes t a t ef r o mt hi sl o t t e r y( not a x es ) . Answer :

T o p i c :

Pr e s e ntVa l ueo fa nAn Annui t y( Eq ua t i o n4 . 1 5,4 . 1 6) Que s t i o nS t a t us :


3 5 ) J i ahasj us twona$20mi l l i onl ot t e r y ,whi c hwi l lpa yhe r$1mi l l i ona tt hee ndofe ac hye arf or20ye a r s .An i nv es t orh aso ffe r e dhe r$ 1 0mi l l i onf ort hi sa nnui t y .S hee s t i ma t e st ha ts hec a ne a r n1 0pe r c e nti nt e r e s t , c o mp mpo unde da nnua l l y , o na n ya mo mo unt ss h ei n ve s t s .S hea s k sy oura dvi c eo nw wh he t he rt oa c c e p to rr e j e c t t heoffe r .Wha twi l ly out e l lhe r ?( I gnor eT a x es ) Answer :

P= $ 1, 0 00 , 0 00× 8 . 5 14= $8 , 5 14 , 0 00 $ 1 0 , 0 0 0 , 0 0 0> $8 , 51 4, 00 0 Ac c eptt heoffer . T o p i c :



41

3 6 ) Mr .Knowi t al lhasbeenawar dedabonusf orhi sout s t andi ngwor k.Hi se mpl oyeroffer shi m achoi ceofa l ump mp-s u mo f$ 5 , 0 0 0t o da y , o ra na nnui t yo f$ 1 , 2 5 0ay e a rf o rt hene x tfiv ey e a r s .Whi c ho pt i o ns h oul dMr . Kno wi wi t a l lc hoos ei fhi so ppor t uni t yc o s ti s9pe r c e nt ? Answer :

PVA = $ 1 , 2 5 0 ( PVI F A)= 1, 2 50 ( 3 . 8 90 )= $ 4, 8 62 . 5 0 Mr .Handyma mans houl dc hoos eal ump mp-s um o f$ 5 , 0 0 0t oda y . T o p i c :



3 7 ) I nt he i rme e t i ngwi wi t ht he i ra dvi s o r , Mr .a ndMr s . O' Ro ur k ec o nc l ude dt ha tt he ywo wo ul dne e d$ 4 0 , 0 0 0pe r y e a rdur i ngt he i rr e t i r e me me nty e a r si no r de rt ol i v ec o mf mf or t a bl y . The ywi l lr e t i r e1 0y e a r sf r om no wa nd e x pe c ta2 0-yearr et i r eme mentper i od.How muc hs houl dMr .andMr s .O' Rour kedepos i tnow i nabank a c c o untpa y i ng9pe r c e n tt or e a c hfina nc i a lha ppi ne s sdur i ngr e t i r e me me nt ? Answer :

Thea mo mo unto fmo ne yr e q ui r e da tt heb e gi nni ngoft her e t i r e me me ntpe r i o di s : n= 2 0,i= 9% PVA = PMT MT( PVI F A)= 4 0, 0 00 ( 9 . 1 29 )= $ 3 65 , 1 60 n= 1 0,i= 9% PV= 3 65 , 1 60 ( 0 . 4 22 )= $1 54 , 0 97 . 5 2 T o p i c :

Co mp l e xTi meVa l uePr o b l e ms( Eq ua t i o n4 . 1 3 ,4 . 1 4,a nd4. 1 5,4 . 1 6) Que s t i o nS t a t us :


3 8 ) Ni c oi s3 0y ea r sol da ndwi l lr e t i r ea ta ge6 5.Hewi wi l lr e c e i v er e t i r e me me ntbe ne fit sb utt hebe ne fit sa r eno t go i ngt obee no ught oma ma keac o m mf f or t a bl er e t i r e me me ntl i f ef orhi m.Ni c oha se s t i ma t e dt ha ta na ddi t i o na l $ 2 5 , 0 0 0ay e a ro ve rhi sr e t i r e me me ntbe ne fit swi l la l l o w hi mt oha v eas a t i s f a c t o r yl i f e .Ho w muc hs h oul d Ni c ode po s i tt o da yi na na c c o untpa y i ng6pe r c e n ti nt e r e s tt ome me e thi sg o a l ?As s umeNi Ni c owi wi l lha v e1 5 y ea r sofr e t i r e me me nt . Answer : 42

PMT= $ 25 , 0 00 ,n= 1 5,i= 6% P( 6 5)= 2 5 , 0 0 0 ( PVI F A)= 2 5, 0 00 ( 9 . 7 12 )= $ 2 42 , 8 0 0 FV= $ 24 2 , 8 0 0,n= 3 5,i= 6% P( 3 0)= 2 42 , 8 0 0 ( P VI F)= 2 42 , 8 00 ( 0 . 1 30 )= $ 3 1, 5 6 4 T o p i c :

Co mp l e xTi meVa l uePr o b l e ms( Eq ua t i o n4 . 4 ,4 . 5 ,4 . 6 ,a nd4. 1 3,4 . 1 4) Que s t i o nS t a t us :


3 9 ) Yo uha v eb e e ng i v e nac h oi c eb e t we e nt wor e t i r e me me ntpo l i c i e sa sde s c r i b e db e l o w. P ol i c yA: A:Yo uwi l lr e c e i v ee qua la nnua lpa y me me nt so f$ 1 0 , 0 0 0be g i nni ng3 5y e a r sf r o m no wf o r1 0y e a r s . P ol i c yB: Youwi l lr e c e i v eonel ump-s um of$100, 000i n40year sf r om now. Whi c hpo l i c ywo wo ul dy ouc h oo s e ?As s umer a t eo fi nt e r e s ti s6pe r c e n t . Answer :

P ol i c yA: A:pr e s e ntv a l ueo ft hea nnui t ya tt hebe g i nni ngo ft he3 5ye a r sf r o m no w: w: PVA = PMT MT( PVI F A)= 1 0, 0 00 ( 7 . 3 60 )= $ 73 , 6 0 0 P ol i c yB: pr e s e n tv al ueoft hel ump-s um att hebegi nni ngoft he35year sf r om now: w: PV= FV( PVI F)= 1 00 , 0 00 ( 0 . 7 47 )= $ 74 , 7 00 Iwi l lc hoos epol i c yB. T o p i c :

Co mp l e xTi meVa l uePr o b l e ms( Eq ua t i o n4 . 9 ,4 . 1 1,4 . 1 2a nd4 . 1 5,4 . 1 6) Que s t i o nS t a t us :


43

4 0 ) As h l e yi spl a nni ngt oa t t e ndc o l l e g ewhe ns heg r a dua t e sf r o m hi g hs c ho ol7y e a r sf r o m no w.S he a nt i c i pa t e st ha ts hewi l lne e d$ 10 , 0 00a tt hebe gi nni ngo fe a c hc o l l e geye a rt opa yf ort ui t i ona ndf e e s ,a nd haves omes pendi ngmoney .As hl eyhasmadeanar r angementwi t hherf at hert odot hehous ehol dc hor es i fhe rda dde pos i t s$ 3 , 5 0 0att hee ndo fe a c hy e a rf ort hene x t7y e ar si naba nka c c o untpa y i ng8pe r c e nt i nt e r e s t .Wi l lt he r eb ee n oug hmo ne yi nt hea c c o untf o rAs h l e yt opa yf o rhe rc o l l e g ee x pe ns e s ?As s ume t her a t eofi nt e r e s ts t a ysa t8pe r c e ntdur i ngt hec ol l e geye a r s . Answer :

Att hebe gi nni ngoft hefir s ty ea ro fc o l l e ge : PV= 1 0, 0 0 0+ 1 0, 0 0 0( PVI F A12%, 3) 1 0, 0 00+ 1 0, 0 00 ( 2 . 5 77 )= $ 35 , 7 70 = PMT= $ 3, 5 00,i= 8%,n= 7 FVA= 3 , 5 0 0( FVI F A)= 3, 5 00 ( 8 . 9 23 )= $ 31 , 2 30 As h l e ywi l lne e d$ 4 , 5 3 9 ( 5, 7 70- 3 1, 2 3 0)a ddi t i o na lmo ne yt opa yf o rhe rc o l l e g ee duc a t i o n. =3 T o p i c :

Co mp l e xTi meVa l uePr o b l e ms( Eq ua t i o n4 . 1 3 ,4 . 1 4,a nd4. 1 5,4 . 1 6) Que s t i o nS t a t us :



Ca l c ul a t eb ot ht hef ut ur ev a l uea ndt hepr e s e ntv a l ueo fami x e ds t r e a mo fc a s hflo ws . 1) $ 10 0i sr e c e i v eda tt hebe gi nni ngofy e ar1 , $ 20 0i sr e c e i v eda tt hebe gi nni ngofy e ar2 , a nd$ 3 00i sr e c e i v ed a tt hebe gi nni ngofy e a r3 .I ft he s ec a s hflo wsa r ede po s i t e da t1 2pe r c e nt , t he i rc omb i ne df ut ur eva l uea t t hee ndofy e a r3i s_ _ _ _ __ _ _. A)

$ 1, 5 36 B) $672 C)

$727 D) 44

$ 1, 2 45 Answer :

C T o p i c :

Mi xe dSt r e a ms( Eq ua t i o n4 . 4,4. 5 ,4 . 6) Que s t i o nS t a t us :


2) $ 1, 2 00i sr e c e i ve da tt hebe gi nni ngofy ea r1 ,$ 2, 2 00i sr e c e i v eda tt hebe gi nni ngofy ea r2 ,a nd$ 3, 3 00i s r e c e i v e da tt hebe gi nni ngofy e ar3 . I ft he s ec a s hflo wsa r ede pos i t e da t1 2pe r c e nt ,t he i rc o mbi ne df ut ur e v al uea tt hee ndofy e a r3i s_ _ _ __ _ __ . A)

$6, 7 00 B) $ 17 , 0 0 0 C)

$ 12 , 5 1 0 D)

$8, 1 41 Answer :

D T o p i c :



45

3) F i ndt hef ut ur ev a l uea tt hee ndo fy e ar3oft hef ol l o wi ngs t r e a mo fc a s hflo wsr e c e i v e da tt hee ndofe a c h y e a r , a s s umi ngt hefir mc a ne a r n1 7pe r c e n to ni t si n ve s t me nt s .

