Economics Chapter 9 2 what is the boat worth to fishermen’s corp today

64. Lou Lewis borrows $10,000 to be completely repaid over 10 years at 8%. Repayment of principal in the

first year is ______.

65. Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she can

receive $200,000 today. Which should she choose?

66. Pedro Gonzalez will invest $5,000 at the end of each year. If the interest rate is 8%, what will the value

be after three years?

67. Ambrin Corp. expects to receive $2,000 at the end of each year for 10 years. Then the corporation

expects to receive $3,500 per year for the following 10 years, at the end of each year. What is the

approximate present value of this 20-year cash flow? Use an 8% discount rate.

68. Fishermen’s Corp. is considering purchasing a boat. If the boat was purchased, it is expected to

receive $20,000 at the end of the first year, $40,000 at the end of the second year, and $60,000 at the end

of the third year within its business. What is the boat worth to Fishermen’s Corp today, assume an 8%

discount rate.

69. Dr. J. wants to buy a Dell computer that will cost $3,000 three years from today. He would like to set

aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn an

8% annual return. How much should he set aside at the end of each year?

70. Mr. Fish wants to build a house in ten years. He estimates that the total cost will be $150,000. If he can

put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount

needed?

71. Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years.

What table would you use to calculate the value of this contract in today’s dollars?

72. Football player Walter Johnson signs a contract calling for payments of $250,000 per year, which

begins 10 years from now and then continue for five more years after that. To find the value of this contract

today, which table or tables should you use?

73. Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12th year (10

payments). The discount rate is 10%. The present value today of this deferred annuity is ______.

74. The shorter the length of time between a present value and its corresponding future value,

75. A dollar today is worth more than a dollar to be received in the future because

76. The higher the interest rate used in determining the future value of a $1 annuity,

77. Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the

annual return on his investment?

78. Mr. Bubble wants to sell his bubble machine for $1,000,000, but it might take awhile before it is valued

that high. He bought it for $149,000 and is earning annual interest of 10% on the machine. How long will

Mr. Bubble have to wait before the machine is valued at $1,000,000?

79. Increasing the number of periods will increase all of the following except

80. Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he

may receive annual benefits of $30,000 for the next 10 years?

81. You will deposit $2,000 today. It will grow for five years at 12% interest, but compounded semi–

annually. You will then withdraw the funds annually over the next four years at the end of each year, with

an annual interest rate of 8%. Your annual withdrawal will be approximately ______.

82. You will deposit $200,000 today. It will grow for five years at 12% interest, but compounded semi–

annually. What will your investment grow to?

83. Carol Thomas will pay out $6,000 at the end of year two and $8,000 at the end of year three. Then

Carol will receive $10,000 at the end of year four. With an interest rate of 10%, what is the net value of the

payments versus receipts in today’s dollars?

84. John Doeber borrowed $150,000 to buy a house. His loan cost was 16% annually because of his bad

credit score. He promised to repay the loan in 5 years on a quarterly basis.. How much are the quarterly

payments?

85. John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the

loan in 10 equal annual payments. What is the principal outstanding after the first loan payment?

86. John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the

loan in 10 equal annual payments. What are John’s annual payment amounts?

87. A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much

should the annual loan payments be?

88. A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of

retirement, you will have $73,425. The plan anticipates earning 8% interest. Given the following

information, how much will you be able to take out on an annual basis while you are retired?

89. After 10 years, some shares of stock originally purchased for $500 total were sold for $900 total. What

was the yield on the investment? Choose the closest answer.

90. Dr. Stein has just invested $10,000 for his son (age 7). The money will be used for his son’s education

10 years from now. He calculates that he will need $21,598 for his son’s education by the time the boy

goes to school. What rate of return will Dr. Stein need to achieve this goal? Choose the closest answer.

91. The future value of a $500 investment today at 8% annual interest compounded semiannually for five

years is ______.

92. Dan would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an

annual return of 8%. How much does he need to invest in each of the following years to achieve his goal?

93. Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement

in 20 years. How much will she have available for retirement if she can make 8% on her investment?

94. Luke believes that he can invest $5,000 per year for his retirement in 30 years. How much will he have

available for retirement if he can earn 8% on his investment and begins investing one year from now?

95. Ian would like to save $2,000,000 by the time he retires in 30 years. If he believes that he can achieve

a 6% rate of return, how much does he need to deposit each year, starting one year from now, to achieve

his goal?

96. Jeff believes he will need a $60,000 annual income during retirement. If he can achieve a 6% return

during retirement and believes he will live 20 years after retirement, how much does he need to save by the

time he retires? Assume he’ll start drawing his money out one year after his retirement.

97. If Allison has saved $1,000,000 upon retirement, how much money can she live on each year if she can

earn 4% per year and will end with $0 when she expects to die 30 years after retirement?

98. Kathy has $50,000 to invest today and would like to determine whether it is realistic for her to achieve

her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in

order to buy her home in 10 years?

99. If Gerry makes a deposit of $1,500 at the end of each quarter for five years, how much will he have at

the end of the five years assuming a 12% annual return and quarterly compounding?

100. Sara would like to evaluate the performance of her portfolio over the past 10 years. What compound

annual rate of return has she achieved if she invested $12,000 ten years ago and now has $25,000?

09–24

Chapter 09 Test Bank – Static Summary