CHAPTER 28—TIME VALUE OF MONEY
d.
16.79
e.
17.67
e
90. Brockman Corporation’s earnings per share were $3.50 last year, 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 Brockman’s EPS to triple?
a.
9.29
b.
10.33
c.
11.47
d.
12.75
e.
14.02
91. Your investment account pays 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.
b.
CHAPTER 28—TIME VALUE OF MONEY
c.
d.
e.
e
Difficulty: Easy
INTE.GENE.16.196 – LO: 28-5
United States – BUSPROG: Analytic
United States – AK – DISC: Time value of money
United States – OH – Default City – TBA
Finding N
TYPE: Multiple Choice: Problem
92. Your investment advisor has recommended your 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
e
Difficulty: Easy
INTE.GENE.16.196 – LO: 28-5
United States – BUSPROG: Analytic
United States – AK – DISC: Time value of money
United States – OH – Default City – TBA
Finding N
TYPE: Multiple Choice: Problem
93. You are hoping to buy a new boat 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?
CHAPTER 28—TIME VALUE OF MONEY
a.
$11,973
b.
$12,603
c.
$13,267
d.
$13,930
e.
$14,626
c
94. You want to buy new kitchen appliances 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
c
CHAPTER 28—TIME VALUE OF MONEY
95. You would like to travel in South America 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
a
96. You want to purchase a motorcycle 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
a
CHAPTER 28—TIME VALUE OF MONEY
97. You want to open a sushi bar 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
c
98. 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
e
CHAPTER 28—TIME VALUE OF MONEY
99. 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
e
100. Your friend offers to pay you an annuity of $2,500 at the end of each year for 3 years in return for cash today. 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
e
CHAPTER 28—TIME VALUE OF MONEY
101. After receiving a reward for information leading to the arrest of a notorious criminal, you are considering investing it
in 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
e
102. An uncle of yours who is about to retire wants to sell some of his stock and buy an annuity that will provide him 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 him to buy such an annuity today?
a.
$574,924
b.
$605,183
c.
$635,442
d.
$667,214
CHAPTER 28—TIME VALUE OF MONEY
e.
$700,575
103. 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
a
104. 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
CHAPTER 28—TIME VALUE OF MONEY
e.
$5,788
105. A perpetuity pays $85 per year and costs $950. What is the rate of return?
a.
8.95%
b.
9.39%
c.
9.86%
d.
10.36%
e.
10.88%
a
106. A new investment opportunity for you is 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
c
CHAPTER 28—TIME VALUE OF MONEY
107. Your father is considering purchasing an annuity that pays $5,000 at the beginning of each year for 5 years. He could
earn 4.5% on his money in other investments with equal risk. What is the most he should pay for the annuity?
a.
20,701
b.
$21,791
c.
$22,938
d.
$24,085
e.
$25,289
c
108. Because your mother is about to retire, she wants to buy an annuity that will provide her 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 her to buy the annuity today?
a.
$825,835
b.
$869,300
c.
$915,052
CHAPTER 28—TIME VALUE OF MONEY
d.
$963,213
e.
$1,011,374
109. Now that your uncle has decided to retire, 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
110. A salt mine you inherited will pay you $25,000 per year for 25 years, with the first payment being made today. If you
CHAPTER 28—TIME VALUE OF MONEY
think a fair return on the mine 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
111. Geraldine was injured in a car accident, and the insurance company has offered her 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 her as well off financially as with the annuity?
a.
$225,367
b.
$237,229
c.
$249,090
d.
$261,545
e.
$274,622
CHAPTER 28—TIME VALUE OF MONEY
112. 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
e
113. Suppose you earned a $275,000 bonus this year 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
a
CHAPTER 28—TIME VALUE OF MONEY
114. Your aunt wants to retire and has $375,000. She expects to live for another 25 years and to earn 7.5% on her invested
funds. How much could she 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
115. Your aunt wants to retire and has $375,000. She expects to live for another 25 years, and she also expects to earn
7.5% on her invested funds. How much could she 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
c
CHAPTER 28—TIME VALUE OF MONEY
116. You were left $100,000 in a trust fund set up by your grandfather. The fund 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
c
117. 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
CHAPTER 28—TIME VALUE OF MONEY
e.
$27,675.82
118. Your uncle just won the weekly lottery, receiving $375,000, which he invested at a 7.5% annual rate. He now has
decided to retire, and he wants to withdraw $35,000 at the end of each year, starting at the end of this year. 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.
22
b.
23
c.
24
d.
25
e.
26
a
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
CHAPTER 28—TIME VALUE OF MONEY
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
Difficulty: Moderate
LEARNING OBJECTIVES:
INTE.GENE.16.192 – LO: 28-1
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Time value of money
LOCAL STANDARDS:
United States – OH – Default City – TBA
Years to deplete ord. ann.
TYPE: Multiple Choice: Problem
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
Difficulty: Moderate
LEARNING OBJECTIVES:
INTE.GENE.16.192 – LO: 28-1
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
CHAPTER 28—TIME VALUE OF MONEY
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
c
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%
CHAPTER 28—TIME VALUE OF MONEY
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%
a
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%
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e
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