Finance Chapter 28 What Was The Effective Price You Received For The Car Assuming Interest

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Chapter 28: Time Value of Money
compounded annually, how much will you have when you start your business 12 years from now?
a.
$238,176
b.
$250,712
c.
$263,907
d.
$277,797
e.
$291,687
ANSWER:
d
153. 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
ANSWER:
b
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154. 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%
ANSWER:
a
155. 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
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Chapter 28: Time Value of Money
ANSWER:
b
156. 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
ANSWER:
e
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157. 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
ANSWER:
c
158. 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
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Chapter 28: Time Value of Money
ANSWER:
d
159. 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
ANSWER:
a
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160. 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
ANSWER:
e
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161. 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
ANSWER:
a
162. 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
ANSWER:
a
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163. 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
POINTS:
1
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164. You are considering investing in a bank account that pays a nominal annual rate of 7%, compounded monthly. If you
invest $3,000 at the end of each month, how many months will it take for your account to grow to $150,000?
a.
39.60
b.
44.00
c.
48.40
d.
53.24
e.
58.57
POINTS:
1
165. The store where you bought new home furnishings offers you two alternative payment plans. The first plan requires a
$4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the
end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?
a.
12.31%
b.
12.96%
c.
13.64%
d.
14.36%
e.
15.08%
ANSWER:
d
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166. Your older brother turned 35 today, and he is planning to save $7,000 per year for retirement, with the first deposit to
be made one year from today. He will invest in a mutual fund that's expected to provide a return of 7.5% per year. He
plans to retire 30 years from today, when he turns 65, and he expects to live for 25 years after retirement, to age 90. Under
these assumptions, how much can he spend each year after he retires? His first withdrawal will be made at the end of his
first retirement year.
a.
$58,601
b.
$61,686
c.
$64,932
d.
$68,179
e.
$71,588
ANSWER:
c
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167. Julian and Jonathan are twin brothers (and so were born on the same day). Today, both turned 25. Their grandfather
began putting $2,500 per year into a trust fund for Julian on his 20th birthday, and he just made a 6th payment into the
fund. The grandfather (or his estate's trustee) will make 40 more $2,500 payments until a 46th and final payment is made
on Julian's 65th birthday. The grandfather set things up this way because he wants Julian to work, not be a "trust fund
baby," but he also wants to ensure that Julian is provided for in his old age.
Until now, the grandfather has been disappointed with Jonathan and so has not given him anything. However, they
recently reconciled, and the grandfather decided to make an equivalent provision for Jonathan. He will make the first
payment to a trust for Jonathan today, and he has instructed his trustee to make 40 additional equal annual payments until
Jonathan turns 65, when the 41st and final payment will be made. If both trusts earn an annual return of 8%, how much
must the grandfather put into Jonathan's trust today and each subsequent year to enable him to have the same retirement
nest egg as Julian after the last payment is made on their 65th birthday?
a.
$3,726
b.
$3,912
c.
$4,107
d.
$4,313
e.
$4,528
ANSWER:
a
168. You are in negotiations to make a 7-year loan of $25,000 to DeVille Corporation. To repay you, DeVille will pay
$2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently
unspecified cash flow, X, at the end of each year from Year 4 through Year 7. You are confident the payments will be
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Chapter 28: Time Value of Money
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made, since DeVille is essentially riskless. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year
loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?
a.
$4,271.67
b.
$4,496.49
c.
$4,733.15
d.
$4,969.81
e.
$5,218.30
ANSWER:
c

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