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

15-If the opportunity cost rate is 6% compounded annually, what is the present value of $12,100 due to be received in 11 years? Use the equation method to determine the present value. (Round your answer to two decimal places.)

a. $6,368.42

b. $6,520.41

c. $6,685.85

d. $6,751.26

16-Becky's opportunity cost rate is 7 percent compounded annually. How much must she deposit in an account today if he wants to receive $2,000 at the end of each of the next 16 years? Use a financial calculator to determine the amount to be deposited today.

a. $17,135.20

b. $17,526.75

c. $18,095.23

d. $18,893.30

17-Peter's opportunity cost rate is 10 percent compounded annually. How much must he deposit in an account today if he wants to receive $9,500 at the beginning of each of the next nine years? Use the equation method to calculate.

a. $60,610

b. $61,580

c. $61,980

d. $62,252

18-Marissa wants to receive $21,000 at the beginning of each of the next 20 years. If her opportunity cost rate is 8 percent compounded annually, how much must he deposit in an account today? Use a financial calculator to make the calculation.

a. $212,852

b. $222,676

c. $232,421

d. $242,754

19-John's opportunity cost rate is 12 percent compounded annually. How much must he deposit in an account today if he wants to receive $4,500 at the end of each of the next eight years? Use the equation method to determine the amount to be deposited today. (Round your answer to two decimal places.)

a. $17,200

b. $19,800

c. $22,500

d. $24,100

20-If Kim invests $3,000 today in an account that pays 6 percent interest compounded annually, how long will it take for her to accumulate $21,000 in her account?

a. 28.52 years

b. 33.40 years

c. 35.56 years

d. 38.20 years

21-Rodney wants to make the down payment for a new beach property, which would approximately be $10,500. Today he can start investing $1,200 annually in an investment account that pays 8 percent compounded annually. How long will it take him to have enough money to make the down payment?

a. 5.42 years

b. 5.87 years

c. 6.89 years

d. 7.21 years

22-Jake is considering investing $15,000 in an investment that will have a maturity value of $28,000 in 7 years. If the interest was compounded monthly, what is the annual rate of return earned on the investment?

a. 9.00%

b. 9.45%

c. 10.25%

d. 10.80%

23-Sam wants to invest $650 at the end of every month in a mutual fund. He will be receiving $40,000 at the end of 4 years. If the interest is compounded monthly, what is the annual rate of return earned on the investment?

a. 12.25%

b. 13.08%

c. 14.75%

d. 15.20%

24-A new investment option is being launched by a bank that pays 10 percent interest compounded quarterly. What is the investment's effective annual rate (rEAR)? Use a financial calculator to make the calculation.

a. 10.38%

b. 11.47%

c. 11.06%

d. 10.15%

25-If Misha invests $7,250 today in a savings account, the money will grow to $16,500 at the end of Year 5. Assuming that the interest is paid once per year, the effective annual rate of the investment is _____.

a. 14.95%

b. 15.86%

c. 16.52%

d. 17.88%

26-Sameer has saved $84,500 over the years and she has the option of investing it in either of the following two investment plans. Investment A offers 14 percent interest compounded monthly, whereas Investment B pays 16 percent interest compounded semiannually. What would be the difference between the interests earned on the two investments if Sameer's investment horizon is five years? (Round your answer to two decimal places.)

a. $10,865.52

b. $11,725.32

c. $12,619.76

d. $13,528.25

27-Megan had taken an education loan of $28,000 for her higher studies. This loan now needs to be repaid in equal monthly installments over the next 8 years. What is the amount of the monthly loan payment, if the loan carries a simple annual interest of 6%? Use a calculator to determine the amount and round your answer to two decimal places.

a. $280.42

b. $300.54

c. $320.85

d. $367.96

28-David purchased a new SUV today for $40,000. It was financed using a six-year loan with a 5 percent interest rate (compounded monthly). How much will David owe on his vehicle loan after making payments for four years?

a. $20,402.82

b. $19,852.42

c. $18,985.57

d. $14,694.70