1. Which one of the following is an annuity due?

$100 paid at the end of each monthly period for one year

$225 paid at the beginning of each month for 180 months, starting today.

$600 paid at the end of every quarter for five years, starting today

$900 paid today and $800 paid every year for ten years starting one year from today

2. Which one of the following is generally valued as a perpetuity?

preferred stock

long-term bond

non-dividend paying common stock

common stock paying increasing dividends

3. A loan which requires the borrower to pay interest each period and to pay the entire principal at some point in the future is called a(n)

pure discount loan.

multi-period loan.

amortized loan.

interest - only loan.

4. The present value of a series of cash flows over time can be computed by:

finding the future value of the first cash flow and multiplying that amount by the number of cash flows which occur.

summing the amount of each of the individual cash flows and multiplying the summation by (1+r)^t.

summing the future values of each of the individual cash flows.

discounting each of the individual cash flows and summing the results.

5. All else constant, the present value of a stream of equal cash flows occurring at equal intervals of time will increase when the discount rate is decreased and the number of time periods is decreased (assume other information is the same).

True

False

6. You want to receive $5,000 per month in retirement.If you can earn .5% per month and you expect to need the income for 25 years, how much do you need to have in your account at retirement?

$482,204

$598,311

$595,808

$776,034

7. A firm is considering a project that will produce cash inflows of $36,000 in year one, $54,800 in year two, and $72,900 in year three. What is the present value of these cash inflows if the company assigns the project a discount rate of 14%?

$106,713.06

$122,951.19

$131,333.33

$167,098.12

8. How much money does Albert need to deposit into his investment account today if he wishes to withdraw $15,000 a year for twenty-five years? He expects to earn an average rate of return of 5.5%.

$201,209

$174,804

$175,000

$176,317

9. The house you want to buy costs $367,800. You plan to make a cash down payment of 20% and finance the balance over 15 years at 3.60%. What will be the amount of your monthly mortgage payment?

$1,777.78

$1,193.63

$2,117.95

$2,287.50

10. A company is offering a diamond ring for sale for 36 months at $135 per month. The retail price of the ring is $3,999. What is the interest rate on this offer?

14.90%

13.13%

12.75%

11.15%