A)

$ 20 , 7 2 4 B) $ 20 , 1 2 7 C)

$ 23 , 5 5 0 D)

$ 23 , 3 5 0 Answer :

B T o p i c :



4) F i ndt hef ut ur ev a l uea tt hee ndo fy e ar3oft hef ol l o wi ngs t r e a mo fc a s hflo wsr e c e i v e da tt hee ndofe a c h y e a r , a s s umi ngt hefir mc a ne a r n8pe r c e n to ni t si n ve s t me nt s .

A) 46

$ 45 , 0 0 0 B) $ 53 , 3 9 6 C)

$ 47 , 9 4 0 D)

$ 56 , 6 9 0 Answer :

C T o p i c :



5) Thepr e s e ntv al ueof$ 1 , 0 0 0r e c e i v e da tt hee ndofy e ar1 , $ 1 , 2 0 0r e c e i v e da tt hee ndo fy e a r2 ,a nd$ 1 , 3 0 0 r e c e i v e da tt hee ndo fy e a r3 , a s s umi nga noppo r t uni t yc o s to f7pe r c e nt ,i s A)

$ 2 , 5 0 0 . B) $ 3, 0 43 C)

$ 6 , 5 1 6 . D)

$ 2 , 8 5 6 . Answer :

B T o p i c : 47



6) Thepr e s e ntv al ueo f$ 1 00r e c e i v e da tt hee ndo fy e ar1 ,$ 2 00r e c e i v e da tt hee ndofy e a r2 ,a nd$ 3 00 r e c e i v e da tt hee ndo fy e a r3 , a s s umi nga noppo r t uni t yc o s to f1 3pe r c e nt ,i s A)

$45 3. B) $41 6. C)

$ 1 , 1 8 1 . D)

$50 0. Answer :

A T o p i c :



7) F i ndt hepr e s e n tv al ueo ft hef o l l o wi ngs t r e a m ofc a s hflo ws , a s s umi ngt ha tt hefir m' so ppo r t uni t yc os ti s 1 4pe r c e nt .

A) 48

$ 1 2 1, 2 5 6 B) $6 9, 0 00 C)

$6 0, 5 13 D)

$5 1, 8 85 Answer :

D T o p i c :



8) F i ndt hepr e s e n tv al ueo ft hef o l l o wi ngs t r e a m ofc a s hflo ws , a s s umi ngt ha tt hefir m' so ppo r t uni t yc os ti s 2 5pe r c e nt .

A)

$ 27 , 1 6 8 B) $ 35 , 2 0 0 C)

$ 34 , 0 0 0 D)

49

$ 32 , 5 0 0 Answer :

A T o p i c :



9) F i ndt hepr e s e n tv al ueo ft hef o l l o wi ngs t r e a m ofc a s hflo ws , a s s umi ngt ha tt hefir m' so ppo r t uni t yc os ti s 9pe r c e nt .

A)

$1 3, 2 52 B) $ 1 4 1, 5 8 8 C)

$1 0, 9 72 D)

$7 9, 3 48 Answer :

D T o p i c :

Mi xe dSt r e a ms( Eq ua t i o n4 . 9,4. 11 ,4 . 12,a nd4. 15,4. 16) Que s t i o nS t a t us :

Pr e v i o usEd i t i o n 50

51

1 0 ) F i ndt hepr e s e n tv al ueo ft hef o l l o wi ngs t r e a m ofc a s hflo ws , a s s umi ngt ha tt hefir m' so ppo r t uni t yc os ti s 1 4pe r c e nt .

A)

$ 1 3 1, 0 6 5 B) $1 9, 8 30 C)

$1 4, 8 50 D)

$ 1 2 0, 8 2 0 Answer :

A T o p i c :



1 1 ) Dur i nghe rf o ury e a r sa tc o l l e g e ,Ha y l e yr e c e i v e dt hef o l l o wi nga mo unt so fmo ne ya tt hee ndo fe a c hy e a r f r o m he rg r a ndmo t he r . S hede po s i t e dhe rmo ne yi nas a v i nga c c o untpa y i ng6pe r c e n tr a t eofi nt e r e s t . How muchmoneywi l lHa yl e yhaveongr aduat i onda y?

Answer : 52

T o p i c :



53

1 2 ) Yo uha v epr o vi de dy ourf r i e ndwi t has e r vi c ewo r t h$ 8 , 5 0 0 .Y ourf r i e ndo ffe r sy o ut hef o l l o wi ngc a s hflo w i ns t e a do fp a yi ng$ 8 , 5 0 0t o da y . S ho ul dy oua c c e p th i so ffe ri fy ouro ppo r t uni t yc o s ti s8pe r c e nt ?

Answer :

T o p i c :



1 3 ) Ca l c ul a t et hepr e s e ntva l ueof$ 5, 8 00r e c e i v eda tt hee ndofy e ar1 , $ 6 , 4 00r e c e i v eda tt hee ndofy ea r2 , a nd$ 8 , 7 0 0att hee ndofy e ar3 ,a s s umi nga no ppo r t uni t yc os tof1 3pe r c e n t . Answer :

PV= 5, 8 00 ( 0 . 8 85 )+ 6, 4 00 ( 0 . 7 83 )+ 8, 7 00 ( 0 . 6 93 )= $ 16 , 1 73 . 3 0 T o p i c :



1 4 ) Ca l c ul a t et hepr e s e n tv a l ueof$ 8 00r e c e i v e da tt hebe gi nni ngofy e a r1 ,$ 4 0 0r e c e i v e da tt hebe gi nni ngo f 54

y e a r2 ,a nd$ 7 0 0r e c e i v e da tt hebe gi nni ngo fy e a r3 , a s s umi nga noppo r t uni t yc o s to f9pe r c e n t . Answer :

PV= 800+ 40 0( 0 . 9 17 )+ 70 0( 0 . 8 42 )= $1 , 7 56 . 2 0 T o p i c :



1 5 ) Ca l c ul a t et hec o mbi ne df ut ur eva l uea tt hee ndo fy e a r3of$ 1 , 0 0 0r e c e i v e da tt hee ndo fy e a r1 , $ 3 , 0 0 0 r e c e i v e da tt hee ndo fy e a r2 ,a nd$ 5 , 0 0 0r e c e i v e da tt hee ndofy e a r3 ,a l ls u msde po s i t e da t5pe r c e n t . Answer :

FV= 1 00 0( 1 . 1 02 )+ 3 00 0( 1 . 0 50 )+ 5000= $ 9, 2 52 T o p i c :



55

1 6 ) Youarec ons i der i ngt hepur c haseofnew equi pmentf oryourc ompanyandyouhavenar r oweddownt he po s s i b i l i t i e st ot womo de l swhi c hpe r f o r me q ua l l ywe l l .Ho we v e r ,t heme t ho do fpa y i ngf o rt het wo mo de l si sd i ffe r e nt . Mo de lAr e q ui r e s$ 5 , 0 0 0pe ry e a rp a yme ntf o rt hene x tfiv ey e a r s .Mo de lBr e q ui r e s t hef o l l o wi ngpa y me nts c he dul e .Whi c hmo de ls h oul dy oub uyi fy ouro ppo r t uni t yc o s ti s8pe r c e n t ?

Answer :

Mode lA:PV= PMT( PVI F A)= 5, 0 00( 3 . 9 93 )= $ 19 , 9 6 5

BuyMode lA. T o p i c :



1 7 ) Las tChri s t mas ,Dannyr ec ei vedanannualbonusof$1, 500. Thes eannualbonus esar eexpec t edt ogr ow by5pe r c e ntf ort hene xt5ye ar s .How muc hwi l lDannyha vea tt hee ndoft hefif t hye a ri fhei nve s t shi s Chr i s t ma sb onus e s( i nc l udi ngt h emos tr e c e ntb onus )i napr o j e c tpa y i ng8pe r c e ntpe ry e ar ? Answer :

56

T o p i c :

Co mp l e xTi meVa l uePr o b l e ms( Eq ua t i o n4 . 4 ,4 . 5 ,4 . 6 ) Que s t i o nS t a t us :


57

1 8 ) Ca l c u l a t et hepr e s e ntv a l ueoft hef o l l o wi ngs t r e a mo fc a s hflo ws , a s s umi ngt ha tt hefir m' so ppo r t uni t y c os ti s1 5pe r c e nt .

