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35) Aunt Tilly borrows $3,500 from the bank at 12 percent annually compounded interest to be
repaid in four equal annual installments. The interest paid in the first year is ________.
A) $152
B) $277
C) $420
D) $1,152
36) Danny Joe borrows $10,500 from the bank at 11 percent annually compounded interest to be
repaid in six equal annual installments. The interest paid in the first year is ________.
A) $1,155
B) $2,481
C) $144
D) $1,327
37) Rita borrows $4,500 from the bank at 9 percent annually compounded interest to be repaid in
three equal annual installments. The interest paid in the third year is ________.
A) $277.95
B) $405.00
C) $352.00
D) $147.00
38) Uncle Butch borrows $19,500 from the bank at 8 percent annually compounded interest to be
repaid in 10 equal annual installments. The interest paid in the third year is ________.
A) $1,336.00
B) $1,560.14
C) $2,906.11
D) $1,947.10
39) Entertainer's Aid plans five annual colossal concerts, each in a different nation's capital. The
concerts will raise funds for an endowment which would provide the World Wide Hunger Fund
with $3,000,000 per year into perpetuity. The endowment will be given at the end of the fifth
year. The rate of interest is expected to be 9 percent in all future periods. How much must
Entertainer's Aid deposit each year to accumulate to the required amount?
A) $5,569,749
B) $3,333,333
C) $1,830,275
D) $8,568,980
40) A wealthy art collector has decided to endow her favorite art museum by establishing funds
for an endowment which would provide the museum with $1,000,000 per year for acquisitions
into perpetuity. The art collector will give the endowment upon her fiftieth birthday 10 years
from today. She plans to accumulate the endowment by making annual end-of-year deposits into
an account. The rate of interest is expected to be 6 percent in all future periods. How much must
the art collector deposit each year to accumulate to the required amount?
A) $1,575,333
B) $736,000
C) $1,264,466
D) $943,396
41) How long would it take for you to save an adequate amount for retirement if you deposit
$40,000 per year into an account beginning today that pays 12 percent per year if you wish to
have a total of $1,000,000 at retirement?
A) 12.2 years
B) 10.5 years
C) 14.8 years
D) 11.5 years
42) How many years would it take for Harry to save an adequate amount for retirement if he
deposits $2,000 per month into an account beginning today that pays 12 percent per year if he
wishes to have a total of $1,000,000 at retirement?
A) 13 years
B) 16 years
C) 15 years
D) 12 years
43) How long would it take for Nico to save an adequate amount for retirement if he deposits
$40,000 per year into an account beginning one year from today that pays 12 percent per year if
he wishes to have a total of $1,000,000 at retirement?
A) 12.2 years
B) 15.7 years
C) 14.5 years
D) 16.5 years
44) What annual rate of return would Jia need to earn if she deposits $20,000 per year into an
account beginning one year from today in order to have a total of $1,000,000 in 30 years?
A) 2.3%
B) 3.3%
C) 1.3%
D) 4.3%
45) What annual rate of return would Grandma Zoe need to earn if she deposits $1,000 per
month into an account beginning one month from today in order to have a total of $1,000,000 in
30 years?
A) 4.55%
B) 5.28%
C) 5.98%
D) 6.23%
46) What effective annual rate of return (EAR) would Rayne need to earn if she deposits $1,000
per month into an account beginning one month from today in order to have a total of $1,000,000
in 30 years?
A) 5.98%
B) 6.55%
C) 4.87%
D) 6.14%
47) Janice borrows $25,000 from the bank at 15 percent to be repaid in 10 equal annual
installments. Calculate the end-of-year payment.
48) The following table presents the Sally's Silly Service Company's net earnings for the past six
years. Compute the growth rate in the company's earnings.
49) Marc has purchased a new car for $15,000. He paid $2,500 as down payment and he paid the
balance by a loan from his hometown bank. The loan is to be paid on a monthly basis for two
years charging 12 percent interest. How much are the monthly payments?
50) You have been given the opportunity to earn $20,000 five years from now if you invest
$9,524 today. What will be the rate of return to your investment?
51) Ten years ago, Tom purchased a painting for $300. The painting is now worth $1,020. Tom
could have deposited $300 in a savings account paying 12 percent interest compounded annually.
Which of these two options would have provided Tom with a higher return?
