978-0133423822 chapter 6 Part 1

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Financial Management, 12e (Titman/Keown/Martin)

Chapter 6 The Time Value of Money-Annuities and Other Topics

6.1 Annuities

1) You wish to borrow $2,000 to be repaid in 12 monthly installments of $189.12. The

annual interest rate is

A) 24%.

B) 8%.

C) 18%.

D) 12%.

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

2) If you have $20,000 in an account earning 8% annually, what constant amount could you

withdraw each year and have nothing remaining at the end of ive years?

A) $3,525.62

B) $5,008.76

C) $3,408.88

D) $2,465.78

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

3) If you invest $750 every six months at 8% compounded semi-annually, how much would

you accumulate at the end of 10 years?

A) $10,065

B) $10,193

C) $22,334

D) $21,731

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

4) A commercial bank will loan you $7,500 for two years to buy a car. The loan must be

repaid in 24 equal monthly payments. The annual interest rate on the loan is 12% of the

unpaid balance. What is the amount of the monthly payments?

A) $282.43

B) $390.52

C) $369.82

D) $353.05

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

5) Your company has received a $50,000 loan from an industrial inance company. The

annual payments are $6,202.70. If the company is paying 9% interest per year, how many

loan payments must the company make?

A) 15

B) 13

C) 12

D) 19

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

6) ________ annuities involve depositing money at the end of the period and allowing it to

grow.

A) Discount

B) Compound

C) Annuity due

D) Both B and C

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

7) When comparing annuity due to ordinary annuities, annuity due annuities will have

higher

A) present values.

B) annuity payments.

C) future values.

D) both A and C.

E) all of the above.

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

8) Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina’s

plan is to invest her money by depositing into an IRA at the end of every year. What is the

amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that

the account will earn an annual rate of 11.5%. Round of to the nearest $1.

A) $1,497

B) $5,281

C) $75

D) $3,622

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

9) Francis Peabody just won the $89,000,000 California State Lottery. The lottery ofers the

winner a choice of receiving the winnings in a lump sum or in 26 equal annual installments

to be made at the beginning of each year. Assume that funds would be invested at 7.65%.

Francis is trying to decide whether to take the lump sum or the annual installments. What

is the amount of the lump sum that would be exactly equal to the present value of the

annual installments? Round of to the nearest $1.

A) $89,000,000

B) $38,163,612

C) $13,092,576

D) $41,083,128

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

10) As time increases for an amortized loan, the ________ decreases.

A) interest paid per payment

B) principal paid per payment

C) the outstanding loan balance

D) both A and C

Dif: 2

Question Status: Revised

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

11) What is the present value of an annuity of $27 received at the beginning of each year

for the next six years? The irst payment will be received today, and the discount rate is

10% (round to nearest $10).

A) $120

B) $130

C) $100

D) $110

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

12) What is the present value of $150 received at the beginning of each year for 16 years?

The irst payment is received today. Use a discount rate of 9%, and round your answer to

the nearest $10.

A) $1,360

B) $1,480

C) $1,250

D) $1,210

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

13) What is the present value of $250 received at the beginning of each year for 21 years?

Assume that the irst payment is received today. Use a discount rate of 12%, and round

your answer to the nearest $10.

A) $1,870

B) $2,090

C) $2,117

D) $3,243

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

14) What is the present value of an annuity of $12 received at the end of each year for

seven years? Assume a discount rate of 11%. The irst payment will be received one year

from today (round to the nearest $1).

A) $25

B) $40

C) $57

D) $118

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

15) What is the present value of an annuity of $100 received at the end of each year for

seven years? The irst payment will be received one year from today (round to nearest $10).

The discount rate is 13%. To solve this problem with a inancial calculator, the correct

choice is

A) N=7, i=13, PMT= 100, FV=0, solve for PV

B) N=7, i=13, PV= 100, FV=0, solve for FV

C) N=7, i=13, PMT= 100, FV=100, solve for PV

D) N=7, i=.13, PMT= 100, FV=0, solve for PV

Question Status: New question

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

16) What is the present value of $27 received at the end of each year for ive years?