Answer :

PV= 1 2, 0 00 ( 4 . 1 60 )+ 14 , 0 00 ( 5 . 0 19- 4. 1 60 )= $ 6 1, 9 46 T o p i c :




Unde r s t a ndt hee ffe c tt ha tc o mpo undi ngi nt e r e s tmo r ef r e q ue nt l yt ha na nnua l l yha so n f ut ur eva l uea ndont hee ffe c t i vea nnua lr a t eofi nt e r e s t . 1) Thenomi na l( s t a t e d)a nnua lr a t ei st her a t eofi nt e r e s ta c t ua l l ypa i dore a r ne d. Answer :

F ALSE T o p i c :

No mi na la ndEffe c t i v eI nt e r e s tRa t e s Que s t i o nS t a t us :


2) Then omi na la nde ffe c t i v er a t e sa r ee q ui v a l e ntf o ra n nua lc o mpo undi ng . Answer :

58

TRUE T o p i c :



3) Thee ffe c t i v eannua lr a t ei nc r e a s e swi t hi nc r e a s i ngc o mpo undi ngf r e q ue nc y . Answer :

TRUE T o p i c :



4) Thea nnua lpe r c e nt a ger a t e( APR)i st heno mi na lr a t eofi nt e r e s t ,f o undb ymul t i pl yi ngt hepe r i odi cr a t e byt henumbe rofpe r i odsi noneye ar . Answer :

TRUE T o p i c :



5) Thea nnua lpe r c e nt a geyi e l d( APY)i st hee ffe c t i v er a t eofi nt e r e s tt ha tmus tbedi s c l os e dt oc us t ome r sb y banksont he i rs a vi ngspr oduc t sasar e s ul tof" t r ut hi ns a vi ngsl a ws . " Answer :

TRUE 59

T o p i c :



6) Thee ffe c t i v er a t eofi nt e r e s ti st hec ont r a c t ua lr a t eofi nt e r e s tc ha r g e db yal e nde ro rpr o mi s e db ya bor r owe r . Answer :

F ALSE T o p i c :



60

7) Thee ffe c t i v er a t eofi nt e r e s tdi ffe r sf r o mt henomi na lr a t eofi nt e r e s ti nt ha ti tr e fle c t st hei mpa c tof c ompoundi ngf r equency . Answer :

TRUE T o p i c :



8) F ora n yi nt e r e s tr a t ea ndf o ra nype r i odo ft i me ,t hemo r ef r e que nt l yi nt e r e s ti sc o mpo unde d,t hegr e a t e r t hea mo unto fmo ne yt ha tha st obei n ve s t e dt o da yi no r d e rt oa c c u mul a t eag i v e nf ut ur ea mo unt . Answer :

F ALSE T o p i c :



9) Thee ffe c t i v er a t eofi nt e r e s ta ndc o mpoundi ngf r e que nc yar ei n ve r s e l yr e l a t e d. Answer :

F ALSE T o p i c :



1 0 ) 61

Ther a t eofi nt e r e s ta gr e e dupo nc o nt r a c t ua l l yc h a r g e db yal e nde ro rpr o mi s e db yabo r r o we ri st he _ __ __ __ _i nt e r e s tr a t e . A)

e ffe c t i v e B) nomi nal C)

di s c o unt e d D)

c o nt i nuo us Answer :

B T o p i c :



1 1 ) Ther a t eofi nt e r e s ta c t ua l l ypa i dore a r n e d,a l s oc a l l e dt hea nnua lpe r c e n t a g er a t e( APR) ,i st he_ __ __ _ __ i nt e r es tr a t e . A)

e ffe c t i v e B) nomi nal C)

di s c o unt e d D)

c o nt i nuo us 62

A T o p i c :



1 2 ) Thef ut ur eval ueof$200r ec ei vedt odayanddepos i t edat8per ce ntcompoundeds emi nnua l l yf ort hr e e -a ye ar si s A)

$ 3 8 0 . B) $ 1 5 8 . C)

$ 2 5 3 . D)

$ 2 5 2 . Answer :

C T o p i c :



63

1 3 ) Thef ut ur ev a l ueo f$ 1 0 0r e c e i v e dt o da ya ndde po s i t e di na na c c o untf o rf o ury e a r spa y i ngs e mi a nnua l i nt e r e s tof6pe r c e nti s A)

$ 4 5 0 . B) $ 1 2 6 . C)

$ 8 8 9 . D)

$ 1 3 4 . Answer :

B T o p i c :



1 4 ) Thef ut ur ev a l ueo f$ 2 0 0r e c e i v e dt o da yandde po s i t e df o rt hr e ey e a r si na na c c o untwhi c hpa y s s e mi a nnua li nt e r e s tof8pe r c e nti s_ _ _ __ __ _. A)

$ 25 3 . 0 0 B) $ 25 2 . 0 0 C)

$ 15 8 . 0 0 D)

64

$ 13 4 . 6 6 Answer :

A T o p i c :



1 5 ) Thef ut ur ev a l ueo fa na nnui t yo f$ 1 , 0 0 0e a c hq ua r t e rf o r1 0y e a r s ,de po s i t e da t1 2pe r c e n tc o mpo unde d qua r t e r l yi s A)

$ 1 7 , 5 4 9 . B) $ 7 5 , 4 0 1 . C)

$ 9 3 , 0 4 9 . D)

$ 1 1 , 2 0 0 . Answer :

B T o p i c :



1 6 ) Wha ti st hehi ghe s te ffe c t i v er a t ea t t a i na bl ewi t ha12pe r c e ntno mi na lr a t e ? A) 65

12. 00% B) 12. 55% C)

12. 75% D)

12. 95% Answer :

C T o p i c :

No mi na la ndEffe c t i v eI nt e r e s tRa t e s( Eq ua t i o n4 . 2 3) Que s t i o nS t a t us :


1 7 ) Gi naha spl a nne dt os t a r the rc o l l e g ee duc a t i onf o ury e ar sf r om no w.T opa yf o rhe rc o l l e g ee duc a t i o n,s h e ha sde c i de dt os a v e$ 1 , 0 0 0aqua r t e rf o rt hene x tf o ury e a r si naba nka c c o untpa y i ng1 2pe r c e n ti nt e r e s t . How muchwi l ls hehaveatt heendoft hef our t hyear ? A)

$1, 5 74 B) $ 19 , 1 1 6 C)

$ 20 , 1 5 7 D)

$ 16 , 0 0 0 Answer :

66

C T o p i c :



67

1 8 ) How muchwoul dSophi ehavei nheracc ountatt heendof10year si fs hedepos i t$2, 000i nt ot heacc ount t oda yi fs h ee ar n e d8pe r c e nti nt e r e s ta ndi nt e r e s ti sc o mpo unde dc o nt i nuous l y? A)

$ 4, 3 17 B) $ 4, 4 44 C)

$ 4, 4 51 D)

$ 4, 5 21 Answer :

C T o p i c :

Co n t i nuo u sCo mp o und i ng( E q ua t i o n4 . 2 1 ,4 . 2 2 ) Que s t i o nS t a t us :


1 9 ) As s umeJ ul i anhasac hoi cebet weent wodepos i tacc ount s .Acc ountAhasanannualper ce nt ager at eof 7 . 5 5pe r c e n tb utwi t hi nt e r e s tc o mpo unde dmo nt hl y . Ac c o untBha sa na nnua lpe r c e n t a g er a t eo f7 . 4 5 pe r c e n twi t hi nt e r e s tc o mpo unde dc o nt i nuo us l y . Whi c ha c c o untpr o vi de st hehi ghe s te ffe c t i v ea nnua l r e t ur n ? A)

Acc ountA. B) Acc ountB. C)

Bo t hpr o vi det hes a mee ffe c t i v ea nnua lr e t ur n. 68

D)

Wedon' thaves uffici enti nf ormat i ont omakeachoi ce . Answer :

A T o p i c :

Co n t i nuo u sCo mp o und i nga n dEff e c t i v eAnnua lRa t e( Eq u a t i o n4 . 2 1 ,4 . 2 2 ,4 . 2 3 ) Que s t i o nS t a t us :


2 0 ) Ca l c u l a t et hef ut ur ev al ueof$ 6 , 4 9 0r e c e i v e dt o da ya ndde po s i t e df o rfiv ey e a r si na na c c o untwhi c hpa y s i nt e r e s to f1 4pe r c e n tc o mpo unde ds e mi a nnua l l y . Answer :

FV= 6, 4 90 ( 1 . 9 67 )= $ 1 2, 7 6 6 T o p i c :



2 1 ) Ca l c ul a t et hef ut ur ev al ueof$ 1 0 , 0 0 0r e c e i v e dt oda yandde po s i t e df ors i xye a r si na na c c o untwhi c hpa y s i nt e r e s tof1 2pe r c e n tc o mpo unde dqua r t e r l y . Answer :

FV= 1 0, 0 00 ( 2 . 0 33 )= $ 2 0, 3 30 T o p i c :



