Chapter 05: Time Value of Money
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121. Your girlfriend just won the Florida lottery. She has the choice of $10,800,000 today or a 20-year annuity of
$1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard
taxes.
a. 8.71%
b. 7.60%
c. 5.69%
d. 7.38%
e. 6.57%
122. Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made
today. You need money today to start a new business, and your uncle offers to give you $92,000 for the annuity. If you
sell it, what rate of return would your uncle earn on his investment?
a. 18.11%
b. 15.33%
c. 14.24%
d. 15.48%
e. 11.61%
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CFs: $750 $2,450 $3,175 $4,400
a. $9,109.07
b. $9,282.58
c. $8,328.29
d. $9,369.33
e. $8,675.31
127. You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective
price you received for the car assuming an interest rate of 13.0%?
0 1 2 3 4
CFs: $0 $1,000 $2,000 $2,000 $2,000
a. $5,267
b. $5,064
c. $5,672
d. $6,330
e. $4,304
Chapter 05: Time Value of Money
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e. 10.86%
130. You are offered a chance to buy an asset for $5,250 that is expected to produce cash flows of $750 at the end of Year
1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you
earn if you bought this asset?
a. 15.56%
b. 16.75%
c. 18.61%
d. 16.91%
e. 13.36%
131. What’s the future value of $4,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually?
Chapter 05: Time Value of Money
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a. $5,321.91
b. $6,047.62
c. $4,777.62
d. $4,959.05
e. $4,656.67
132. What’s the present value of $17,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded
semiannually?
a. $14,008.93
b. $14,569.28
c. $14,149.02
d. $11,907.59
e. $11,207.14
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137. Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 19.50%, but you must
make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.
What is the effective annual rate on the loan?
a. 19.71%
b. 15.94%
c. 22.02%
d. 20.97%
e. 17.62%
