CHAPTER 28—TIME VALUE OF MONEY
d.
$480.03
e.
$505.30
e
127. 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
c
CHAPTER 28—TIME VALUE OF MONEY
128. 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
129. You sold your motorcycle and accepted a note with the following cash flow stream as your payment. What was the
effective price you received for the car assuming an interest rate of 6.0%?
a.
$5,987
b.
$6,286
c.
$6,600
d.
$6,930
e.
$7,277
a
CHAPTER 28—TIME VALUE OF MONEY
130. At a rate of 6.5%, what is the future value of the following cash flow stream?
a.
$526.01
b.
$553.69
c.
$582.83
d.
$613.51
e.
$645.80
e
CHAPTER 28—TIME VALUE OF MONEY
131. Your sister paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5
years, then an additional lump sum payment of $10,000 at the end of the 5th year. What is the expected rate of return on
this investment?
a.
6.77%
b.
7.13%
c.
7.50%
d.
7.88%
e.
8.27%
c
132. You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year
1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you
earn if you bought this asset?
a.
4.93%
b.
5.19%
c.
5.46%
d.
5.75%
e.
6.05%
e
CHAPTER 28—TIME VALUE OF MONEY
133. What’s the future value of $1,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually?
a.
$1,819
b.
$1,915
c.
$2,016
d.
$2,117
e.
$2,223
c
134. What’s the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded
semiannually?
a.
$3,089
b.
$3,251
c.
$3,422
d.
$3,602
e.
$3,782
CHAPTER 28—TIME VALUE OF MONEY
135. What’s the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?
a.
$1,537.69
b.
$1,618.62
c.
$1,699.55
d.
$1,784.53
e.
$1,873.76
CHAPTER 28—TIME VALUE OF MONEY
136. What’s the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded
monthly?
a.
$969
b.
$1,020
c.
$1,074
d.
$1,131
e.
$1,187
137. American Express and other credit card issuers must by law print the Annual Percentage Rate (APR) on their
monthly statements. If the APR is stated to be 18.00%, with interest paid monthly, what is the card’s EFF%?
a.
18.58%
b.
19.56%
c.
20.54%
d.
21.57%
e.
22.65%
=
19.56%
CHAPTER 28—TIME VALUE OF MONEY
138. Southwestern Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly. The loan (principal
plus interest) must be repaid at the end of the year. Woodburn Bank also offers to lend you the $50,000, but it will charge
an annual rate of 7.0%, with no interest due until the end of the year. How much higher or lower is the effective annual
rate charged by Woodburn versus the rate charged by Southwestern?
a.
0.52%
b.
0.44%
c.
0.36%
d.
0.30%
e.
0.24%
139. Suppose United Bank offers to lend you $10,000 for one year at a nominal annual rate of 8.00%, but you must make
interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year. What is
the effective annual rate on the loan?
a.
8.24%
b.
8.45%
CHAPTER 28—TIME VALUE OF MONEY
c.
8.66%
d.
8.88%
e.
9.10%
a
140. Suppose People’s bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to make interest
payments of $250.00 at the end of each quarter and then pay off the principal amount at the end of the year. What is the
effective annual rate on the loan?
a.
8.46%
b.
8.90%
c.
9.37%
d.
9.86%
e.
10.38%
e
CHAPTER 28—TIME VALUE OF MONEY
141. Pacific Bank pays a 4.50% nominal rate on deposits, with monthly compounding. What effective annual rate (EFF%)
does the bank pay?
a.
3.72%
b.
4.13%
c.
4.59%
d.
5.05%
e.
5.56%
c
142. Suppose your credit card issuer states that it charges a 15.00% nominal annual rate, but you must make monthly
payments, which amounts to monthly compounding. What is the effective annual rate?
a.
15.27%
b.
16.08%
c.
16.88%
d.
17.72%
e.
18.61%
CHAPTER 28—TIME VALUE OF MONEY
143. Billy Thornton borrowed $20,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The
bank uses a 360-day year. How much interest would Billy have to pay in a 30-day month?
a.
$120.83
b.
$126.88
c.
$133.22
d.
$139.88
e.
$146.87
a
144. Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.
How much would be in the account after 8 months, assuming each month has 30 days?
a.
$5,178.09
b.
$5,436.99
c.
$5,708.84
d.
$5,994.28
e.
$6,294.00
a
CHAPTER 28—TIME VALUE OF MONEY
145. Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the
next 4 years. How large would your payments be?
a.
$3,704.02
b.
$3,889.23
c.
$4,083.69
d.
$4,287.87
e.
$4,502.26
a
146. Suppose you are buying your first home for $145,000, and you have $15,000 for your down payment. You have
arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate,
with the first payment due in one month. What will your monthly payments be?
a.
$741.57
b.
$780.60
c.
$821.69
d.
$862.77
e.
$905.91
c
CHAPTER 28—TIME VALUE OF MONEY
147. Your cousin will sell you his coffee shop for $250,000, with “seller financing,” at a 6.0% nominal annual rate. The
terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years, and then make an
additional final (balloon) payment of $50,000 at the end of the last month. What would your equal monthly payments be?
a.
$4,029.37
b.
$4,241.44
c.
$4,464.67
d.
$4,699.66
e.
$4,947.01
e
148. Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the
next 5 years. How much interest would you have to pay in the first year?
a.
$1,200.33
b.
$1,263.50
c.
$1,330.00
d.
$1,400.00
e.
$1,470.00
CHAPTER 28—TIME VALUE OF MONEY
149. You plan to borrow $35,000 at a 7.5% annual interest rate. The terms require you to amortize the loan with 7 equal
end-of-year payments. How much interest would you be paying in Year 2?
a.
$1,994.49
b.
$2,099.46
c.
$2,209.96
d.
$2,326.27
e.
$2,442.59
150. Your bank offers to lend you $100,000 at an 8.5% annual interest rate to start your new business. The terms require
you to amortize the loan with 10 equal end-of-year payments. How much interest would you be paying in Year 2?
a.
$7,531
b.
$7,927
c.
$8,323
CHAPTER 28—TIME VALUE OF MONEY
d.
$8,740
e.
$9,177
151. You are considering investing in a European bank account that pays a nominal annual rate of 18%, compounded
monthly. If you invest $5,000 at the beginning of each month, how many months would it take for your account to grow
to $250,000? Round fractional months up.
a.
23
b.
27
c.
32
d.
38
e.
44