Chapter 5: The Value of Money
74.
You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will
your
account be worth at the end of 25 years?
a.
$2,245.08
b.
$2,363.24
c.
$2,481.41
d.
$2,605.48
e.
$2,735.75
75.
You deposit $500 today in a savings account that pays 3.5% interest, compounded annually. How much will
your
account be worth at the end of 25 years?
a.
$1,122.54
b.
$1,181.62
c.
$1,240.70
d.
$1,302.74
e.
$1,367.88
76.
Suppose a State of New York bond will pay $1,000 ten years from now. If the going interest rate on these 10–
year
bonds is 5.5%, how much is the bond worth today?
a.
$585.43
b.
$614.70
c.
$645.44
d.
$677.71
e.
$711.59
77.
Suppose a State of California bond will pay $1,000 eight years from now. If the going interest rate on these 8–
year
bonds is 5.5%, how much is the bond worth today?
a.
$651.60
b.
$684.18
c.
$718.39
d.
$754.31
e.
$792.02
78.
How much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?
a.
$438.03
b.
$461.08
c.
$485.35
d.
$510.89
e.
$537.78
79.
How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%?
a.
$1,067.95
b.
$1,124.16
c.
$1,183.33
d.
$1,245.61
e.
$1,311.17
80.
Suppose a U.S. treasury bond will pay $2,500 five years from now. If the going interest rate on 5-year
treasury
bonds is 4.25%, how much is the bond worth today?
a.
$1,928.78
b.
$2,030.30
c.
$2,131.81
d.
$2,238.40
e.
$2,350.32
81.
Suppose an Exxon Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10–
year
bonds is 4.25%, how much is the bond worth today?
a.
$2,819.52
b.
$2,967.92
c.
$3,116.31
d.
$3,272.13
e.
$3,435.74
82.
Suppose the U.S. Treasury offers to sell you a bond for $747.25. No payments will be made until the bond
matures
5 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if
you bought
this bond at the offer price?
a. 4.37%
b. 4.86%
c. 5.40%
d. 6.00%
e. 6.60%
83.
Suppose the U.S. Treasury offers to sell you a bond for $3,000. No payments will be made until the bond
matures
10 years from now, at which time it will be redeemed for $5,000. What interest rate would you earn if
you bought
this bond at the offer price?
a. 3.82%
b. 4.25%
c. 4.72%
d. 5.24%
e. 5.77%
84.
Ten years ago, Lucas Inc. earned $0.50 per share. Its earnings this year were $2.20. What was the growth rate
in
earnings per share (EPS) over the 10-year period?
a. 15.17%
b. 15.97%
c. 16.77%
d. 17.61%
e. 18.49%
85.
Five years ago, Weed Go Inc. earned $1.50 per share. Its earnings this year were $3.20. What was the growth
rate
in earnings per share (EPS) over the 5-year period?
a. 15.54%
b. 16.36%
c. 17.18%
d. 18.04%
e. 18.94%
N
29.46
N
17.67
N
12.75
86.
Janice has $5,000 invested in a bank that pays 3.8% annually. How long will it take for her funds to triple?
a. 23.99
b. 25.26
c. 26.58
d. 27.98
e. 29.46
87.
Bob has $2,500 invested in a bank that pays 4% annually. How long will it take for his funds to double?
a. 14.39
b. 15.15
c. 15.95
d. 16.79
e. 17.67
88.
Last year Thomson Inc’s earnings per share were $3.50, and its growth rate during the prior 5 years was 9.0%
per
year. If that growth rate were maintained, how many years would it take for Thomson’s EPS to triple?
a. 9.29
b. 10.33
c. 11.47
d. 12.75
e. 14.02
N
7.84
N
18.85
89.
You plan to invest in securities that pay 8.0%, compounded annually. If you invest $5,000 today, how many
years
will it take for your investment to grow to $9,140.20?
a. 5.14
b. 5.71
c. 6.35
d. 7.05
e. 7.84
90.
You plan to invest in bonds that pay 6.0%, compounded annually. If you invest $10,000 today, how many
years will
it take for your investment to grow to $30,000?
a. 12.37
b. 13.74
c. 15.27
d. 16.97
e. 18.85
91.
You want to buy a new sports car 3 years from now, and you plan to save $4,200 per year, beginning one year
from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just
after
you make the 3rd deposit, 3 years from now?
a. $11,973
b. $12,603
c. $13,267
d. $13,930
e. $14,626
92.
You want to buy a new ski boat 2 years from now, and you plan to save $8,200 per year, beginning one year
from
today. You will deposit your savings in an account that pays 6.2% interest. How much will you have just
after you
make the 2nd deposit, 2 years from now?
a. $15,260
b. $16,063
c. $16,908
d. $17,754
e. $18,642
93.
You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning one year from
today.
You plan to deposit the funds in a mutual fund that you think will return 8.5% per year. Under these
conditions, how
much would you have just after you make the 5th deposit, 5 years from now?
a. $18,369
b. $19,287
c. $20,251
d. $21,264
e. $22,327
94.
You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save
$3,500
per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest.
Under these
assumptions, how much will you have 4 years from today?
a. $16,112
b. $16,918
c. $17,763
d. $18,652
e. $19,584
95.
You want to quit your job and return to school for an MBA degree 3 years from now, and you plan to save
$7,000
per year, beginning immediately. You will make 3 deposits in an account that pays 5.2% interest.
Under these
assumptions, how much will you have 3 years from today?
a. $20,993
b. $22,098
c. $23,261
d. $24,424
e. $25,645
96.
What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate interest rate is 5.5%?
a. $16,576
b. $17,449
c. $18,367
d. $19,334
e. $20,352
97.
