Chapter 4

1-Steamer Corporation makes investments of $20,000 this year, $34,000 next year, and $42,500 the following year. This form of payment represents a(n) _____.

a. annuity due

b. compounded cash flow

c. uneven cash flow stream

d. ordinary annuity

2-Beta Corporation plans to make an investment of $28,000 in a fixed income plan for the next 10 years, paying the amount at the end each year. This form of payment is referred to as a(n) _____.

a. annuity due

b. uneven cash flow stream

c. ordinary annuity

d. lump-sum payment

3-Mann Corporation has been investing $18,000 for the last four years in an investment scheme that will mature at the end of the current year. It will be receiving $80,000 at the time of the maturity. $80,000 received at maturity is an example of _____.

a. annuity due

b. ordinary annuity

c. lump-sum amount

d. uneven cash flow

4-For the last five years Harry has been buying 50 shares of Alpha Corporation every month. The shares are currently priced at $34 per share. Alpha paid a dividend of $5 per share at the end of each of these five years. The monthly investment by Harry and the receipt of dividend at the end of every year can be referred to as a(an) _____.

a. lump-sum payment

b. uneven cash flows

c. annuity due

d. ordinary annuity

5-Which type of annuity best describes the insurance premium that you have to pay at the beginning of each period?

a. Annuity due

b. Deferred annuity

c. Ordinary annuity

d. Annuity in arrears

6-Richard takes the opinion of his investment advisor to invest any excess savings that he has. His advisor told him about a new issue of AAA rated bonds. Richard decided to buy a total of 100 bonds from this issue. The issuing company will be making the coupon payments of $1,000 every six months. The initial investment and the subsequent receipt of coupon payments can be referred to as _____ and _____ respectively.

a. lump sum payment; uneven cash flows

b. lump sum payment; ordinary annuity

c. uneven cash flows; lump sum payment

d. lump sum payment; annuity due

7-The payment of home heating bills is an example of _____.

a. ordinary annuity

b. uneven cash flows

c. annuity due

d. immediate annuity

8-Melissa invests $37,000 today in a savings account that pays 4 percent interest compounded annually. She wants to know the total balance in her account seven years from today. Identify the correct keystrokes to be used in a financial calculator to determine the total balance.

a. N = 7, I/Y = 4, PV = -37,000

b. N = 7, I/Y = 4%, PV = -37,000

c. N = 7, I/Y = 4, PV = 37,000

d. N = 7, I/Y = 4%, PV = 37,000

9-12 years ago, Chris purchased an investment for $57,000. The investment earned 9 percent interest each year. Using the equation method, what is the worth of the investment today?

a. $160,170

b. $164,484

c. $152,895

d. $157,627

10-Giselle has been advised by her financial planner to invest $32,000 today in a mutual fund. If the mutual fund earns 14 percent interest compounded monthly, to what amount will her investment grow in 16 years? Use a financial calculator to determine the amount. (Round your answer to two decimal places.)

a. $294,714

b. $298,597

c. $302,758

d. $308,247

11-Matt is planning to invest $7,000 in a mutual fund at the end of each of the next eleven years. If his opportunity cost rate is 5 percent compounded annually, how much will his investment be worth after the last annuity payment is made? Use a financial calculator to determine the amount.

a. $92,665

b. $95,526

c. $97,257

d. $99,448

12-Daphne invests $5,800 in a savings account at the beginning of each of the next fifteen years. If his opportunity cost rate is 6 percent compounded annually, how much will her investment be worth after the last annuity payment is made? Use the equation method to calculate the worth of the investment. (Round your answer to two decimal places.)

a. $130,611.05

b. $139,256.52

c. $143,432.84

d. $149,845.46

13-Mike is planning to invest his savings in a savings account. He manages to deposit $1,000 at the end of the first year, $700 at the end of the second year, $1,500 at the end of the third year, and $600 at the end of the fourth year. If the account earns 7 percent interest each year, what is the terminal value of this uneven cash flow stream? (Round your answer to two decimal places.)

a. $3,423.57

b. $3,580.42

c. $3,698.21

d. $3,725.85

14-Diana wants to receive $45,000 at the end of seven years. The investment offers 11 percent interest compounded annually. She wants to know the total amount she needs to invest today. Identify the correct keystrokes to be used in a financial calculator to determine the total balance.

a. N = 7, I/Y = 11, FV = -45,000

b. N = 7, I/Y = 11%, FV = 45,000

c. N = 7, I/Y = 11%, FV = -45,000

d. N = 7, I/Y = 11, FV = 45,000