Chapter 29: Basic Financial Tools: A review
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
173. A salt mine you inherited will pay you $25,000 per year for 25 years, with the first payment being made today. If you
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
ANSWER:
b
POINTS:
1
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
STATE STANDARDS:
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
KEYWORDS:
Bloom’s: Application
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
1/10/2018 11:43 AM
174. 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
ANSWER:
b
POINTS:
1
Difficulty: Moderate
QUESTION TYPE:
False
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
175. 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
ANSWER:
e
1
DIFFICULTY:
Multiple Choice
False
LEARNING OBJECTIVES:
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
Bloom’s: Application
OTHER:
10/30/2017 8:23 PM
1/10/2018 11:43 AM
176. 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
ANSWER:
d
1
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
United States – TN – DISC: Time value of money
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Payments on ord. annuity
Bloom’s: Application
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
177. 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
ANSWER:
c
LOCAL STANDARDS:
United States – OH – Default City – TBA
KEYWORDS:
Bloom’s: Knowledge
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
1
DIFFICULTY:
Multiple Choice
False
LEARNING OBJECTIVES:
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
178. 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%
ANSWER:
b
1
Difficulty: Moderate
QUESTION TYPE:
False
LEARNING OBJECTIVES:
STATE STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Bloom’s: Application
TYPE: Multiple Choice: Problem
DATE CREATED:
1/10/2018 11:43 AM
179. 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%
ANSWER:
e
POINTS:
1
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
STATE STANDARDS:
United States – TN – DISC: Time value of money
LOCAL STANDARDS:
United States – OH – Default City – TBA
Int. rate implicit: annuity due
KEYWORDS:
Bloom’s: Application
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
180. 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
ANSWER:
b
KEYWORDS:
Bloom’s: Application
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
POINTS:
1
Difficulty: Moderate
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.29.01 – LO: 29-1
United States – TN – DISC: Time value of money
LOCAL STANDARDS:
United States – OH – Default City – TBA
TYPE: Multiple Choice: Problem
181. 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
1
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
Payments on a perpetuity
Bloom’s: Knowledge
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
1/10/2018 11:43 AM
Copyright Cengage Learning. Powered by Cognero.
Page 107
182. 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
1
DIFFICULTY:
Multiple Choice
False
LEARNING OBJECTIVES:
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
Bloom’s: Application
OTHER:
10/30/2017 8:23 PM
DATE MODIFIED:
183. 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
10/30/2017 8:23 PM
DATE MODIFIED:
Chapter 29: Basic Financial Tools: A review
ANSWER:
e
1
DIFFICULTY:
QUESTION TYPE:
False
LEARNING OBJECTIVES:
STATE STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Bloom’s: Knowledge
OTHER:
DATE CREATED:
1/10/2018 11:43 AM
184. 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%
ANSWER:
c
1
DIFFICULTY:
Multiple Choice
False
LEARNING OBJECTIVES:
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
Bloom’s: Knowledge
10/30/2017 8:23 PM
185. 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
ANSWER:
c
Difficulty: Moderate
QUESTION TYPE:
False
IFMG.DAVE.19.29.01 – LO: 29-1
STATE STANDARDS:
United States – OH – Default City – TBA
Rate in uneven cash flows
KEYWORDS:
TYPE: Multiple Choice: Problem
DATE CREATED:
1/10/2018 11:43 AM
186. 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
ANSWER:
b
1
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
FV, monthly compounding
Bloom’s: Knowledge
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
187. 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
ANSWER:
d
1/10/2018 11:43 AM
Difficulty: Moderate
Multiple Choice
False
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
APR vs. EFF percent
188. 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%
b
POINTS:
1
1
Difficulty: Moderate
Multiple Choice
False
IFMG.DAVE.19.29.01 – LO: 29-1
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
PV, monthly compounding
Bloom’s: Knowledge
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
1/10/2018 11:43 AM
Copyright Cengage Learning. Powered by Cognero.