Assume a discount rate of 9%. The irst payment will be received one year from today

(round to the nearest $1).

A) $42

B) $114

C) $88

D) $105

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

17) What is the present value of $300 received at the beginning of each year for ive years?

Assume that the irst payment is not received until the beginning of the third year (thus the

last payment is received at the beginning of the seventh year). Use a 10% discount rate,

and round your answer to the nearest $100.

A) $1,100

B) $1,000

C) $900

D) $1,200

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

18) Ingrid Birdman can earn a nominal annual rate of return of 12%, compounded

semiannually. If Ingrid made 40 consecutive semiannual deposits of $500 each, with the

irst deposit being made today, how much will she accumulate at the end of Year 20? Round

of to the nearest $1.

A) $52,821

B) $57,901

C) $82,024

D) $64,132

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

19) Charlie Stone wants to retire in 30 years, and he wants to have an annuity of $1,000 a

year for 20 years after retirement. Charlie wants to receive the irst annuity payment at the

end of the 30th year. Using an interest rate of 10%, how much must Charlie invest today in

order to have his retirement annuity (round to the nearest $10)?

A) $500

B) $490

C) $540

D) $570

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

20) It is January 1st and Darwin Davis has just established an IRA (Individual Retirement

Account). Darwin will put $1,000 into the account on December 31st of this year and at the

end of each year for the following 39 years (40 years total). How much money will Darwin

have in his account at the beginning of the 41st year? Assume that the account pays 12%

interest compounded annually, and round to the nearest $1,000.

A) $93,000

B) $766,000

C) $767,000

D) $850,000

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

21) If you put $510 in a savings account at the beginning of each year for 30 years, how

much money will be in the account at the end of the 30th year? Assume that the account

earns 5%, and round to the nearest $100.

A) $33,300

B) $32,300

C) $33,900

D) None of the above

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

22) If you put $10 in a savings account at the beginning of each year for 11 years, how

much money will be in the account at the end of the 11th year? Assume that the account

earns 11%, and round to the nearest $100.

A) $220

B) $200

C) $190

D) $180

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

23) To ind the present value of an annuity due, one could

A) ind the present value of an ordinary annuity and add one extra payment.

B) ind the present value of an ordinary annuity but N = 1 for the number of periods.

C) ind the present value of an ordinary annuity and divide by 1 + i.

D) ind the present value of an ordinary annuity and multiply by 1 + i.

Question Status: New question

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

24) How much money must you pay into an account at the beginning of each of 30 years in

order to have $10,000 at the end of the 30th year? Assume that the account pays 11% per

annum, and round to the nearest $1.

A) $39

B) $46

C) $50

D) None of the above

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

25) How much money must you pay into an account at the beginning of each of 20 years in

order to have $10,000 at the end of the 20th year? Assume that the account pays 12% per

annum, and round to the nearest $1.

A) $1,195

B) $111

C) $124

D) $139

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

26) How much money must you pay into an account at the beginning of each of ive years in

order to have $5,000 at the end of the ifth year? Assume that the account pays 12% per

year, and round to the nearest $10.

A) $700

B) $1,390

C) $1,550

D) $790

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

27) How much money must you pay into an account at the beginning of each of 11 years in

order to have $5,000 at the end of the 11th year? Assume that the account pays 8% per

year, and round to the nearest $1.

A) $700

B) $257

C) $300

D) $278

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

Use the following information in solving the following question(s).

You are going to pay $100 into an account at the beginning of each of the next 40 years. At

the beginning of the 41st year, you buy a 30-year annuity whose irst payment comes at the

end of the 41st year (the account pays 12%).

28) How much money will be in the account at the end of year 40 (round to the nearest

$1,000)?

A) $77,000

B) $86,000

C) $69,000

D) $93,000

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

29) How much will you receive at the end of the 41st year (i.e., the irst annuity payment)?

Round to the nearest $100.

A) $93,000

B) $7,800

C) $11,400

D) $10,700

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the

present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value