MSC: TYPE: Multiple Choice: Problem
119. Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000
at the end of each year, beginning at the end of this year. He also wants to have $25,000 left to give
you when he ceases to withdraw funds from the account. What is the maximum number of $35,000
withdrawals that he can make and still have at least $25,000 left in the account? (Hint: If your solution
for N is not an integer, round down to the nearest whole number.)
a.
12
b.
13
c.
14
d.
15
e.
16
120. Your Aunt Elsa has $500,000 invested at 6.5%, and she plans to retire. She wants to withdraw $40,000
at the beginning of each year, starting immediately. What is the maximum number of whole payments
that can be withdrawn before the account is exhausted, i.e., before the account balance would become
negative? (Hint: Round down to the nearest whole number.)
a.
18
b.
19
c.
20
d.
21
e.
22
121. Your aunt has $500,000 invested at 5.5%, and she now wants to retire. She wants to withdraw $45,000
at the beginning of each year, beginning immediately. When she makes her last withdrawal (at the
beginning of a year), she also wants to have enough left in the account so that you can make a final
withdrawal of $50,000 at the end of that year (her last withdrawal is at the beginning of the year, your
withdrawal is at the end of that same year). What is the maximum number of $45,000 withdrawals that
she can make and still have enough in the account so that you can make a $50,000 withdrawal at the
end of the year of her last withdrawal? (Hint: If your solution for N is not an integer, round down to
the nearest whole number.)
a.
13
b.
14
c.
15
d.
16
e.
17
122. Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a
20-year annuity of $250,000, with the first payment coming one year from today. What rate of return
is built into the annuity? Disregard taxes.
a.
7.12%
b.
7.49%
c.
7.87%
d.
8.26%
e.
8.67%
123. Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 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?
a.
3.44%
b.
3.79%
c.
4.17%
d.
4.58%
e.
5.04%
124. 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 open a new restaurant, and your uncle offers to
give you $120,000 for the annuity. If you sell it, what rate of return would your uncle earn on his
investment?
a.
6.85%
b.
7.21%
c.
7.59%
d.
7.99%
e.
8.41%
125. What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a
cost of $1,250?
a.
$77.19
b.
$81.25
c.
$85.31
d.
$89.58
e.
$94.06
126. What is the present value of the following cash flow stream at a rate of 6.25%?
a.
$411.57
b.
$433.23
c.
$456.03
d.
$480.03
e.
$505.30
127. What is the present value of the following cash flow stream at a rate of 12.0%?
a.
$9,699
b.
$10,210
c.
$10,747
d.
$11,284
e.
$11,849
128. What is the present value of the following cash flow stream at a rate of 8.0%?
a.
$7,917
b.
$8,333
c.
$8,772
d.
$9,233
e.
$9,695
129. You sold your motorcycle 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 6.0%?
a.
$5,987
b.
$6,286
c.
$6,600
d.
$6,930
e.
$7,277
130. At a rate of 6.5%, what is the future value of the following cash flow stream?
a.
$526.01
b.
$553.69
c.
$582.83
d.
$613.51
e.
$645.80
131. Your sister paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of
the next 5 years, then an additional lump sum payment of $10,000 at the end of the 5th year. What is
the expected rate of return on this investment?
a.
6.77%
b.
7.13%
c.
7.50%
d.
7.88%
e.
8.27%
132. You are offered a chance to buy an asset for $7,250 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.
4.93%
b.
5.19%
c.
5.46%
d.
5.75%
e.
6.05%
133. What’s the future value of $1,500 after 5 years if the appropriate interest rate is 6%, compounded
semiannually?
a.
$1,819
b.
$1,915
c.
$2,016
d.
$2,117
e.
$2,223
134. What’s the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%,
compounded semiannually?
a.
$3,089
b.
$3,251
c.
$3,422
d.
$3,602
e.
$3,782
135. What’s the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded
monthly?
a.
$1,537.69
b.
$1,618.62
c.
$1,699.55
d.
$1,784.53
e.
$1,873.76
136. What’s the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%,
compounded monthly?
a.
$969
b.
$1,020
c.
$1,074
d.
$1,131
e.
$1,187
137. American Express and other credit card issuers must by law print the Annual Percentage Rate (APR)
on their monthly statements. If the APR is stated to be 18.00%, with interest paid monthly, what is the
card’s EFF%?
a.
18.58%
b.
19.56%
c.
20.54%
d.
21.57%
e.
22.65%
138. Southwestern Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly. The
loan (principal plus interest) must be repaid at the end of the year. Woodburn Bank also offers to lend
you the $50,000, but it will charge an annual rate of 7.0%, with no interest due until the end of the
year. How much higher or lower is the effective annual rate charged by Woodburn versus the rate
charged by Southwestern?
a.
0.52%
b.
0.44%
c.
0.36%
d.
0.30%
e.
0.24%
139. Suppose United Bank offers to lend you $10,000 for one year at a nominal annual rate of 8.00%, 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.
8.24%
b.
8.45%
c.
8.66%
d.
8.88%
e.
9.10%
140. Suppose People’s bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to
make interest payments of $250.00 at the end of each quarter and then pay off the principal amount at
the end of the year. What is the effective annual rate on the loan?
a.
8.46%
b.
8.90%
c.
9.37%
d.
9.86%
e.
10.38%
141. Pacific Bank pays a 4.50% nominal rate on deposits, with monthly compounding. What effective
annual rate (EFF%) does the bank pay?
a.
3.72%
b.
4.13%
c.
4.59%
d.
5.05%
e.
5.56%
142. Suppose your credit card issuer states that it charges a 15.00% nominal annual rate, but you must make
monthly payments, which amounts to monthly compounding. What is the effective annual rate?
a.
15.27%
b.
16.08%
c.
16.88%
d.
17.72%
e.
18.61%
143. Billy Thornton borrowed $20,000 at a rate of 7.25%, simple interest, with interest paid at the end of
each month. The bank uses a 360-day year. How much interest would Billy have to pay in a 30-day
month?
a.
$120.83
b.
$126.88
c.
$133.22
d.
$139.88
e.
$146.87
144. Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a
360-day year. How much would be in the account after 8 months, assuming each month has 30 days?
a.
$5,178.09
b.
$5,436.99
c.
$5,708.84
d.
$5,994.28
e.
$6,294.00
145. Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of
each of the next 4 years. How large would your payments be?
a.
$3,704.02
b.
$3,889.23
c.
$4,083.69
d.
$4,287.87
e.
$4,502.26
146. Suppose you are buying your first home for $145,000, and you have $15,000 for your down payment.
You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at
a 6.5% nominal interest rate, with the first payment due in one month. What will your monthly
payments be?
a.
$741.57
b.
$780.60
c.
$821.69
d.
$862.77
e.
$905.91
147. Your cousin will sell you his coffee shop for $250,000, with “seller financing,” at a 6.0% nominal
annual rate. The terms of the loan would require you to make 12 equal end-of-month payments per
year for 4 years, and then make an additional final (balloon) payment of $50,000 at the end of the last
month. What would your equal monthly payments be?
a.
$4,029.37
b.
$4,241.44
c.
$4,464.67
d.
$4,699.66
e.
$4,947.01
148. Suppose you borrowed $14,000 at a rate of 10.0% 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.
$1,200.33
b.
$1,263.50
c.
$1,330.00
d.
$1,400.00
e.
$1,470.00
149. You plan to borrow $35,000 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.
$1,994.49
b.
$2,099.46
c.
$2,209.96
d.
$2,326.27
e.
$2,442.59