69

2 2 ) J e annehasj us tgr aduat e df r om hi ghs c hoolandhasr e c e i ve dana war df or$5 , 000 .Shewoul dl i ket o de pos i tt hemone yi na ni nt e r e s te a r ni nga c c ountunt i ls hegr a dua t e sf r om c o l l e ge( i . e . ,f oury ea r sf r om no w) .I nhe rs e a r c hf o rt hehi ghe s ti nt e r e s te a r n i nga c c o unt ,s h eha sna r r o we dt hel i s tdo wnt ot he f ol l owi ngt woacc ount s :1)bankApays9per ce nti nt er es tcompoundedannual l y, and2)bankBpays8 per c enti nt er es tcompoundeds emi nnua l l y . Whi c hi st heb e t t e ro ffe r ,a ndho w muc hwi l lJ e a nneh a ve -a upongraduat i onf r om col l ege? Answer :

BankA:n= 4,i= 9%,m = 1 FV= 5, 0 00 ( 1 . 4 12 )= $ 7, 0 60 BankB:n= 4,i= 8%,m = 2 FV= 5, 0 00 ( 1 . 3 69 )= $ 6, 8 45 J e annes houl dde pos i the rmone yi nBankAands hewi l lha ve$7, 0 60uponhe rgr aduat i onf r om c ol l e ge . T o p i c :



70

2 3 ) As s umeyouhaveachoi cebet weent wodepos i tacc ount s .Acc ountXhasa nannualper ce nt ager at eof 1 2 . 2 5pe r c e n tb utwi t hi nt e r e s tc o mpo unde dmo nt hl y . Ac c o untYha sa na nnua lpe r c e n t a g er a t eo f1 2 . 2 0 pe r c e n twi t hi nt e r e s tc o mpo unde dc o nt i nuo us l y . Whi c ha c c o untpr o vi de st hehi ghe s te ffe c t i v ea nnua l r e t ur n ? Answer :

Ac c o untX EAR= [ 1+ Ac c o untY EAR= Choos eX

-

-

1= 1 2. 9 6%

1= 1 2. 7 5%

T o p i c :

Co n t i nuo u sCo mp o und i nga n dEff e c t i v eAnnua lRa t e( Eq u a t i o n4 . 2 1 ,4 . 2 2 ,4 . 2 3 ) Que s t i o nS t a t us :


2 4 ) Ni c oi st hene wa s s i s t a ntbr a nc hma na ge ro fal a r g e rFl or i d b a- a s e dbankandt hebr anc hmana ge rhas a s k e dhi m aq ue s t i o nt ot e s thi skno wl e dg e .Theq ue s t i o nhea s k e di swhi c hr a t es ho ul dt heb a nk a dv e r t i s eo nmo nt hl y-c o mpo unde dl o ans , t hen omi na la nnua lpe r c e n t a g er a t eo rt hee ff e c t i v ea nnua l pe r c e nt a ger a t e ?Whi c hr a t es h oul dt heb ankadv e r t i s eo nqua r t e r l y-c ompoundedsa vi ngsac count s ? Expl ai n.Asac ons umer ,whi c hwoul dyoupr ef ert ose eandwhy? Answer :

Ab ankwo ul dr a t he ra dv e r t i s et hea nnua lpe r c e nt a ger a t eo nl o anss i nc et hi sr a t ea ppe a r st obel o we ra nd t hee ffe c t i v ea nnua lr a t e .Wi t hr e s pe c tt os a v i ngsa c c o unt s , t heba nkwo ul dr a t he ra dv e r t i s et hee ffe c t i v e r a t es i nc et hi sr a t ewi l lbehi ghe rt ha nt hea nnua lpe r c e n t a g er a t ewi t hc o mpo undi ngf r e q ue nc ygr e a t e r t ha na nnua l l y .Asac o ns ume r ,t hee ffe c t i v er a t ei st hemor ei mpor t a ntr a t es i nc ei tr e pr e s e nt st her a t e a c t ua l l ypa i dore a r ne d. T o p i c :



Le a r ni ngGo al6 : 71

De s c r i bet hepr o c e dur e si n vo l v e di n( 1 )de t e r mi ni ngde pos i t sn e e de dt oa c c umul a t ea f ut ur es um, ( 2 )l oa na mor t i z at i on, ( 3 )findi ngi nt e r e s torgr owt hr a t e s , a nd( 4 )findi nga n unknownnumbe rofper i ods . 1) I ng e ne r a l ,wi t ha na mo r t i z e dl oa n,t hepa y me nta mo untr e ma i nsc ons t a nto ve rt hel i f eo ft hel o an, t he pr i nc i pa lpor t i ono fe a c hpa y me ntgr o wso ve rt hel i f eoft hel oa n,a ndt hei nt e r e s tpor t i ono fe a c h pa yme ntde c l i ne so ve rt hel i f eoft hel oa n. Answer :

TRUE T o p i c :

Lo a nAmo r t i z a t i o n Que s t i o nS t a t us :


2) I ng e ne r a l ,wi t ha na mo r t i z e dl oa n,t hepa y me nta mo untr e ma i nsc ons t a nto ve rt hel i f eo ft hel o an, t he pr i nc i pa lpor t i ono fe a c hpa y me ntgr o wso ve rt hel i f eoft hel oa n,a ndt hei nt e r e s tpor t i ono fe a c h pa y me ntgr o wso v e rt hel i f eoft hel oa n. Answer :

F ALSE T o p i c :



72

3) I ng e ne r a l ,wi t ha na mo r t i z e dl oa n,t hepa y me nta mo untr e ma i nsc ons t a nto ve rt hel i f eo ft hel o an, t he pr i nc i pa lpor t i onofe a c hpa yme ntde c l i ne so ve rt hel i f eoft hel oa n,a ndt hei nt e r e s tpor t i onde c l i ne so ve r t hel i f eoft hel oan. Answer :

F ALSE T o p i c :



4) I ng e ne r a l ,wi t ha na mo r t i z e dl oa n,t hepa y me nta mo untgr o wso v e rt hel i f eo ft hel o an,t hepr i nc i pa l por t i onofe a c hpa yme ntgr o wso v ert hel i f eoft hel oa n,a ndt hei nt e r e s tpor t i onde c l i ne so ve rt hel i f eof t hel oa n. Answer :

F ALSE T o p i c :



5) Whe nc o mput i nga ni nt e r e s to rgr o wt hr a t e ,t her a t ewi l li nc r e a s et hel a r g e rt hef ut ur ev a l ue ,hol di ng pr e s e ntv a l uea ndt henumb e ro fpe r i o dsc o ns t a nt . Answer :

TRUE T o p i c :

I nt e r e s to rGr o wt hRa t e s Que s t i o nS t a t us :

73


6) Whe nc o mput i nga ni nt e r e s to rg r o wt hr a t e ,t her a t ewi l lde c r e a s et hel a r g e rt hef ut ur ev a l ue ,ho l di ng pr e s e ntv a l uea ndt henumb e ro fpe r i o dsc o ns t a nt . Answer :

F ALSE T o p i c :



7) Whe nc o mput i nga ni nt e r e s to rgr o wt hr a t e ,t her a t ewi l li nc r e a s et hes ma l l e rt hef ut ur ev a l ue ,ho l di ng pr e s e ntv a l uea ndt henumb e ro fpe r i o dsc o ns t a nt . Answer :

F ALSE T o p i c :



8) Whencomput i ngt henumberofdeposi t sneededt oaccumul at et oaf ut ur es um,i twi l lt akel ongert he l o we rt hei nt e r e s tr a t e ,hol di ngt hef u t ur ev al ueandde pos i ts i z ec o ns t a nt . Answer :

TRUE T o p i c :

De p o s i t sNe e d e dt oAc c u mul a t eaF ut ur eSum Que s t i o nS t a t us :

74


9) Whencomput i ngt henumberofdeposi t sneededt oaccumul at et oaf ut ur es um,i twi l lt akel ongert he hi ghe rt hei nt e r e s tr a t e ,hol di ngt hef ut ur ev al ueandde pos i ts i z ec o ns t a nt . Answer :

F ALSE T o p i c :

De p o s i t sNe e d e dt oAc c u mul a t eaF ut ur eSum Que s t i o nS t a t us :


1 0 ) Thet i mev a l uec o nc e pt /c a l c ul a t i o nus e di na mo r t i z i ngal o ani s A)

f ut ur eva l ueofadol l a r . B) f ut ur ev a l ueofa na nnui t y . C)

pr e s e ntva l ueofadol l a r . D)

pr e s e n tv a l ueofa na nnui t y . Answer :

D T o p i c :

Lo a nAmo r t i z a t i o n( Eq ua t i o n4 . 1 5,4 . 1 6) Que s t i o nS t a t us :


75

1 1 ) I faUni t e dS t a t e sS a v i ng sbo ndc a nb epur c h a s e df o r$ 2 9 . 5 0a ndha sama t ur i t yv a l uea tt hee ndo f2 5 y e a r so f$ 1 00 ,wha ti st hea nnua lr a t eo fr e t ur nont heb ond? A)

5pe r c e nt B) 6pe r c e nt C)

7pe r c e nt D)

8pe r c e nt Answer :

A T o p i c :

Fi nd i n gI nt e r e s to rGr o wt hRa t e s( Eq ua t i o n4 . 4 ,4 . 5 ,4 . 6 ,o r4 . 9 ,4 . 1 1,4 . 1 2) Que s t i o nS t a t us :


1 2 ) I faUni t e dS t a t e sS a v i ng sbo ndc a nb epur c h a s e df o r$ 1 4 . 6 0a ndha sama t ur i t yv a l uea tt hee ndo f2 5 y e a r so f$ 1 00 ,wha ti st hea nnua lr a t eo fr e t ur nont heb ond? A)


