Ch 04 Time Value of Money
Amortization: payment
TYPE: Multiple Choice: Problem
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JFND-GO4G-EO5U-COTT
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.
b.
c.
d.
e.
c
Difficulty: Moderate
Multiple Choice
False
FMTP.EHRH.17.04.17 – LO: 4-17
United States – BUSPROG: Analytic
United States – AK – DISC: Time value of money
United States – OH – Default City – TBA
Amortization: payment
TYPE: Multiple Choice: Problem
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8/26/2015 10:44 AM
JFND-GO4G-EO5U-COTO
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
Ch 04 Time Value of Money
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
False
JFND-GO4G-EO5U-COTZ
GO4W-NQNBEE
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
Ch 04 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
False
False
JFND-GO4G-EO5U-COTS
Ch 04 Time Value of Money
JFND-GO4G-EO5U-COTI
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
d.
$8,740
e.
$9,177
False
JFND-GO4G-EO5U-COTW
Ch 04 Time Value of Money
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
False
JFND-GO4G-EO5U-CQNN
GO4W-NQNBEE
152. 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
Ch 04 Time Value of Money
153. 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%
False
JFND-GO4G-EO5U-CQNB
Ch 04 Time Value of Money
154. Your Green Investment Tips subscription is about to expire. You plan to subscribe to the magazine for the rest of
your life, and you can renew it by paying $85 annually, beginning immediately, or you can get a lifetime subscription for
$850, also payable immediately. Assuming that you can earn 6.0% on your funds and that the annual renewal rate will
remain constant, how many years must you live to make the lifetime subscription the better buy?
a.
7.48
b.
8.80
c.
10.35
d.
12.18
e.
14.33
e
False
False
JFND-GO4G-EO5U-CQB3
Ch 04 Time Value of Money
155. You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you
also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8
quarters) from now, how much will be in the account three years (12 quarters) from now?
a.
$15,234.08
b.
$16,035.88
c.
$16,837.67
d.
$17,679.55
e.
$18,563.53
False
JFND-GO4G-EO5U-CQNG
GO4W-NQNBEE
156. Partners Bank offers to lend you $50,000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly. An
offer to lend you the $50,000 also comes from Community Bank, but it will charge 6.0%, simple interest, with interest
paid at the end of the year. What’s the difference in the effective annual rates charged by the two banks?
a.
1.56%
b.
1.30%
c.
1.09%
JFND-GO4G-EO5U-CQBA
Ch 04 Time Value of Money
d.
0.91%
e.
0.72%
False
JFND-GO4G-EO5U-CQNF
157. Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the
next 5 years. By how much would you reduce the amount you owe in the first year?
a.
$2,404.91
b.
$2,531.49
c.
$2,658.06
d.
$2,790.96
e.
$2,930.51
Ch 04 Time Value of Money
158. Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the
next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?
a.
$10,155.68
b.
$10,690.19
c.
$11,252.83
d.
$11,845.09
e.
$12,468.51
e
False
False
JFND-GO4G-EO5U-CQNR
GO4W-NQNBEE
Ch 04 Time Value of Money
159. 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.
b.
c.
d.
e.
c
Difficulty: Challenging
Multiple Choice
False
FMTP.EHRH.17.04.10 – LO: 4-10
United States – BUSPROG: Analytic
United States – AK – DISC: Time value of money
United States – OH – Default City – TBA
Retirement planning
TYPE: Multiple Choice: Problem
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JFND-GO4G-EO5U-CQBU
GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-
United States – OH – Default City – TBA
Amortization: ending bal.
TYPE: Multiple Choice: Problem
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JFND-GO4G-EO5U-CQND
4OTI-GO4W-NQNBEE
Ch 04 Time Value of Money
JFNN-4OTI-GO4W-NQNBEE
160. You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th
month, you will have $13,000 in your account. If the bank compounds interest monthly, what nominal annual interest rate
will you be earning?
a.
7.62%
b.
8.00%
c.
8.40%
d.
8.82%
e.
9.26%
a
False
JFND-GO4G-EO5U-CQB1
161. Your business has just taken out a 1-year installment loan for $72,500 at a nominal rate of 11.0% but with equal end-
of-month payments. What percentage of the 2nd monthly payment will go toward the repayment of principal?
a.
73.67%
b.
77.55%
c.
81.63%
d.
85.93%
e.
90.45%