What is the PV of an ordinary annuity with 5 payments of $4,700 if the appropriate interest rate is 4.5%?
a. $16,806
b. $17,690
c. $18,621
d. $19,601
e. $20,633
98.
You have a chance to buy an annuity that pays $2,500 at the end of each year for 3 years. You could earn
5.5% on
your money in other investments with equal risk. What is the most you should pay for the annuity?
a. $5,493.71
b. $5,782.85
c. $6,087.21
d. $6,407.59
e. $6,744.83
99.
You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of each
year
for 20 years. You could earn 5% on your money in other investments with equal risk. What is the most
you should
pay for the annuity?
a. $50,753
b. $53,424
c. $56,236
d. $59,195
e. $62,311
100.
Your aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her
with
income of $50,000 per year for 30 years, beginning a year from today. The going rate on such annuities
is 7.25%.
How much would it cost her to buy such an annuity today?
a. $574,924
b. $605,183
c. $635,442
d. $667,214
e. $700,575
101.
What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?
a. $11,262.88
b. $11,826.02
c. $12,417.32
d. $13,038.19
e. $13,690.10
102.
What’s the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%?
a. $4,750
b. $5,000
c. $5,250
d. $5,513
e. $5,788
103.
What’s the rate of return you would earn if you paid $950 for a perpetuity that pays $85 per year?
a. 8.95%
b. 9.39%
c. 9.86%
d. 10.36%
e. 10.88%
104.
You have a chance to buy an annuity that pays $550 at the beginning of each year for 3 years. You could earn
5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?
a. $1,412.84
b. $1,487.20
c. $1,565.48
d. $1,643.75
e. $1,725.94
105.
You have a chance to buy an annuity that pays $5,000 at the beginning of each year for 5 years. You could
earn
4.5% on your money in other investments with equal risk. What is the most you should pay for the
annuity?
a. $20,701
b. $21,791
c. $22,938
d. $24,085
e. $25,289
106.
Your uncle is about to retire, and he wants to buy an annuity that will provide him with $75,000 of income a
year for
20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%.
How much would
it cost him to buy the annuity today?
a. $ 825,835
b. $ 869,300
c. $ 915,052
d. $ 963,213
e. $1,011,374
107.
Your father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a
year
for 25 years, with the first payment coming immediately. The going rate on such annuities is 5.15%.
How much
would it cost him to buy the annuity today?
a. $1,063,968
b. $1,119,966
c. $1,178,912
d. $1,240,960
e. $1,303,008
108.
You inherited an oil well that will pay you $25,000 per year for 25 years, with the first payment being made
today.
If you think a fair return on the well is 7.5%, how much should you ask for it if you decide to sell it?
a. $284,595
b. $299,574
c. $314,553
d. $330,281
e. $346,795
109.
Sam was injured in an accident, and the insurance company has offered him the choice of $25,000 per year
for 15
years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must
the lump
sum be to leave him as well off financially as with the annuity?
a. $225,367
b. $237,229
c. $249,090
d. $261,545
e. $274,622
110.
What’s the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end
of
Year 4 if the interest rate is 5%?
a. $ 8,509
b. $ 8,957
c. $ 9,428
d. $ 9,924
e. $10,446
111.
Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the end
of
each of the next 20 years?
a. $28,532
b. $29,959
c. $31,457
d. $33,030
e. $34,681
112.
Your uncle has $375,000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his
invested funds. How much could he withdraw at the end of each of the next 25 years and end up with zero in
the
account?
a. $28,843.38
b. $30,361.46
c. $31,959.43
d. $33,641.50
e. $35,323.58
113.
Your uncle has $375,000 and wants to retire. He expects to live for another 25 years, and he also expects to
earn
7.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years
and end up
with zero in the account?
a. $28,243.21
b. $29,729.70
c. $31,294.42
d. $32,859.14
e. $34,502.10
114.
Your grandmother just died and left you $100,000 in a trust fund that pays 6.5% interest. You must spend the
money on your college education, and you must withdraw the money in 4 equal installments, beginning
immediately.
How much could you withdraw today and at the beginning of each of the next 3 years and end
up with zero in the
account?
a. $24,736
b. $26,038
c. $27,409
d. $28,779
e. $30,218
N
22.50
N
14.96
115.
Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the
beginning
of each of the next 20 years?
a. $22,598.63
b. $23,788.03
c. $25,040.03
d. $26,357.92
e. $27,675.82
116.
Your father’s employer was just acquired, and he was given a severance payment of $375,000, which he
invested
at a 7.5% annual rate. He now plans to retire, and he wants to withdraw $35,000 at the end of each
year, starting
at the end of this year. How many years will it take to exhaust his funds, i.e., run the account
down to zero?
a. 22.50
b. 23.63
c. 24.81
d. 26.05
e. 27.35
117.
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, starting 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. For how many years can he make the $35,000 withdrawals and
still have $25,000 left in the end?
a. 14.21
b. 14.96
c. 15.71
d. 16.49
e. 17.32
118.
Your Aunt Ruth 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. How many years will it take to exhaust her funds, i.e., run the
account
down to zero?
a. 18.62
b. 19.60
c. 20.63
d. 21.71
e. 22.86
N
22.86
119.
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. She also wants to have $50,000 left to give you when she
ceases to
withdraw funds from the account. For how many years can she make the $45,000 withdrawals and
still have $50,000 left in the end?
a. 15.54
b. 16.36
c. 17.22
d. 18.08
e. 18.99
120.
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%
121.
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%
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 $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%
123.
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
124.
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
125.
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
126.
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