b.
$3,100
c.
$2,706
d.
$1,100
63. Sales for Triad Inc. have grown from $2 million to $8.092 million in 10 years. What is the implied
growth rate of sales for Triad?
a.
24.72%
b.
4.05%
c.
15.0%
d.
12.2%
64. If you invest the $10,000 you receive at graduation (age 22) in a mutual fund that averages a 12%
annual return, how much will you have at retirement in 40 years?
a.
$909,090
b.
$930,510
c.
$783,879
d.
$510,285
65. Five years after an accident, you received $100,000 to pay the medical expenses incurred at the time of
the accident. What is the present value (at the time of the accident) of the payment? Assume interest
rates are 9%.
a.
$153,900
b.
$ 68,100
c.
$ 65,000
d.
$ 70,800
66. You purchased a piece of property for $30,000 nine years ago and sold it today for $83,190. What was
your rate of return on your investment?
a.
12%
b.
11%
c.
10%
d.
9%
67. What is the most you should pay to receive the following cash flows if your required rate of return is
12 percent?
Year 1
$5,000
Year 2
$8,000
Year 3
$12,000
Year 4-10
$15,000
a.
$58,580
b.
$104,135
c.
$68,105
d.
none of the above
68. Seebee makes quarterly (end of period) payments of $30,000 into a pension fund earning 12 percent
per year compounded quarterly for 10 years. How much interest will they have earned in 10 years?
a.
$2,262,030
b.
$2,105,880
c.
$905,880
d.
$1,062,030
69. John borrowed $20,000 to finance his college education. If the finance charge on the loan is 6 percent,
and he will pay off the loan in 10 equal, annual, end of year payments, how much total interest will he
pay?
a.
$7,173.90
b.
$2,717.39
c.
$12,000.00
d.
$25,924.23
70. Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21
years old. If the fund earns 10 percent interest compounded annually, what is the value of the fund
today?
a.
$104,602
b.
$6,575
c.
$5,975
d.
$6,875
71. California Life has just offered you a single premium annuity for $5,000 that will pay $5,144.12 per
year for 20 years, the first payment being received exactly 31 years from today. What is the implied
rate of return on this annuity?
a.
7%
b.
8%
c.
9%
d.
None of these are correct
72. Jackie plans to open her own book store in 10 years. To raise the “seed” money she has committed
$10,000 she now has in a mutual fund. In addition, she plans to save $2,000 per year (end of year) for
the next 5 years and $3,000 per year (end of year) for the following 5 years. How much “seed” money
will Jackie have in 10 years if the investments earn 10 percent per year compounded annually?
a.
$76,129
b.
$63,925
c.
$44,255
d.
$159,370
73. You just purchased a new $25,000 car and agreed to pay for the car in 50 monthly payments. If the
monthly interest rate is 1 percent, what is your total financing cost?
a.
$637.82
b.
$12,500
c.
$574.25
d.
$6,891
74. A zero coupon bond with a $1,000 par value is selling for $356 and matures in 12 years. What is the
implied discount rate (yield to maturity)?
a.
9%
b.
9.36%
c.
9.12%
d.
9.4%
75. Roy, who has just turned 40, would like to have an annual annuity of $20,000 paid over a 20 year
period, the first payment occurring on his 66th birthday. How much must Roy save each year (end of
year) for the next 25 years to have this annuity, if the investment will earn 12 percent compounded
annually?
a.
$16,000
b.
$19,046
c.
$1,120
d.
$944.10
76. Your local bank offers 4-year certificates of deposit (CD) at a 12 percent annual nominal interest rate
compounded quarterly. Determine how much additional interest you will earn over 4 years on a
$10,000 CD that is compounded quarterly compared with one that is compounded annually.
a.
$6,050
b.
$0
c.
$310
d.
$220
77. How much will you have at the end of 5 years in a European vacation account if you deposit $200 a
month in an account that is paying a nominal 12 percent per year, compounded monthly?
a.
$16,334
b.
$15,247
c.
$16,497
d.
$15,817
78. You wish to save $500,000 in the next 25 years. You notice that a corporate bond fund earns about 11
percent per year and that is where you put your savings. How much must you save each year to obtain
your goal?
a.
$20,000.00
b.
$ 3,749.98
c.
$ 4,370.13
d.
$ 2,000.00
79. You plan to lease a Saab automobile that sells for $22,657 and has no salvage value. If the monthly
lease is $499, with the first of 60 payments due immediately. What is the implied annual interest rate
on your lease?
a.
10%
b.
11.5%
c.
12%
d.
10.5%
80. What is the present value of the following net cash flows if the discount rate is 12%:
Year
Cash Flow
1-5
$10,000 each year
6-10
$15,000 each year
11-15
$17,000 each year
a.
$151,400
b.
$ 86,462
c.
$144,037
d.
$ 79,252
81. If the discount rate is 12%, what is the present value of the following cash flows:
Year
1
2
3
4
5
6-15
a.
$144,618
b.
$127,923
c.
$127,197
d.
