c.
$627.73
d.
$652.83
74. Which of the following investments would have the highest future value (in year 5) if the discount rate
is 12%?
a.
A five year ordinary annuity of $100 per year.
b.
A five year annuity due of $100 per year.
c.
$700 to be received at year 5
d.
$500 to be received TODAY (year 0)
75. Cozmo Costanza just took out a $24,000 bank loan to help purchase his dream car. The bank offered a
5-year loan at a 6% APR. The loan will feature monthly payments and monthly compounding of
interest. What is the monthly payment for this car loan?
a.
$400.00
b.
$463.99
c.
$470.25
d.
$474.79
76. A young graduate invests $10,000 in a mutual fund that pays 8% interest per year. What is the future
value of this investment in 12 years?
a.
$12,000
b.
$19,600
c.
$22,000
d.
$25,182
77. An electric company has offered the following perpetuity to investors to raise capital for the firm. The
perpetuity will pay $1 next year, and it is promised to grow at 5% per year thereafter. If you can earn
10% on invested money, how much would you pay today for this perpetuity?
a.
$100
b.
$50
c.
$40
d.
$20
78. Cozmo Costanza just took out a $24,000 bank loan to help purchase his dream car. The bank offered a
5-year loan at a 6% APR. The loan will feature monthly payments and monthly compounding of
interest. Suppose that Cozmo would like to pay off the remaining balance on his car loan at the end of
the second year (24 payments). What is the remaining balance on the car loan after the second year?
a.
$10,469
b.
$12,171
c.
$14,400
d.
$15,252
79. A $100 investment yields $112.55 in one year. The interest on the investment was compounded
quarterly. From this information, what was the stated rate or APR of the investment?
a.
12.55%
b.
12.25%
c.
12.15%
d.
12.00%
80. What is the future value at year 3 of the following set of cash flows if the discount rate is 11%?
Year
0
1
2
3
Cash flow
$100
$125
$200
$225
a.
$738
b.
$761
c.
$789
d.
$812
81. A $200 investment in an account that pays 7% continuous interest would be worth how much in
twenty years?
a.
$774
b.
$792
c.
$811
d.
$819
82. If you invest $5,000 in a mutual fund with a total annual return (interest rate) of 8% and you re-invest
the proceeds each year, what will be the value of your investment after five years?
a.
$3,402.92
b.
$6,597.08
c.
$7,000.00
d.
$7,346.64
83. You buy a house for $220,000 in a neighborhood where home prices have risen 5% annually on
average. You suspect that growth in home prices will slow to an average of 3.5% per year over the
next five years. If your growth estimate of 3.5% growth is correct, how much less will your house be
worth in five years compared with 5% growth?
a.
$3,300.00
b.
$16,500.00
c.
$19,490.95
d.
$13,870.51
84. You inherit $15,000 from your aunt. You decide to invest the money in a three-year CD that pays 4%
interest to use as a down payment on a house. How much money will you have when the CD matures?
a.
$13,334.95
b.
$15,600.00
c.
$16,800.00
d.
$16,872.96
85. If you need $35,000 for a down payment on a house in six years, how much money must you invest
today at 7% interest compounded annually to achieve your goal?
a.
$14,700.00
b.
$20,300.00
c.
$23,321.98
d.
$24,954.52
86. Your firm is evaluating a project that should generate revenue of $4,600 in year 1, $5,200 in year two,
$5,900 in year three, and $5,700 in year four. The firm receives each cash flow at the end of each year.
If your firm’s required return is 12%, what is the future value of these cash flows at the end of year
four?
a.
$16,074.51
b.
$22,583.53
c.
$25,293.55
d.
$28,328.77
87. If you deposit $9,000 at the end of each year in an account earning 8% interest, what will be the value
of the account in 25 years?
a.
$600,882.83
b.
$657,953.46
c.
$710,589.74
d.
$719,589.74
88. You would like to retire with $1 million on your 60th birthday. If you start saving equal annual
amounts on your 26th birthday, make your last deposit on your 60th birthday, and earn 10% interest on
your money, how much must you invest each year to achieve your goal?
a.
$3,343.06
b.
$3,436.14
c.
$3,558.41
d.
$3,689.71
89. If you deposit $9,000 at the BEGINNING of each year in an account earning 8% interest, what will be
the value of the account in 25 years?
a.
$609,216.17
b.
$657,953.46
c.
$710,589.74
d.
$774,823.46
90. A report from the marketing department indicates that a new product will generate the following
revenue stream: $62,500 in the first year, $89,400 in year two, $136,200 in year three, $128,300 in
year four, and $112,000 in year five. If your firm’s discount rate is 11% and the cash flows are
received at the end of each year, what is the present value of this cash flow stream?
a.
$379,435.35
b.
$421,173.24
c.
$476,036.04
d.
$528,400.00
91. Your firm rents office space for $250,000 per year, due at the BEGINNING of each year. If your firm’s
hurdle rate is 10%, what is the present value of five years’ worth of rent?
a.
$871,713.00
b.
$947,696.69
c.
$1,042,466.36
d.
$1,250,000.00
92. Great Lakes Christmas Tree Co. expects to pay an annual dividend of $2 per share in perpetuity on its
preferred shares starting one year from now. The firm is committed solely to its steady North
American Christmas tree business (as opposed to, say, diversifying into landscape shrubbery). This
profile warrants a required return of 6%. What is the present value of this dividend stream for
investors?
a.
$12.00
b.
$1.89
c.
$33.33
d.
$2.12
93. Having acquired great fortune based on your mastery of finance, you decide to set up a charity. You’d
like to give the finance department of your alma mater $100,000 next year, and you want to make an
annual contribution in perpetuity, with each year’s contribution growing by 4%. The university can
generate an 8% return on invested capital. What is the value of a lump-sum donation needed today to
accomplish this?
a.
$3,561
b.
$833,333
c.
$1,250,000
d.
$2,500,000
94. If you invest $2,500 in a bank account that pays 6% interest compounded quarterly, how much will
you have in five years?
a.
$2,546.96
b.
$3,367.14
c.
$8,017.84
d.
$13,267.04
95. Your credit card carries a 9.9% annual percentage rate, compounded daily. What is the effective
annual rate, or annual percentage yield?
a.
0.03%
b.
9.90%
c.
10.41%
d.
18.00%
96. Calculate the annual payment for a 20-year mortgage on a $3.5 million building at a 7.5% interest rate.
Assume that the entire building is financed and that payments are made at the end of each year,
starting at the end of the first year and ending at the end of the 20th year.
a.
$175,000.00
b.
$343,322.67
c.
$186,293.52
d.
$340,815.32
97. Calculate the monthly payment for a 20-year mortgage on a $3.5 million building at a 7.5% interest
rate. Assume that the entire building is financed and that payments are made at the end of each month,
starting at the end of the first month and ending at the end of the last month.
a.
$28,020.63
b.
$28,195.76
c.
$36,458.33
d.
$61,947.83
98. You decide that your family would be comfortable living on an annual income of $150,000, growing
at 4% per year. You’d also like to continue generating this cash flow for your descendents, forever.
With investment returns of 8%, how much wealth would you need today to provide this income
starting with $150,000 one year from now?
a.
$1,250,000
b.
$1,875,000
c.
$1,904,218
d.
$3,750,000
99. Atlas Map Co. has purchased a new building for $45 million. If the value of the building increases at a
rate of 5% per year, how much will the building be worth in 20 years?
a.
$119,398,397
b.
$113,712,759
c.
$16,960,027
d.
$16,131,867
100. A stainless steel products manufacturer with an 8.5% cost of capital receives a $3,000,000 order,
payable at the end of three years. What is the annual payment amount made at the end of each year
with the equivalent present value?
a.
$660,864
b.
$919,618
c.
$949,473
d.
$997,785
101. Hamilton Industries needs a bulldozer. The purchasing manager has her eye on a new model that will
be available in three years at a price of $75,000. If Hamilton’s discount rate is 11%, how much money
does she need now to pay for the bulldozer when it’s available?
a.
$49,405
b.
$50,250
c.
$54,839
d.
$60,872
102. If you deposit $10,000 today in an account that pays 5% interest compounded annually for five years,
how much interest will you earn?
a.
$2,500.00
b.
$2,762.82
c.
$3,400.96
d.
$12,762.82
103. Emma Industries records the following cash flows at the end of each year for a project. If the firm’s
discount rate is 11%, COMPOUNDED CONTINOUSLY, what is the PRESENT VALUE of the
project?
Year
Cash flow
1
$794,633
2
$542,149
3
$836,200
4
$716,080
5
$520,354
a.
$2,509,507
b.
$2,547,837
c.
$2,517,234
d.
$2,499,159
104. Mendelson Implements records the following cash flows at the end of each year for a project. If the
firm’s discount rate is 11%, what is the PRESENT VALUE of the project?
Year
Cash flow
1
$794,633
2
$542,149
3
$836,200
4
$716,080
5
$520,354
a.
$2,509,507
b.
$2,547,837
c.
$2,517,234
d.
$2,499,159
105. Roxy Records, records the following cash flows at the end of each year for a project. If the firm’s
discount rate is 11%, what is the FUTURE VALUE of the project?
Year
Cash flow
1
$794,633
2
$542,149
3
$836,200
4
$716,080
5
$520,354
a.
$4,293,253
b.
$2,547,837
c.
$4,200,696
d.
$4,657,524
106. Mendelson Implements records the following cash flows at the end of each year for a project. If the
firm’s discount rate is 11%, COMPOUNDED CONTINOUSLY, what is the PRESENT VALUE of the
project?
Year
Cash flow
1
$794,633
2
$542,149
3
$836,200
4
$716,080
5
$520,354
a.
$2,509,507
b.
$2,547,837
c.
$2,517,234
d.
$2,499,159
107. Mendelson Implements records the following cash flows at the end of each year for a project. If the
firm’s discount rate is 11%, what is the FUTURE VALUE of the project at the end of the last year?
Year
Cash flow
1
$794,633
2
$542,149
3
$836,200
4
$716,080
5
$520,354
a.
$2,547,837
b.
$4,200,696
c.
$4,293,253
d.
$4,657,524
108. Herbilux Botanicals forecasts the following cash flows at the end of each year for a project. If the
firm’s discount rate is 9%, what is the PRESENT VALUE of the project?
Year
1
2
3
4
5
a.
$7,634,980
b.
$8,015,517
c.
$8,736,914
d.
$12,268,998
109. Herbilux Botanicals forecasts the following cash flows at the BEGINNING of each year for a project.
If the firm’s discount rate is 9%, what is the PRESENT VALUE of the project?
Year
1
2
3
4
5
a.
$8,32,2182
b.
$8,015,517
c.
$8,736,914
d.
$9,523,236
110. Herbilux Botanicals forecasts the following cash flows at the BEGINNING of each year for a project.
If the firm’s discount rate is 9%, what is the FUTURE VALUE of the project?
Year
1
2
3
4
5
a.
$14,256,825
b.
$13,422,825
c.
$8,736,914
d.
$14,652,679
111. Roxy Botanicals forecasts the following cash flows at the end of each year for a project. If the firm’s
discount rate is 9%, COMPOUNDED CONTINOUSLY, what is the present value of the project?
Year
1
2
3
4
5
a.
$8,592,925
b.
$8,702,132
c.
$8,736,914
d.
$8,845,121
112. Emma Botanicals forecasts the following cash flows at the end of each year for a project. If the firm’s
discount rate is 9%, COMPOUNDED SEMI-ANNUALLY , what is the present value of the project?
Year
1
2
3
4
5
a.
$8,666,667
b.
$8,678,321
c.
$8,736,914
d.
$8,123,456