8pe r c e nt D)

76


C T o p i c :

Fi nd i n gI nt e r e s to rGr o wt hRa t e s( Eq ua t i o n4 . 4 ,4 . 5 ,4 . 6 ,4 . 9,4 . 1 1,4 . 1 2) Que s t i o nS t a t us :


1 3 ) Col i nwo ul dl i k et os e ndhe rpa r e n t so nac r ui s ef ort he i r2 5 t hwe ddi nga nni v e r s a r y . S heha spr i c e dt he cr ui s eat$15, 000ands hehas5year st oacc umul at et hi smoney. How muchmus tJ ani cedeposi tannual l y i na na c c o untpa y i ng1 0pe r c e n ti nt e r e s ti no r de rt oha v ee no ug hmo ne yt os e ndhe rpa r e nt so nt hec r ui s e ? A)

$ 1, 8 62 B) $ 2, 4 57 C)

$ 3, 0 00 D)

$ 2, 2 34 Answer :

B T o p i c :



1 4 ) Adam bor r ows$4, 500at12per ce ntannual l ycompoundedi nt er es tt oberepai di nf oure qualannual 77

i ns t a l l me nt s . Theac t ua le nd-of earpaymenti s -y A)

$94 2. B) $ 1 , 1 2 5 . C)

$ 1 , 4 8 2 . D)

$ 2 , 6 4 1 . Answer :

C T o p i c :



1 5 ) J i abor r ows$ 50, 0 00a t10pe r c e nta nnual l yc ompounde di nt e r e s tt ober e pai di nf oure qualannual i ns t a l l me nt s . Theac t ua le nd-of e a rl o anpa y me nti s -y A)

$ 1 0 , 7 7 4 . B) $ 1 2 , 5 0 0 . C)

$ 1 4 , 3 4 0 . D)

$ 1 5 , 7 7 3 . Answer : 78

D T o p i c :



1 6 ) Ni c omakesannualend-of e a rp a yme nt so f$ 5 , 0 4 3 . 7 1onaf o ur ea rl oa nwi t ha ni nt e r e s tr a t eof1 3 -y -y pe r c e n t .Theor i g i na lpr i nc i pa la mo untwa s A)

$ 2 4 , 4 6 2 . B) $ 1 5 , 0 0 0 . C)

$3 , 0 92 . D)

$ 2 0 , 1 7 5 . Answer :

B T o p i c :



1 7 ) Hayl eymakesannualend-of e a rpa y me nt so f$ 6 , 2 6 0 . 9 6o nafiv e-y e arl oa nwi t ha n8pe r c e n ti nt e r e s t -y r a t e .Theo r i gi na lpr i nc i pa la mo untwa s A)

$ 3 1 , 0 0 0 . 79

B) $ 3 0 , 0 0 0 . C)

$ 2 5 , 0 0 0 . D)

$ 2 0 , 0 0 0 . Answer :

C T o p i c :



1 8 ) As h l e yo wnss t o c ki nac o mpa n ywhi c hha sc o ns i s t e nt l ypa i dag r o wi ngdi vi de ndo v e rt hel a s tfiv ey e a r s . Thefir s ty e a rAs h l e yowne dt hes t oc k ,s h er e c e i v e d$ 1 . 7 1pe rs ha r ea ndi nt hefif t hy e a r , s h er e c e i v e d$ 2 . 8 9 pe rs ha r e . Wha ti st hegr o wt hr a t eoft hedi vi de ndso v e rt hel a s tfiv eye a r s ? A)

7pe r c e nt B) 1 4pe r c e nt C)

1 2pe r c e nt D)


B T o p i c : 80



1 9 ) J ul i anwasgi ve nagol dc oi nor i gi nal l ypur c has e df or$1byhi sgr e at r a ndf a t he r5 0y e a r sa g o.T oda yt he -g c o i ni swor t h$ 45 0 .Ther a t eofr e t ur nr e a l i z e dont hes a l eoft hi sc o i ni sa ppr o x i ma t e l ye qua lt o A)

7 . 5 %. B) 13%. C)

50%. D)

c a n no tb ede t e r mi ne dwi t hg i v e ni nf o r ma t i o n. Answer :

B T o p i c :



81

2 0 ) Al e x i so wnss t o c ki nac o mpa n ywhi c hha sc o ns i s t e nt l ypa i dagr o wi ngdi v i de ndo ve rt hel a s t1 0y e a r s . Thefir s ty e a rAl e x i so wne dt hes t o c k,s h er e c e i v e d$ 4 . 5 0pe rs ha r ea ndi nt he1 0t hy e a r ,s h er e c e i v e d$ 4 . 9 2 pe rs ha r e . Wha ti st hegr o wt hr a t eoft hedi vi de ndso v e rt hel a s t1 0ye a r s ? A)


2pe r c e nt D)


D T o p i c :



2 1 ) Ther a t eofr e t ur ne a r ne do na ni n ve s t me nto f$ 5 0, 0 0 0t o da yt h a tgua r a n t e e sa na nnui t yo f$ 1 0, 4 8 9f o rs i x y e a r si sa ppr o xi ma t e l y A)

5%. B) 7%. C)

30%. D) 82

no neo ft hea bo v e . Answer :

B T o p i c :

F i nd i ngI nt e r e s to rGr o wt hRa t e s( Eq ua t i o n4 . 1 5,4 . 1 6) Que s t i o nS t a t us :


2 2 ) Wha ti st her a t eofr e t ur nona ni n ve s t me nto f$ 1 6 , 2 7 8i ft hec o mpa nye x pe c t st or e c e i v e$3 , 0 0 0pe ry e arf or t hene x t1 0ye a r s ? A)

1 8pe r c e nt B) 1 3pe r c e nt C)

8pe r c e nt D)


B T o p i c :



2 3 ) Wha ti st her a t eo fr e t ur nona ni n ve s t me nto f$ 1 24 , 0 9 0i ft hec o mpa nye x pe c t st or e c e i v e$1 0 , 0 0 0pe ry e a r 83

f ort hene xt3 0y ea r s ? A)


1pe r c e nt D)


A T o p i c :



84

2 4 ) Al o c a lb r o ke r a gefir mi so ffe r i ngaz e r oc o upo nc e r t i fic a t eofde pos i tf o r$ 1 0, 0 0 0. Atma t ur i t y , t hr e ey ea r s f r o m no w,t hei nv es t orwi l lr e c e i v e$1 4, 0 00 .Wha ti st her a t eofr e t ur nont hi si nv es t me nt ? A)

1 4pe r c e nt B) 1 3pe r c e nt C)

1 2pe r c e nt D)

1 1pe r c e nt Answer :

C T o p i c :



2 5 ) Al o c a lb anki so ffe r i ngaz e r oc oupo nc e r t i fic a t eofde pos i tf o r$ 2 5 , 0 0 0 .Atma t ur i t y , t hr e ey e ar sf r om no w, t hei n ve s t orwi l lr e c e i v e$ 32 , 0 00 .Wha ti st her a t eofr e t ur nont hi si nv es t me nt ? A)


9pe r c e nt D)

85

1 2pe r c e nt Answer :

C T o p i c :



2 6 ) As k ic ha l e ta tPe a kn' Pe a kno wc o s t s$ 2 5 0, 0 0 0.I nfla t i oni se x pe c t e dt oc a us et hi spr i c et oi nc r e a s ea t5 pe r c e ntpe ry e a ro v e rt hene x t1 0ye a r sb ef or eChr i sa ndJ ul i er e t i r ef r o ms u c c e s s f uli n ve s t me ntba nki ng car eer s .How l ar geanequalannualend-of eardepos i tmus tbemadei nt oanacc ountpayi nganannual -y r a t eofi nt e r e s tof1 3pe r c e n ti nor de rt obuyt hes kic ha l e tuponr e t i r e me nt ? A)

$8, 3 33 B) $ 13 , 5 7 2 C)

$ 25 , 0 0 5 D)

$ 22 , 1 0 9 Answer :

D T o p i c :



2 7 ) Ab e ac hhous ei ns o ut he r nCa l i f o r ni ano wc o s t s$ 3 5 0 , 0 0 0 .I nfla t i o ni se x pe c t e dt oc a us et hi spr i c et o 86

i nc r e a s ea t5pe r c e n tpe ry ea ro v ert hene x t2 0ye a r sb e f or eEr i ca ndKa r i nnar e t i r ef r o ms uc c e s s f ulc a r e e r s i ncommer ci alar t . How l ar geanequalannualend-of eardepos i tmus tbemadei nt oanacc ountpayi ng -y a na nnua lr a t eo fi nt e r e s tof1 3pe r c e nti nor de rt obuyt h ebe a c hho us eu po nr e t i r e me nt ? A)

$ 11 , 4 7 1 B) $4, 3 23 C)

$ 79 , 9 7 7 D)

$ 17 , 3 5 0 Answer :

A T o p i c :



87

2 8 ) Xi a oXi ni sp l a nni ngt oa c c umul a t e$ 4 0 , 0 0 0byt hee ndo f5y e a r sb yma ki ng5e qua la nnua lde po s i t s . I f s hepl anst omakeherfir s tdepos i tt odayandcanear nanannualcompoundr at eof9per ce ntonher i n ve s t me nt ,ho w muc hmus te a c hde po s i tb ei nor de rt oa c c u mul a t et he$ 4 0 , 0 0 0 . A)

