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Chapter 05: Time Value of Money
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 $4,000. What interest rate would you earn if you bought this bond
at the offer price?
a.
3.33%
b.
2.60%
c.
2.92%
d.
3.44%
e.
3.62%
84. Ten years ago, Lucas Inc. earned $0.50 per share. Its earnings this year were $3.60. What was the growth rate in
earnings per share (EPS) over the 10-year period?
a.
18.77%
b.
16.80%
c.
21.82%
d.
26.19%
Chapter 05: Time Value of Money
e.
23.57%
85. Five years ago, Weed Go Inc. earned $2.30 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.
6.83%
b.
7.58%
c.
6.55%
d.
6.35%
e.
7.72%
Chapter 05: Time Value of Money
86. Janice has $5,000 invested in a bank that pays 8.4% annually. How long will it take for her funds to triple?
a.
11.44 years
b.
13.62 years
c.
16.62 years
d.
11.71 years
e.
12.39 years
87. Bob has $2,500 invested in a bank that pays 6.8% annually. How long will it take for his funds to double?
a.
10.64 years
b.
9.06 years
c.
10.54 years
d.
10.96 years
e.
8.64 years
Chapter 05: Time Value of Money
88. Last year Thomson Inc's earnings per share were $3.50, and its growth rate during the prior 5 years was 9.6% per year.
If that growth rate were maintained, how many years would it take for Thomson's EPS to triple?
a.
12.94
b.
10.67
c.
11.98
d.
10.55
e.
13.06
Chapter 05: Time Value of Money
89. You plan to invest in securities that pay 7.0%, compounded annually. If you invest $5,000 today, how many years will
it take for your investment to grow to $9,140.20?
a.
9.01
b.
10.79
c.
6.78
d.
9.63
e.
8.92
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 $25,000?
a.
15.88
b.
17.61
c.
16.35
d.
15.73
e.
14.00
Chapter 05: Time Value of Money
91. You want to buy a new sports car 3 years from now, and you plan to save $2,700 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.
$8,357.93
b.
$9,807.78
c.
$9,296.07
d.
$8,528.50
e.
$7,846.22
92. You want to buy a new ski boat 2 years from now, and you plan to save $7,000 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?
Chapter 05: Time Value of Money
a.
$15,156
b.
$14,434
c.
$16,599
d.
$17,609
e.
$14,290
93. You want to go to Europe 5 years from now, and you can save $3,600 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.
$26,450.86
b.
$17,278.39
c.
$25,810.92
d.
$20,904.72
e.
$21,331.34
Chapter 05: Time Value of Money
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 $2,400 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.
$9,501.47
b.
$11,711.12
c.
$11,490.15
d.
$11,048.22
e.
$9,390.99
Chapter 05: Time Value of Money
95. You want to quit your job and return to school for an MBA degree 3 years from now, and you plan to save $2,800 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.
$9,304.28
b.
$7,908.64
c.
$9,025.15
d.
$10,420.79
e.
$7,722.55
96. What is the PV of an ordinary annuity with 10 payments of $4,100 if the appropriate interest rate is 5.5%?
a.
$31,213.31
b.
$32,449.48
c.
$32,140.44
d.
$37,085.12
e.
$30,904.27
Chapter 05: Time Value of Money
97. What is the PV of an ordinary annuity with 5 payments of $6,200 if the appropriate interest rate is 4.5%?
a.
$30,484.00
b.
$22,863.00
c.
$30,211.82
d.
$27,217.86
e.
$21,502.11
Chapter 05: Time Value of Money
98. You have a chance to buy an annuity that pays $12,400 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.
$38,137.99
b.
$39,141.62
c.
$36,799.81
d.
$35,127.09
e.
$33,454.37
99. You just inherited some money, and a broker offers to sell you an annuity that pays $4,300 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.
$52,515.75
b.
$53,051.63
c.
$53,587.50
d.
$61,625.63
e.
$60,018.01
Chapter 05: Time Value of Money
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 $53,000 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.
$519,610.24
b.
$493,950.47
c.
$756,963.06
d.
$641,494.12
e.
$647,909.06
Chapter 05: Time Value of Money
101. What is the PV of an annuity due with 5 payments of $2,900 at an interest rate of 5.5%?
a.
$14,502.08
b.
$12,934.29
c.
$13,064.94
d.
$10,451.95
e.
$11,758.44
102. What's the present value of a perpetuity that pays $3,000 per year if the appropriate interest rate is 5%?
a.
$60,000.00
b.
$47,400.00
c.
$71,400.00
d.
$63,000.00
e.
$55,200.00
Chapter 05: Time Value of Money
103. What's the rate of return you would earn if you paid $2,280 for a perpetuity that pays $85 per year?
a.
3.84%
b.
3.09%
c.
4.25%
d.
3.50%
e.
3.73%
104. You have a chance to buy an annuity that pays $1,400 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.
$3,984.85
b.
$3,945.00
c.
$3,745.76
d.
$4,223.94
e.
$4,781.82
Chapter 05: Time Value of Money
105. You have a chance to buy an annuity that pays $16,000 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.
$73,400.41
b.
$82,208.46
c.
$86,612.49
d.
$64,592.36
e.
$81,474.46
Chapter 05: Time Value of Money
106. Your uncle is about to retire, and he wants to buy an annuity that will provide him with $57,000 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.
$827,207.28
b.
$856,488.95
c.
$732,041.84
d.
$915,052.30
e.
$717,401.00
107. Your father is about to retire, and he wants to buy an annuity that will provide him with $74,000 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.
$853,488.17
b.
$950,721.00
c.
$1,047,953.82
d.
$1,080,364.77
e.
$1,026,346.53
Chapter 05: Time Value of Money
108. You inherited an oil well that will pay you $12,000 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.
$178,306.55
b.
$171,116.77
c.
$135,167.87
d.
$143,795.60
e.
$175,430.63
Chapter 05: Time Value of Money
109. Sam was injured in an accident, and the insurance company has offered him the choice of $46,000 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.
$536,896.32
b.
$475,786.17
c.
$541,261.33
d.
$453,961.11
e.
$436,501.07
110. What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,800 at the end of Year
4 if the interest rate is 5%?
a.
$11,881.98
b.
$11,104.66
c.
$12,881.40
d.
$9,327.91
e.
$12,215.12
Chapter 05: Time Value of Money
111. Suppose you inherited $715,000 and invested it at 8.25% per year. How much could you withdraw at the end of each
of the next 20 years?
a.
$71,217.00
b.
$74,184.38
c.
$80,119.13
d.
$57,121.97
e.
$84,570.19
Chapter 05: Time Value of Money
112. Your uncle has $415,000 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.
$29,783.94
b.
$45,420.51
c.
$40,952.92
d.
$37,229.93
e.
$45,048.21
113. Your uncle has $955,000 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.
$79,696.46
b.
$77,305.56
c.
$74,914.67
d.
$90,057.00
e.
$61,366.27
