978-0133423822 chapter 6 Part 2

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30) A retirement plan guarantees to pay you or your estate a ixed amount for 20 years. At

the time of retirement, you will have $31,360 to your credit in the plan. The plan

anticipates earning 8% interest annually over the period you receive beneits. How much

will your annual beneits be, assuming the irst payment occurs one year from your

retirement date?

A) $682

B) $6,272

C) $2,000

D) $3,194

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

31) SellUCars, Inc. ofers you a car loan at an annual interest rate of 8% compounded

monthly. What is the annual percentage yield of the loan?

A) 8.00%

B) 8.24%

C) 8.30%

D) 8.44%

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

32) George and Laura will be retiring in four years and would like to buy a lake house. They

estimate that they will need $550,000 at the end of four years to buy this house. They want

to make four equal annual payments into an account at the end of each year. If they can

earn 8% on their money, compounded annually, over the next four years, how much must

they invest at the end of each year for the next four years to have accumulated $550,000 by

retirement?

A) $137,500

B) $122,056

C) $113,015

D) $131,821

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

33) You have been accepted to study gourmet cooking at Le Cordon Bleu Culinary Institute

in Paris, France. You will need $15,000 every six months (beginning six months from now)

for the next three years to cover tuition and living expenses. Mom and Dad have agreed to

pay for your education. They want to make one deposit now in a bank account earning 6%

interest, compounded semiannually, so that you can withdraw $15,000 every six months for

the next three years. How much must they deposit now?

A) $97,026

B) $73,760

C) $90,000

D) $81,258

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

34) Horace and Myrtle want to buy a house. Their banker ofered them a fully amortizing

$95,000 loan at a 12% annual rate for 20 years. What will their monthly payment be if they

make equal monthly installments over the next 20 years?

A) $1,046

B) $749

C) $1,722

D) $1,346

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

35) Harold Hawkins bought a home for $320,000. He made a down payment of $45,000;

the balance will be paid of over 30 years at a 6.775% rate of interest. How much will

Harold’s monthly payments be? Round of to the nearest $1.

A) $1,450

B) $1,788

C) $3,200

D) $1,682

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

36) You buy a race horse, which has a winning streak for four years, bringing in $500,000

per year, and then it dies of a heart attack. If you paid $1,518,675 for the horse four years

ago, what was your annual return over this four-year period?

A) 8%

B) 33%

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

37) You are considering a home loan with monthly payments at an annual percentage yield

of 5.116%. What is the quoted rate of interest on the loan?

A) 4.5%

B) 4.75%

C) 5%

D) 6%

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

38) You deposited $2,000 in a bank account paying 6% on January 1, 2004, and then you

made $2,000 deposits on January 1 in 2005 and 2006. Which of the following expressions

will calculate your bank balance just after the last payment was deposited?

A) FV = $2,000[1.06]-1 + $2,000[1.06]-2 + $2,000[1.06]-3

B) FV = $2,000[1.06]1 + $2,000[1.06]2 + $2,000[1.06]3

C) FV = $2,000[1.06]0 + $2,000[1.06]1 + $2,000[1.06]2

D) FV = $2,000[1.06]-0 + $2,000[1.06]-1 + $2,000[1.06]-2 + $1,000[1.06]-3

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

39) Harry just bought a new four-wheel-drive Jeep Cherokee for his lumber business. The

price of the vehicle was $35,000, of which he made a $5,000 down payment and took out

an amortized loan for the rest. His local bank made the loan at 12% interest for ive years.

He is to pay back the principal and interest in ive equal annual installments beginning one

year from now. Determine the amount of Harry‘s annual payment.

A) $8,322

B) $9,600

C) $9,709

D) $6,720

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

40) Your investment goal is to have $3,000,000 in 40 years for retirement. You decide to

invest in a mutual fund today that pays 12% per year compounded monthly. How much

must you invest at the end of each month to meet your investment goal? Round to the

nearest $1.

A) $245

B) $255

C) $285

D) $305

E) $315

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

41) You have borrowed $70,000 to buy a sports car. You plan to make monthly payments

over a 15-year period. The bank has ofered you a 9% interest rate compounded monthly.

Calculate the total amount of interest dollars you will pay the bank over the life of the loan.

Round to the nearest dollar and assume end-of–month payments.

A) $47,451

B) $51,644

C) $54,776

D) $57,798

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

42) You have borrowed $70,000 to buy rental property. You plan to make monthly payments

over a 15-year period. The bank has ofered you a 9% interest rate compounded monthly.

Calculate the principal paid to the bank in month two of the loan. Assume end-of-period

payments.