$6, 1 32 B) $6, 6 83 C)

$ 23 , 8 4 4 D)

$9, 4 34 Answer :

B T o p i c :


Re v i s e d

2 9 ) ZhengSenwi s hest oacc umul at e$1mi l l i onbyt heendof20year sbymaki ngequalannualend-of e a r -y de po s i t so v e rt hen e xt2 0y e a r s .I fZhe ngSe nc a ne a r n1 0pe r c e n to nhi si n ve s t me nt s , ho w muc hmus the de pos i ta tt hee ndofe a c hy e ar ? A)

$1 4, 9 00 B) $5 0, 0 00 C)

$ 1 1 7, 4 5 3 88

D)

$1 7, 4 60 Answer :

D T o p i c :



3 0 ) Xi aoLiwi s hest oaccumul at e$50, 000byt heendof10year sbymaki ngequalannualend-of ea rde pos i t s -y o v e rt hene x t1 0y e a r s .I fXi a oLic a ne a r n5pe r c e n to nhe ri n ve s t me nt s , ho w muc hmus ts h ede po s i ta tt he e ndo fe a c hye a r ? A)

$ 3, 9 75 B) $ 6, 4 75 C)

$ 5, 0 00 D)

$ 4, 5 13 Answer :

A T o p i c :



89

3 1 ) Dorot hybor r ows$10, 000f r om t hebank.Foraf our e a rl oa n,t heb ankr e q ui r e sa n nua le nd-of e a r -y -y pa yme nt so f$ 3, 2 23 . 7 3. Thea nnua li nt e r e s tr a t eont hel oa ni s A)

9pe r c e nt . B) 1 0pe r c e n t . C)

1 1pe r c e n t . D)

1 2pe r c e n t . Answer :

C T o p i c :



90

3 2 ) Det t aborr ows$20, 000f r om t hebank.Forafive-y e a rl o an,t heb ankr e q ui r e sa nnua le nd-of e a r -y pa yme nt so f$ 4, 8 78 . 0 5. Thea nnua li nt e r e s tr a t eont hel oa ni s A)

6pe r c e nt . B) 7pe r c e nt . C)

8pe r c e nt . D)

9pe r c e nt . Answer :

B T o p i c :



3 3 ) The l mai spl a nni ngf o rhe rs o n' sc ol l e g ee duc a t i o nt obe gi nfiv eye a r sf r o mt oda y . S hee s t i ma t e st hey e a r l y t ui t i on,books , a ndl i vi nge x pe ns e st obe$ 5, 0 00pe ry e a rf oraf our-ye ardegr e e .How muchmus tThe l ma de pos i tt oda y , a ta ni nt e r e s tr a t eof8pe r c e n t , f orh ers ont obea bl et owi t hdr a w$ 5, 0 00pe ry e a rf orf our y ea r sofc ol l e ge ? A)

$ 20 , 0 0 0 B) $ 13 , 6 2 0 C)

$ 39 , 5 2 0 91

D)

$ 11 , 2 7 7 Answer :

D T o p i c :



3 4 ) Ot t oi spl a nni ngf orhi ss on' sc ol l e gee duc a t i ont obe gi nt e ny ea r sf r om t oda y .Hee s t i ma t e st hey ea r l y t ui t i on,books , a ndl i vi nge x pe ns e st obe$ 10 , 0 00pe ry e a rf oraf our-ye ardegr ee .How muchmus tOt t o de pos i tt oda y , a ta ni nt e r e s tr a t eof1 2pe r c e n t , f orh i ss o nt obea bl et owi t hdr a w$ 10 , 0 00pe ry e a rf orf our y ea r sofc ol l e ge ? A)

$ 12 , 8 8 0 B) $9, 7 80 C)

$ 40 , 0 0 0 D)

$ 18 , 9 5 0 Answer :

B T o p i c :


Pr e v i o usEd i t i o n 92

3 5 ) AuntTi l l yb or r o ws$ 3 , 5 0 0f r o mt heb anka t1 2pe r c e n ta nnua l l yc o mpo unde di nt e r e s tt ober e pa i di nf o ur e qua la nnua li ns t a l l me nt s . Thei nt e r e s tpa i di nt hefir s ty ea ri s A)

$15 2. B) $27 7. C)

$42 0. D)

$ 1 , 1 5 2 . Answer :

C T o p i c :



93

3 6 ) Da nn yJ o ebo r r o ws$ 1 0 , 5 0 0f r o mt heb a nka t1 1pe r c e n ta nnua l l yc ompo unde di nt e r e s tt ober e pa i di ns i x e qua la nnua li ns t a l l me nt s . Thei nt e r e s tpa i di nt hefir s ty ea ri s A)

$ 1 , 1 5 5 . B) $ 2 , 4 8 1 . C)

$14 4. D)

$ 1 , 3 2 7 . Answer :

A T o p i c :



3 7 ) Ri t abo r r o ws$ 4 , 5 0 0f r o mt heb anka t9pe r c e n ta nnua l l yc o mpo unde di nt e r e s tt ober e pa i di nt hr e ee q ua l a nnua li ns t a l l me nt s . Thei nt e r e s tpa i di nt het h i r dy ea ri s_ __ __ _ __ . A)

$ 27 7 . 9 5 B) $ 40 5 . 0 0 C)

$ 35 2 . 0 0 D)

94

$ 14 7 . 0 0 Answer :

D T o p i c :



3 8 ) AuntBut chborr ows$19, 500f r om t hebankat8per ce ntannual l ycompoundedi nt er es tt oberepai di n10 e qua la nnua li ns t a l l me nt s . Thei nt e r e s tpa i di nt het hi r dy e ari s_ _ __ __ __ . A)

$ 1 , 3 3 6 . 0 0 B) $ 1 , 5 6 0 . 1 4 C)

$ 2 , 9 0 6 . 1 1 D)

$ 1 , 9 4 7 . 1 0 Answer :

A T o p i c :



3 9 ) Ent e r t a i ne r ' sAi dpl a nsfiv ea nnua lc o l os s a lc o nc e r t s , e a c hi nadi ffe r e ntna t i on' sc a pi t a l .Thec onc e r t swi l l r ai s ef undsf oranendowmentwhi c hwoul dpr ovi det heWor l dWi deHungerFundwi t h$3, 000, 000per 95

y e a ri nt ope r p e t ui t y . Thee ndo wm wme ntwi l lb egi v e na tt hee ndo ft hefif t hy e a r . Ther a t eofi nt e r e s ti s e x pe c t e dt ob e9pe r c e n ti na l lf ut ur epe r i o ds . Ho w muc hmus tEnt e r t a i ne r ' sAi dde po s i te a c hy e a rt o acc umul at et ot her equi r edamo mount ? A)

$ 5 , 5 6 9 , 4 7 9 B) $ 3 , 3 3 3 , 3 3 3 C)

$ 1 , 8 3 0 , 2 7 5 D)

$ 8 , 5 6 8 , 9 8 0 Answer :

A T o p i c :

Co mp l e xT i meVa l uePr o b l e ms( Eq ua t i o n4. 1 3 ,4 . 1 4a nd4 . 1 9) Que s t i o nS t a t us :


96

4 0 ) Awe a l t h ya r tc o l l e c t o rh asde c i de dt oe ndo w he rf a v o r i t ea r tmus e um b ye s t a bl i s h i ngf undsf o ra n endowm wmentwhi chwo woul dpr ovi det hemus eum wi t h$1, 000, 000peryearf orac qui s i t i onsi nt oper pet ui t y. Thea r tc o l l e c t orwi l lgi v et hee ndo wm wme ntuponhe rfif t i e t hbi r t hda y1 0y e a r sf r o mt oda y . S hepl a nst o ac c umu mul at et hee ndow wm mentbyma maki ngannualend-of ea rde pos i t si nt oa na c c ount .Ther a t eofi nt e r e s ti s -y e x pe c t e dt obe6pe r c e nti na l lf ut ur epe r i o ds . Ho w muc hmus tt hea r tc o l l e c t o rde pos i te a c hy e a rt o acc umul at et ot her equi r edamo mount ? A)

$ 1 , 5 7 5 , 3 3 3 B) $73 6 , 0 0 0 C)

$ 1 , 2 6 4 , 4 4 6 D)

$94 3 , 3 9 6 Answer :

C T o p i c :

Co mp l e xT i meVa l uePr o b l e ms( Eq ua t i o n4. 1 3 ,4 . 1 4a nd4 . 1 9) Que s t i o nS t a t us :


4 1 ) Ho wl o ngwo wo ul di tt a k ef o ry o ut os a v ea na de q ua t ea mo mo untf o rr e t i r e me me nti fy oude po s i t$ 4 0 , 0 0 0pe ry e a r i nt oa na c c o untbe gi nni ngt oda yt ha tpa y s1 2pe r c e ntpe ry e a ri fy ouwi s ht oha v eat o t a lof$ 1 , 0 0 0 , 0 0 0a t r e t i r e me me nt ? A)

1 2. 2ye ar s B) 1 0. 5ye ar s C) 97

1 4. 8ye ar s D)

1 1. 5ye ar s Answer :

D T o p i c :

F i nd i nga nUnk n o wnNumb e ro f Pe r i o d s( Eq u a t i o n4 . 1 3 ,4 . 1 4 ) Que s t i o nS t a t us :


