Chapter 05: Time Value of Money
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a. $2,468.58
b. $2,598.50
c. $2,988.28
d. $2,338.65
e. $2,208.73
146. Suppose you borrowed $27,000 at a rate of 10.5% and must repay it in 5 equal installments at the end of each of the
next 5 years. How much interest would you have to pay in the first year?
a. $2,353.05
b. $2,466.45
c. $2,749.95
d. $2,835.00
e. $2,948.40
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147. You plan to borrow $39,000 at a 7.5% annual interest rate. The terms require you to amortize the loan with 7 equal
end-of-year payments. How much interest would you be paying in Year 2?
a. $2,073.71
b. $2,332.92
c. $2,462.53
d. $2,592.13
e. $2,980.95
148. Your bank offers to lend you $90,100 at an 8.5% annual interest rate to start your new business. The terms require
you to amortize the loan with 10 equal end-of-year payments. How much interest would you be paying in Year 2?
a. $5,713.81
b. $6,428.03
c. $6,785.15
d. $7,142.26
e. $8,213.60
Chapter 05: Time Value of Money
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Page 79
$850, also payable immediately. Assuming that you can earn 6.0% on your funds and that the annual renewal rate will
remain constant, how many years must you live to make the lifetime subscription the better buy?
a. 14.76
b. 14.18
c. 14.33
d. 15.47
e. 17.77
153. You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th
month, you will have $12,800 in your account. If the bank compounds interest monthly, what nominal annual interest rate
will you be earning?
a. 7.20%
b. 5.41%
c. 6.09%
d. 4.86%
e. 6.15%
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157. Suppose you borrowed $50,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the
next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?
a. $31,171.28
b. $41,146.10
c. $40,730.48
d. $41,561.71
e. $45,302.27
158. Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 10.0% but with equal
end-of-month payments. What percentage of the 2nd monthly payment will go toward the repayment of principal?
a. 78.50%
b. 83.97%
c. 84.89%
d. 91.28%
e. 71.19%
Chapter 05: Time Value of Money
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Ed’s trust today and each subsequent year to enable him to have the same retirement nest egg as Steve after the last
payment is made on their 65th birthday? Assume that all payments are made at the end of the year.
a. $5,436
b. $4,483
c. $3,577
d. $4,769
e. $4,340
162. After graduation, you plan to work for Dynamo Corporation for 12 years and then start your own business. You
expect to save and deposit $7,500 a year for the first 6 years (t = 1 through t = 6) and $15,000 annually for the following 6
years (t = 7 through t = 12). The first deposit will be made a year from today. In addition, your grandfather just gave you a
$37,500 graduation gift which you will deposit immediately (t = 0). If the account earns 9% compounded annually, how
much will you have when you start your business 12 years from now?
a. $372,417
b. $309,826
c. $312,955
d. $359,899
e. $334,862