52) Find the equal annual end-of-year payment on $50,000, 15 year, and 10 percent loan.
53) A firm wishes to establish a fund which, in 10 years, will accumulate to $10,000,000. The
fund will be used to repay an outstanding bond issue. The firm plans to make deposits, which
will earn 12 percent, to this fund at the end of each of the 10 years prior to maturity of the bond.
How large must these deposits be to accumulate to $10,000,000?
54) John borrowed $12,000 to buy a new car and expects to pay $564.87 per month for the next
2 years to pay off the loan. What is the loan's rate of interest?
55) The New York Soccer Association would like to accumulate $10,000 by the end of 4 years
from now to finance a big soccer weekend for its members. The Association currently has $2,500
and wishes to raise the balance by arranging annual fund-raising events. How much money
should they raise at each annual fund-raising event assuming 8 percent rate of interest?
56) Ms. Day needs $20,000 to buy her dream car. In her search for the best (low cost) loan, she
has gathered the following information from three local banks. Which bank would you
recommend Ms. Day borrow from?
57) A deep-discount bond can be purchased for $312 and in 20 years it will be worth $1,000.
What is the rate of interest on the bond?
58) Timothy borrows $6,930 from the bank. For a four-year loan, the bank requires annual end-
of-year payments of $2,281.86. Calculate the interest rate on the loan.
59) Tom is evaluating the growth rate in dividends of a company over the past 6 years. What is
the annual compound growth rate if the dividends are as follows:
60) To expand its operation, the International Tools Inc. (ITI) has applied for a $3,500,000 loan
from the International Bank. According to ITI's financial manager, the company can only afford
a maximum yearly loan payment of $1,000,000. The bank has offered ITI, 1) a 3-year loan with
a 10 percent interest rate, 2) a 4-year loan with a 11 percent interest rate, or 3) a 5-year loan with
a 12 percent interest rate.
(a) Compute the loan payment under each option.
(b) Which option should the company choose?
(a)
1) Using financial calculator: PV = 3,500,000, N = 3, FV = 0, I = 10, CPT PMT = 1,407,402
2) Using financial calculator: PV = 3,500,000, N = 4, FV = 0, I = 11, CPT PMT = $1,128,304.32
3) Using financial calculator: PV = 3,500,000, N = 5, FV = 0, I = 12, CPT PMT = $970,873.79
61) To buy his favorite car, Larry is planning to accumulate money by investing his Christmas
bonuses for the next five years in a security which pays a 10 percent annual rate of return. The
car will cost $20,000 at the end of the fifth year and Larry's Christmas bonus is $3,000 a year.
Will Larry accumulate enough money to buy the car?
62) Mr. & Mrs. Pribel wish to purchase a boat in 8 years when they retire. They are planning to
purchase the boat using proceeds from the sale of their property which is currently worth
$90,000 and its value is growing at 7 percent a year. The boat is currently worth $200,000
increasing at 5 percent per year. In addition to the value of their property, how much additional
money should they deposit at the end of each year in an account paying 9 percent annual interest
in order to be able to buy the boat upon retirement?
63) Herbert has opened a retirement fund account which pays 7 percent interest and requires
$5,000 annual deposits. Herbert will retire in 15 years and expects 10 years of retirement life.
What is the maximum annual retirement benefit Herbert can get during his retirement years?
64) Brian borrows $5,000 from a bank at 8 percent annually compounded interest to be repaid in
five annual installments. Calculate the principal paid in the third year.
65) Nancy would like to accumulate $10,000 by the end of 3 years from now to buy a sports car
from her friend, Jim. She has $2,500 now and would like to save equal annual end-of-year
deposits to pay for the car. How much should she deposit at the end of each year in an account
paying 8 percent interest to buy the car?
66) To expand its operation, International Tools Inc. has applied to the International Bank for a
3-year, $3,500,000 loan. Prepare a loan amortization table assuming 10 percent rate of interest.
67) Ken borrows $15,000 from a bank at 10 percent annually compounded interest to be repaid
in six equal installments. Calculate the interest paid in the second year.
68) Suzy wants to buy a house but does not want to get a loan. The average price of her dream
house is $500,000 and its price is growing at 5 percent per year. How much should Suzy invest
in a project at the end of each year for the next 5 years in order to accumulate enough money to
buy her dream house with cash at the end of the fifth year? Assume the project pays 12 percent
rate of return.