4 2 ) How manyyear swoul di tt akef orJ ugheadt osaveanadequat eamo mountf orr et i r eme menti fhedeposi t s $ 2 , 0 0 0pe rmo nt hi nt oana c c o untb e gi nni ngt o da yt ha tpa y s1 2pe r c e n tpe ry e a ri fhewi wi s h e st oha v ea t ot a lo f$ 1, 0 00 , 0 00a tr e t i r e me me nt ? A)

1 3. 7ye ar s B) 1 5. 5ye ar s C)

1 4. 9ye ar s D)


C T o p i c :


98


4 3 ) Ho wl o ngwo ul di tt a k ef o rNi c ot os a v ea na de q ua t ea mo untf o rr e t i r e me nti fhede po s i t s$ 4 0 , 0 0 0pe r y e a ri nt oa na c c o untb e gi nni ngo ney e a rf r o mt o da yt ha tpa y s1 2pe r c e n tpe ry e a ri fhewi s h e st oha v ea t ot a lo f$ 1, 0 00 , 0 00a tr e t i r e me nt ? A)

1 5. 0ye ar s B) 1 5. 5ye ar s C)

1 4. 5ye ar s D)


A T o p i c :



99

4 4 ) Wha ta nnua lr a t eo fr e t ur nwo ul dJ i ane e dt oe ar ni fs h ede pos i t s$ 2 0 , 0 0 0pe ry e a ri nt oana c c o unt be gi nni ngoneye arf r om t oda yi nor de rt oha veat ot alof$1 , 00 0, 00 0i n30ye ar s ? A)

2. 3% B) 3. 3% C)

1. 3% D)

4. 3% Answer :

B T o p i c :



4 5 ) Whatannualr at eofr et ur nwoul dGr andmaZoeneedt oear ni fs hedepos i t s$1, 000permont hi nt oan a c c o untb e gi nni ngo nemo nt hf r o mt o da yi no r d e rt oha v eat o t a lo f$ 1 , 0 0 0 , 0 0 0i n3 0ye a r s ? A)

4. 55% B) 5. 28% C)

5. 98% D)

100

6. 23% Answer :

C T o p i c :



4 6 ) Whate ffec t i veannualr at eofr et ur n( EAR)woul dRayneneedt oear ni fs hedepos i t s$1, 000permont h i nt oa na c c o untb e gi nni ngo nemo nt hf r o mt o da yi no r d e rt oha v eat o t a lo f$ 1 , 0 0 0 , 0 0 0i n3 0ye a r s ? A)

5. 98% B) 6. 55% C)

4. 87% D)

6. 14% Answer :

A T o p i c :



4 7 ) J ani c ebor r ows$25 , 000f r om t heba nkat15pe r c e ntt ober e pai di n10e qualannua li ns t al l me nt s .Cal c ul at e t hee n d-of earpayment . -y 101

PMT= 2 5 , 0 0 0/5 . 0 1 9= $4 , 9 81 . 0 7 T o p i c :



102

4 8 ) Thef ol l o wi ngt a bl epr e s e nt st heSa l l y' sS i l l yS e r vi c eCompa ny' sne te a r ni ngsf ort hepa s ts i xy ea r s . Comput et hegrowt hrat ei nt hec ompany' sear ni ngs .

Answer :

FVI F= FV/PV= 2 , 6 59 /1 , 7 2 8= 1 . 5 3 9n= 5,i= 9 % T o p i c :



4 9 ) Mar chaspur c hase danew c arf or$ 15, 000. Hepai d$2, 500asdownpaymentandhepai dt hebal ancebya l oanf r om hi shomet ownbank.Thel oani st obepai donamont hl ybasi sf ort woyear sc hargi ng12per ce nt i nt er es t .How muc har et hemont hl ypayment s ? Answer :

PV= 1 5, 0 0 0- 2 , 5 00= $12, 500,i= 12%,n= 2, m = 12 PMT= PVA/PVI F A = 12 , 5 0 0 /2 1 . 2 4 4= $ 5 88 . 4 0 T o p i c :



5 0 ) Yo uha v eb e e ng i v e nt heo ppo r t uni t yt oe a r n$ 20 , 0 0 0fiv ey e a r sf r o m no wi fy oui n ve s t$ 9 , 5 2 4t o da y . Wha t wi l lbet her a t eofr e t ur nt oyouri n ve s t me nt ? Answer : 103

FVI F= 2 0 , 0 0 0 /9 , 5 2 4= 2. 10i= 16%. T o p i c :



5 1 ) Tenyear sago,Tom pur chas edapai nt i ngf or$300. Thepai nt i ngi snow wort h$1, 020. Tom coul dhave de po s i t e d$ 3 0 0i nas a vi ngsa c c o untpa y i ng1 2pe r c e n ti nt e r e s tc o mpo unde da nnua l l y . Whi c hoft he s et wo opt i onswoul dhaveprovi dedTom wi t hahi gherr et ur n? Answer :

PV= $300, FV = $ 1, 0 20 ,n= 10 FVI F= 1 , 0 2 0 /3 0 0= 3. 40i= 13% Pa i nt i ngha sahi ghe rr e t ur n( 1 3pe r c e nt )i nc o mpa r i s o nt ot he1 2pe r c e ntr a t eofr e t ur nf r o mt hes a v i ngs a c c ount . T o p i c :



5 2 ) Fi ndt heequalannualend-of e a rpa y me nton$ 5 0 , 0 0 0 ,1 5ye a r ,a nd1 0pe r c e ntl o an. -y Answer :

PMT= PVA/PVI F A = 5 0 , 0 00 /7 . 6 06= $6 , 5 73 . 7 6 T o p i c :



5 3 ) Afir m wi s h e st oe s t a bl i s haf undwhi c h ,i n1 0y ea r s ,wi l la c c umul a t et o$1 0 , 0 0 0 , 0 0 0 .Thef undwi l lbeus e d t or e pa yano ut s t a ndi ngb ondi s s ue . Thefir m pl a nst oma k ede po s i t s , whi c hwi l le a r n1 2pe r c e n t , t ot hi s 104

f unda tt hee ndo fe a c hoft he1 0ye a r sp r i o rt oma t ur i t yo ft heb ond.Ho wl a r g emus tt he s ede po s i t sb et o a c c umul a t et o$ 1 0, 0 0 0, 0 0 0? Answer :

PMT= 1 0 , 0 0 0, 0 0 0/1 7. 5 49= $ 5 69 , 8 33 . 0 4 T o p i c :



5 4 ) J ohnbor r owe d$12, 000t obuyane wc arande xpe c t st opa y$564 . 87pe rmont hf ort hene xt2ye a r st opa y offt hel oa n.Wha ti st hel oa n' sr a t eofi nt e r e s t ? Answer :

PVA = $12, 000, PMT= $ 56 4. 8 7, n= 2, m = 12 PVI F A = PVA/PMT= 12 , 0 0 0 /5 6 4. 8 7= 21. 244i /m = 1% i= 12% T o p i c :



5 5 ) TheNew Yor kSocc erAs s oci at i onwoul dl i ket oacc umul at e$10, 000byt heendof4year sf r om now t o fina nc eabi gs o c c e rwe e k e ndf o ri t sme mb e r s .TheAs s o c i a t i o nc u r r e n t l yha s$ 2 , 5 0 0andwi s h e st or a i s e t heb a l a nc eb ya r r a ng i nga nnua lf und-r ai s i ngevent s .How muchmoneyshoul dt heyr ai s eateac hannual fund-r a i s i nge v enta s s umi ng8pe r c e ntr a t eofi nt e r e s t ? Answer :

F ut ur ev a l ueof$ 2 , 5 0 0a tt hee ndoff our t hy e a r : FV= 2, 5 00 ( 1 . 3 60 )= $ 3, 4 00 B a l a n c e= 1 0, 0 00- 3 , 4 00= $ 6, 6 00 PMT= FVA/FVI F A = 6 , 6 00 /4 . 5 06= $1 , 4 64 . 7 1 T o p i c :

Co mp l e xTi meVa l uePr o b l e ms( Eq ua t i o n4 . 4 ,4 . 5 ,4 . 6 ,a nd4. 1 3,4 . 1 4) Que s t i o nS t a t us : 105


5 6 ) Ms . Da yne e ds$ 2 0 , 0 0 0t obuyhe rdr e a mc a r .I nhe rs e a r c hf ort heb e s t( l o wc o s t )l oa n,s h eha sg a t he r e d t hef ol l owi ngi nf or mat i onf r om t hre el ocal banks. Whi c hbankwoul dyour ec ommendMs .Dayborr ow f r om?

