1. As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $4,000 every quarter for 20 years. If you can earn 6 percent (APR) on your money, which option should you take and why?

A. You should accept the $200,000 lump sum amount because the payments are worth only $183,519 today

B. You should accept the payments because they are worth $220,102 today.

C. You should accept the $200,000 because the payments are worth only $165,413 today

D. You should accept the payments because they are worth $320,000 today.

E. You should accept the $200,000 lump sum amount because the payments are worth $185,629 today.

2. Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true?

A. After five years, Andy and Barb will both have earned the same amount of interest.

B. Barb will earn more interest the first year than Andy will.

C. Andy will earn more interest in year three than Barb will.

D. Andy will earn compound interest.

E. Barb will earn interest on interest.

3. What is the effective annual rate for a stated interest rate of 9 percent compounded monthly?

A. 9.42 percent

B. 9.64 percent

C. 9.38 percent

D. 9.00%

E. 10.05 percent

4. Joseph is calculating the future value, in ten years, of a bonus he just received this morning. The process he is using is called:

A. dividend discount model

B. reducing

C. discounting

D. compounding

E. accumulating

5. Chang retired today with $2,500,000 in his retirement account. He expects to live for 30 years in retirement and plans to withdraw equal monthly amounts from his retirement account beginning one month from today. Chang plans to leave $3,000,000 as bequest to his children. If Chang's retirement account will earn 6 percent per year interest, how much is the maximum value of his monthly withdrawal?

A. $10,000

B. $11,008

C. $17,050

D. $12,002

6. What is the future value of $5,200 invested for 23 years at 9.25 percent compounded annually?

A. $51,190.07

B. $39,782.91

C. $29,871.52

D. $47,433.47

E. $46,111.04

7. Today is a big day in your life. You turned 22 and started a new job. You have decided to contribute $500 a month into your company-sponsored 401 K plan account, beginning one month from today. You will maintain the $500 monthly contribution for twenty years. Thereafter, you will increase your contribution to $1,000 per month until you retire at age 67. Your investments will earn 7.2 percent per year throughout your investment horizon. How much will you have in your retirement account the day you retire?

A. $3,007,916

B. $2,000,040

C. $3,591,708

D. $2,442,076

E. $4,126,578

8. How many years will it take for you to quadruple your money if it is invested in an account that pays 9.68 percent per year?

A. 9 years

B. 13 years

C. 11 years

D. 15 years

E. 17 years

9. Beginning three months from now, you want to be able to withdraw $4,300 each quarter from your bank account to cover college expenses. The account pays 1.20 percent interest per quarter. How much do you need to have in your account today to meet your expense needs over the next four years?

A. $79,930

B. $55,970

C. $62,260

D. $41,080

10. You just bought a used Camry for $17,927. You have decided to borrow the entire purchase price from your dealer at an interest rate of 5.80 percent. The loan terms call for equal monthly payments over five years. Calculate your monthly payment amount.

A. $372.06

B. $285.67

C. $469.31

D. $344.91