$ 90, 537
82. You wish to have $10,000 per year as a retirement supplement for 20 years (from age 65-85). You are
now 40 years old. How much must you save each year for the next 25 years if you assume your
savings will earn 12% annually?
a.
$ 560.17
b.
$1,499.99
c.
$5,403.87
d.
$1,333
83. What is the present value of the following net cash flows if the discount rate is 10%?
Year
Net Cash Flow
1-10
$20,000 each year
11-15
$15,000 each year
16-20
$10,000 each year
a.
$217,675
b.
$153,895
c.
$322,130
d.
$167,515
84. The Summer Breeze Hotel borrowed $100,000 from the Meadowlands Bank to pay for a new air
conditioning system. The loan is for a period of 5 years at an interest rate of 10% and requires 5 equal
end-of-year payments that include both principal and interest on the outstanding balance. What will be
the outstanding balance after the third payment?
a.
$60,000
b.
$20,865
c.
$45,788
d.
$50,866
85. Keith Stone has a 10-year-old daughter, Kate, who will be entering college in 8 years. Keith estimates
college costs to be $16,000, $17,000, $18,000 and $19,000 payable at the beginning of each of Kate’s
four years in college. How much must Keith save each year (assume end of year payments) for each of
the next 8 years to have enough savings to pay for Kate’s education? Assume Keith can earn 9% on his
savings.
a.
$5,569
b.
$7,720
c.
$5,108
d.
$7,677
Year
86. 1st Bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective
annual interest rate is the bank charging you?
a.
10.38%
b.
10.42%
c.
10.45%
d.
10.47%
87. Your monthly statement from your bank credit card shows that the monthly rate of interest is 1.5%.
What is the annual effective rate of interest you are being charged on your credit card?
a.
18.00%
b.
18.64%
c.
19.56%
d.
29.74%
88. What monthly rate of interest will yield an annual effective rate of interest of 14%?
a.
1.17%
b.
1.10%
c.
1.08%
d.
1.14%
89. What is the present value of $1,000 received 2 years from today if the nominal interest rate is 9% and
compounded monthly?
a.
$842
b.
$914
c.
$833
d.
$836
90. Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special
account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in
equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?
a.
$12,107
b.
$11,465
c.
$9,901
d.
$14,727
91. Al Corbin is 25 years old today and he wishes to accumulate enough money over the next 35 years to
provide for a 20-year retirement annuity of $100,000 at the beginning of each year, starting with his
60th birthday. He can save $2,000 at the end of each of the next 10 years and $3,000 each year for the
following 10 years. How much must he save each year at the end of years 21 through 35 to obtain his
goal? Assume that the average rate of return over the entire period will be 10%.
a.
$9,642
b.
$26,969
c.
$12,321
d.
$24,289
92. If a 16-year-old high school student put $2,000 at the end of each year for 4 years into an IRA that
earned a rate of 9%, how much would she have accumulated by age 65? Assume funds are left to
accumulate for 45 years (age 20 – 65) at 9%.
a.
$442,001
b.
$386,616
c.
$1,767,995
d.
$9,146
93. If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (age
16,17,18, and 19), how much would the IRA account have in it at your retirement 45 years later if the
account earned 12% each year? (Assume end-of-year payments.)
a.
$1,569,758
b.
$68,613
c.
$3,457,169
d.
$1,148,958
94. What is the value in 10 years of $10,000 deposited in an account earning 8% compounded monthly?
a.
$33,004
b.
$22,285
c.
$102,530
d.
$21,589
95. Assume you purchased a home and borrowed $100,000 at a rate of 8% compounded monthly over 30
years. What is your monthly payment?
a.
$917.77
b.
$895.71
c.
$666.67
d.
$878.14
96. Inco purchased a computer for $200,000 and this machine is expected to generate annual cash flows of
$48,271 over the next 5 years. What is the expected rate of return on this investment?
a.
8.84%
b.
26.58%
c.
6.61%
d.
none of these are correct
97. When you purchased a car, you borrowed $20,000 from the bank and agreed to make monthly
payments of $423.17 for 5 years. What rate of interest is the bank charging you?
a.
9.82%
b.
5.00%
c.
25.39%
d.
10.00%
98. When you purchased a car, you borrowed $20,000 from the bank at 9.20% and agreed to make
monthly payments for 3 years. What is your monthly payment?
a.
$153.33
b.
$662.08
c.
$584.12
d.
$559.78
99. By-Your-Leave Travel Agency is offering an all-expense trip to Issinonni Resort for $12,000. You
decide to start saving each month for this trip which you plan to take in 4 years. If you earn 5% interest
on your money, how much do you need to save monthly to pay for this trip (rounded answer)?
a.
$350
b.
$175
c.
$226
d.
$415
100. Out-of-Breath Exercise Equipment Co. is selling a treadmill for a cash price of $2,500. They will
finance the purchase and require a monthly payment of $95 per month for three years at an interest rate
of 6%. How much would your treadmill cost you if it were financed (rounded answer)?
a.
$3,737
b.
$2,875
c.
$3,123
d.
$4,176
ESSAY
1. Name some areas of finance where it is important to understand and utilize the concept of time value
of money.
2. What is the Rule of 72?