Answer :

A:PVI F A = 20 , 0 0 0/8 , 3 26 . 4 0= 2. 402i= 12% B:PVI F A = 20 , 0 00 /6 , 3 09 . 1 5= 3 . 1 70i= 10 % C:PVI F A = 20 , 0 0 0/5 , 4 11 . 2 5= 3. 696i= 11% Ms .Dayshoul dborr ow f r om BankB.BankBhast hel owes tr at e. T o p i c :



5 7 ) Adee p-di s c o untb ondc a nb epur c h a s e df o r$ 3 1 2a ndi n2 0ye a r si twi l lb ewo r t h$ 1 , 0 0 0 .Wha ti st her a t e o fi nt e r e s to nt hebond? Answer :

FVI F= 1 , 0 0 0 /3 1 2= 3 . 20 5i= 6pe r c e nt T o p i c :



5 8 ) Ti mot hybor r ows$6, 930f r om t hebank.Foraf our-y e a rl oa n,t heb ankr e q ui r e sa n nua le nd-of e a r -y pa yme nt sof$ 2, 2 81 . 8 6. Ca l c ul a t et h ei nt e r e s tr a t eont hel oa n. 106

PVI F A= 6 , 9 3 0/2 , 2 81 . 8 6= 3 . 037, i= 1 2% T o p i c :



107

5 9 ) T om i se v a l ua t i ngt hegr o wt hr a t ei ndi vi de ndso fac o mpa n yo v e rt hepa s t6y e a r s .Wha ti st hea nnua l c o mpo undg r o wt hr a t ei ft hedi vi de ndsa r ea sf o l l o ws :

Answer :

$ 2. 1 5/$ 1 . 3 8= 1 . 5 58= FVI F5year sor $ 1. 3 8/$ 2 . 1 5= 0 . 6 41 9= PVI F5year s a ppr o x i ma t e l y9pe r c e nt . T o p i c :



6 0 ) T oe xpa ndi t so pe r a t i on,t heI nt e r na t i ona lT ool sI nc . ( I TI )ha sa ppl i e df ora$ 3, 5 0 0, 0 0 0l oa nf r o mt he I nt er nat i onalBank.Acc or di ngt oI TI ' sfinanci almanager ,t hecompanycanonl yaffor damaxi mum year l y l o a npa y me nto f$ 1 , 0 0 0 , 0 0 0 .Theb ankha so ffe r e dI TI ,1 )a3-y ea rl oa nwi t ha10pe r c e nti nt e r e s tr a t e ,2 )a 4-y ea rl oa nwi t ha11pe r c e n ti nt e r e s tr a t e ,or3 )a5-y ea rl oa nwi t ha12pe r c e nti nt e r e s tr a t e . ( a)Comput et hel oanpaymentunderea c hopt i on. ( b)Whi c hopt i ons houl dt hecompanyc hoos e? Answer :

( a) 1)PMT= 3, 5 00 , 0 00 /2 . 4 87= $ 1, 4 07 , 3 18 . 0 5 2)PMT= 3, 5 00 , 0 00 /3 . 1 02= $ 1, 1 28 , 3 04 . 3 2 3)PMT= 3, 5 00 , 0 00 /3 . 6 05= $97 0, 8 73 . 7 9 ( b) Thec ompan ys houl dc hoos eopt i on# 3. T o p i c :


108


6 1 ) T obuyhi sf a v or i t ec a r ,La r r yi sp l a nni ngt oa c c umul a t emo ne ybyi n ve s t i nghi sChr i s t ma sb onus e sf o rt he ne x tfi veye a r si nas e c ur i t ywhi c hpa y sa1 0pe r c e nta nnua lr a t eofr e t ur n .Thec a rwi l lc o s t$ 2 0, 0 0 0a tt he e ndo ft hefif t hy e a ra ndLa r r y ' sChr i s t ma sb o nusi s$ 3 , 0 0 0ay e a r .Wi l lLa r r ya c c u mul a t ee n oug hmo ne y t obuyt hec a r ? Answer :

FVA= PMT( FVI F A)= 3, 0 00 ( 6 . 1 05 )= $ 18 , 3 1 5 Lar r ywi l lnothaveenoughmoneyt obuyt hecar .Hes houl dei t heri nvestmoremoneyordeposi thi s c hr i s t ma sbonus e si nas e c ur i t ypa yi ngahi ghe rr a t eofr e t ur n . T o p i c :



109

6 2 ) Mr .&Mr s . Pr i b e lwi s ht opur c h a s eabo a ti n8y e a r swhe nt he yr e t i r e . The ya r epl a nni ngt opur c h a s et he boatus i ngpr oc e e dsf r om t hes al eoft he i rpr ope r t ywhi c hi sc ur r e nt l ywor t h$90, 000andi t sval uei s gr o wi nga t7pe r c e ntaye a r .Theboa ti sc u r r e nt l ywo r t h$ 2 0 0, 0 0 0i nc r e a s i nga t5pe r c e ntpe ry e a r .I n a ddi t i o nt ot hev a l ueo ft he i rpr o pe r t y , ho w muc ha ddi t i o na lmo ne ys h oul dt he yde po s i ta tt hee ndo f e a c hy e a ri na na c c o untpa y i ng9pe r c e n ta nnua li nt e r e s ti no r de rt ob ea bl et ob uyt hebo a tu po n r e t i r e me nt ? Answer :

Va l ueo ft hepr o pe r t yupo nr e t i r e me nt : PV= $90, 0 00,i= 7%,n= 8 FV= PV( FVI F)= 9 0, 0 00 ( 1 . 7 18 )= $ 1 54 , 6 2 0 Va l ueo ft heb oa tupo nr e t i r e me nt : PV= $2 00 , 0 00 ,i= 5%, n= 8 FV= PV( FVI F)= 2 00 , 0 00 ( 1 . 4 77 )= $ 2 95 , 4 00 Addi t i onalmoneyneededuponr et i r ement : $ 2 9 5, 4 0 0- $ 15 4 , 6 2 0= $ 1 40 , 7 80 Amountofmoneynee dedt odepos i tatt heendofeac hyear : FV= $ 14 0 , 7 8 0,n= 8,i= 9 %,PMT= ? PMT= FV/FVI F A = 1 40 , 7 8 0 /1 1 . 0 2 8= $ 12 , 7 65 . 6 9 T o p i c :



6 3 ) He r b e r tha so pe ne dar e t i r e me ntf unda c c o untwhi c hpa y s7pe r c e n ti nt e r e s ta ndr e q ui r e s$ 5 , 0 0 0a nnua l de pos i t s . He r b e r twi l lr e t i r ei n1 5ye a r sa nde x pe c t s1 0ye a r so fr e t i r e me ntl i f e .Wha ti st hema x i mum a nnua lr e t i r e me ntb e ne fitHe r be r tc a ng e tdur i nghi sr e t i r e me nty e a r s ? Answer :

i= 7%,PMT= $ 5, 0 00 ,n= 15 Att heb e gi nni ngofr e t i r e me nt : FVA= 5 , 0 0 0( FVI F A)= 5 , 0 00 ( 2 5. 1 29 )= $ 1 25 , 6 4 5 Annua lr e t i r e me ntbe ne fit :i= 7%,n= 1 0,P= $ 1 25 , 6 4 5 PMT= PVA/PVI F A = 12 5 , 6 4 5 /7 . 0 2 4= $ 17 , 8 87 . 9 6 T o p i c :

Co mp l e xTi meVa l uePr o b l e ms( Eq ua t i o n4 . 1 3 ,4 . 1 4,a nd4. 1 5,4 . 1 6) Que s t i o nS t a t us : 110


6 4 ) Br i a nb or r o ws$ 5 , 0 0 0f r o m ab a nka t8pe r c e n ta nnua l l yc ompo unde di nt e r e s tt ober e pa i di nfiv ea nnua l i ns t a l l me nt s .Ca l c ul a t et hepr i nc i pa lpa i di nt het h i r dye a r . Answer :

PMT= 5 , 0 0 0/3 . 9 9 3= $ 1, 2 52 . 1 9

Thepr i nc i pa lpa i di nt het hi r dy ea ri s$ 9 93 . 9 9 T o p i c :



111

6 5 ) Nancywoul dl i ket oacc umul at e$10, 000byt heendof3year sf r om now t obuyasport sc arf r om her f r i e nd,J i m.S heha s$ 2 , 5 0 0no wa ndwo ul dl i k et os a v ee q ua la nnua le nd-of ea rde pos i t st opa yf ort he -y c a r .Ho w muc hs h oul ds h ede po s i ta tt hee n do fe a c hy e a ri na na c c o untpa y i ng8pe r c e n ti nt e r e s tt obuy t hec ar ? Answer :

F ut ur ev a l ueof$ 2 , 5 0 0a tt hee ndofy e ar3 : FV= 2 , 5 00 ( FVI F)= 2, 5 00 ( 1 . 2 60 )= $ 3, 1 50 B a l a n c e= 1 0, 0 00- 3 , 1 50= $ 6, 8 50 PMT= FVA/FVI F A = 6 , 8 50 /3 . 2 46= $2 , 1 10 . 2 9 T o p i c :



6 6 ) T oe xpa ndi t so pe r a t i on,I nt e r na t i ona lT ool sI nc . ha sa ppl i e dt ot heI nt e r na t i ona lBa nkf ora3-y e a r , $ 3, 5 00 , 0 00l oa n.Pr e pa r eal oa na mor t i z at i ont a bl eas s umi ng1 0pe r c e n tr a t eofi nt e r e s t . Answer :

PMT= 3, 5 0 0, 0 0 0/2 . 4 8 7= $ 1, 4 07 , 3 18 . 0 5

T o p i c :



6 7 ) Ke nbo r r o ws$ 1 5 , 0 0 0f r o m ab a nka t1 0pe r c e n ta nnua l l yc o mpo unde di nt e r e s tt ober e pa i di ns i xe q ua l i ns t a l l me nt s .Ca l c ul a t et hei nt e r e s tpa i di nt hes e c ondy ea r . Answer : 112

Finance Test bank chapter 4

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