Page 112
189. 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%
d
POINTS:
1
Difficulty: Moderate
Multiple Choice
False
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
Comparing EFF percent
Bloom’s: Application
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
1/10/2018 11:47 AM
190. 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%
c.
8.66%
d.
8.88%
Bloom’s: Knowledge
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
1/10/2018 11:47 AM
Chapter 29: Basic Financial Tools: A review
POINTS:
1
HAS VARIABLES:
False
e.
9.10%
ANSWER:
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
STATE STANDARDS:
United States – TN – DISC: Time value of money
LOCAL STANDARDS:
TOPICS:
Nominal rate vs. EFF percent
KEYWORDS:
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
DATE MODIFIED:
1/10/2018 11:47 AM
191. 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
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Page 114
192. 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
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
STATE STANDARDS:
United States – TN – DISC: Time value of money
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
193. 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
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
STATE STANDARDS:
United States – TN – DISC: Time value of money
TOPICS:
Simple interest
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
Chapter 29: Basic Financial Tools: A review
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
STATE STANDARDS:
United States – TN – DISC: Time value of money
d.
$4,287.87
e.
$4,502.26
ANSWER:
a
POINTS:
1
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
STATE STANDARDS:
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
Amortization: payment
KEYWORDS:
Bloom’s: Knowledge
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
1/10/2018 11:43 AM
194. 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
ANSWER:
c
195. 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
ANSWER:
e
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
STATE STANDARDS:
United States – TN – DISC: Time value of money
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Amortization: payment
KEYWORDS:
Bloom’s: Application
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
196. 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
ANSWER:
d
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Amortization: payment
KEYWORDS:
Bloom’s: Application
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
Difficulty: Moderate
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
United States – TN – DISC: Time value of money
197. 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
ANSWER:
d
POINTS:
1
1
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
and Management Science
United States – TN – DISC: Time value of money
United States – OH – Default City – TBA
TOPICS:
Amortization: interest
Bloom’s: Analysis
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
1/10/2018 11:43 AM
Copyright Cengage Learning. Powered by Cognero.
Page 118
198. 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
ANSWER:
d
POINTS:
1
Difficulty: Moderate
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.29.01 – LO: 29-1
STATE STANDARDS:
United States – OH – Default City – TBA
KEYWORDS:
TYPE: Multiple Choice: Problem
DATE CREATED:
1/10/2018 11:43 AM
199. 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%
United States – OH – Default City – TBA
TOPICS:
Bloom’s: Analysis
TYPE: Multiple Choice: Problem
DATE CREATED:
1/10/2018 11:43 AM
Chapter 29: Basic Financial Tools: A review
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
HAS VARIABLES:
False
d.
14.36%
e.
15.08%
ANSWER:
d
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.29.01 – LO: 29-1
STATE STANDARDS:
United States – TN – DISC: Time value of money
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Rate, ord. ann., monthly comp.
KEYWORDS:
Bloom’s: Analysis
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:23 PM
DATE MODIFIED:
1/10/2018 11:43 AM
200. One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of
$1,000. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now
have 14 years to maturity?
a.
$1,077.01
b.
$1,104.62
c.
$1,132.95
d.
$1,162.00
e.
$1,191.79
ANSWER:
e
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Page 120
201. Haswell Enterprises’ bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The
going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond’s price?
a.
1,063.09
b.
1,090.35
c.
1,118.31
d.
1,146.27
e.
1,174.93
ANSWER:
c
1
Difficulty: Moderate
QUESTION TYPE:
False
LEARNING OBJECTIVES:
STATE STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Bloom’s: Knowledge
OTHER:
10/30/2017 8:23 PM
1/10/2018 11:43 AM
202. CMS Corporation’s balance sheet as of today is as follows:
IFMG.DAVE.19.29.02 – LO: 29-2
United States – TN – DISC: Stocks and bonds
LOCAL STANDARDS:
Bond valuation: annual coupons
KEYWORDS:
TYPE: Multiple Choice: Problem
10/30/2017 8:23 PM
DATE MODIFIED: