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Ch 04 Time Value of Money
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
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
Ch 04 Time Value of Money
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%
Ch 04 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%
Ch 04 Time Value of Money
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%
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
Ch 04 Time Value of Money
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
d.
$480.03
e.
$505.30
Ch 04 Time Value of Money
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
Ch 04 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%?
Ch 04 Time Value of Money
a.
$5,987
b.
$6,286
c.
$6,600
d.
$6,930
e.
$7,277
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
Ch 04 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%
Ch 04 Time Value of Money
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%
Ch 04 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
Ch 04 Time Value of Money
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
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
Ch 04 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
Ch 04 Time Value of Money
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%
Ch 04 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%
Ch 04 Time Value of Money
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%
c.
8.66%
d.
8.88%
e.
9.10%
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%
Ch 04 Time Value of Money
b.
8.90%
c.
9.37%
d.
9.86%
e.
10.38%
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%
Ch 04 Time Value of Money
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%
Ch 04 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
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
Ch 04 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