A) $184.01

B) $186.38

C) $188.46

D) $190.64

E) $192.73

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

43) A friend of yours plans to begin saving for retirement by depositing $2,000 at the end

of each year for the next 25 years. If she can earn 10% annually on her investment, how

much will she have accumulated at the end of 25 years?

A) $50,000

B) $196,692

C) $100,000

D) $216,361

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

44) How much must you deposit at the end of each of the next 10 years in a savings

account paying 5% annually in order to have $10,000 saved by the end of the 10th year?

A) $1,000

B) $1,638

C) $1,500

D) $795

Dif: 1

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

45) What is the value today of an investment that pays $500 every year at year-end during

the next 15 years if the annual interest rate is 9%?

A) $4,030.50

B) $7,500.00

C) $3,500.00

D) $7,000.00

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

46) How much would an investor be willing to pay today for an investment that returns

$1,000 every year at year-end for ive years if he wants to earn a 10% annual return on the

investment?

A) $1,000

B) $3,791

C) $5,000

D) $7,700

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

47) A friend of yours would like you to lend him $5,000 today to be paid back in 5 annual

payments. What would be the equal annual end-of–year payment on this loan if you charge

your friend 7% interest?

A) $869.45

B) $1,000.00

C) $1,219.51

D) $1,350.00

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

48) Recently you borrowed money for a new car. The loan amount is $15,000 to be paid

back in equal annual payments which begin today, and will continue to be payable at the

beginning of each year for a total of ive years. Interest on the loan is 8%. What is the

amount of the loan payment?

A) $3,756.85

B) $4,200.00

C) $3,478.31

D) $3,000.00

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

49) A friend of yours borrows $19,500 from the bank at 8% annually to be repaid in 10

equal annual end-of-year installments. The interest paid on this loan in year three is

A) $1,336.01.

B) $1,560.00.

C) $2,906.11.

D) $1,947.10.

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

50) If a loan of $10,000 is paid back in equal annual end-of-year payments of $2,570.69

during the next ive years, what is the annual interest rate on the loan?

A) 2%

B) 5%

C) 9%

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

51) What is the present value of an investment that pays $10,000 every year at year-end for

the next ive years and $15,000 every year at year-end for years six through 10? The annual

rate of interest for the investment is 9%.

A) $125,000.00

B) $97,250.00

C) $135,173.00

D) $76,827.50

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

52) Congratulations. You just won the California State Lottery. The amount awarded is paid

in 20 equal annual installments, at the beginning of each year. You can invest your money

at 6.6%, compounded annually. You have calculated that the lottery is worth $20,975,400

today. How much was the amount awarded?

A) $75,310,294

B) $36,000,000

C) $81,047,770

D) $42,000,000

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

53) If you have $375,000 in an account earning 9% annually, what constant amount could

you withdraw each year and have nothing remaining at the end of 20 years?

A) $7,500

B) $18,750

C) $66,912

D) $5,575

E) $41,080

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

54) You wish to borrow $12,000 to be repaid in 60 monthly installments of $257.93. The

annual interest rate is

A) 10.50%.

B) 12.75%.

C) 15.25%.

D) 6.50%.

E) 8.80%.

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

55) You wish to purchase a condo at a cost of $175,000. You are able to make a down

payment of $35,000 and will borrow $140,000 for 30 years at an interest rate of 7.25%.

How much is your monthly payment? To solve this problems with an EXCEL spreadsheet,

you would enter

A) =PMT(7.25/12,360,140000,0,1)

B) =PMT(.0725/12,360,140000,0,1)

C) =PMT(7.25,30,140000,0,1) /12

D) =PMT(.0725/12,360,175000,0,1)

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

56) Suppose that you wish to save for your child’s college education by opening up an

educational IRA. You plan to deposit $100 per month into the IRA for the next 18 years.

Assume that you will be able to earn 10%, compounded monthly, on your investment. How

much will you have accumulated at the end of 18 years?

A) $21,600

B) $54,719

C) $33,548

D) $85,920

E) $60,056

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

57) Edward Johnson decided to open up a Roth IRA. He will invest $1,800 per year for the

next 35 years. Deposits to the Roth IRA will be made via a $150 payroll deduction at the

end of each month. Assume that Edward will earn 8.75% annual interest compounded

monthly over the life of the IRA. How much will he have at the end of 35 years?

A) $125,250

B) $250,321

C) $363,000

D) $414,405

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

58) What is a series of equal payments for a inite period of time called?

A) A perpetuity

B) An axiom

C) A lump sum

D) An annuity

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