I. Select the closest answer for questions 1 through 10.

1. At an interest rate of 6.4% per year, how much must you invest each year (equal amounts) to have $100,000 15 years from now? The first investment is one year from now.

a. $2,646.50 b. $2,972.54

c. $3,250.87 d. $4,167.06

2. Sam Hinds, a local dentist, is going to remodel the dental reception area and add two new

workstations. He has contacted Ace Dec, and the new equipment and cabinetry will cost $18,000.

Ace Dec will finance the equipment purchase at 7.5% for 5 years. What will Hinds have to pay in annual payments for this equipment?

a. $3,834.81 b. $3,910.73

c. $4,201.04 d. $4,448.96

3. The Canadian Government has once again decided to issue a consol (a bond with a never ending interest payment and no maturity date). The bond will pay $80 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 7%. What should this consol bond sell for in the market?

a. $984.96 b. $1,091.73

c. $1,142.86 d. $1,235.79

4. If an investment of $10,000 today earns 9% in each of the next two years, and then earns 5% per year for three years after that, how much will the investment be worth at the end of the five years?

a. $13,300 b. $13,754

c. $13,794 d. $14,402

5. You have just been notified that you won the lottery. You will be paid 10 annual payments of $1,000,000, with the first one starting today. Using an interest rate of 7% (annual compounding), how much did you really win (in terms of present value)?

a. $6,345,879.98 b. $7,246,887.91

c. $7,515,232.25 d. $10,000,000.00

6. Quincy Enterprises issued a bond having a par value of $1,000, a 5 year life and a 7.6% coupon rate. If interest is paid semiannually and the discount rate is 6.4% rate of return, what is the current value of the bond?

a. $878.06 b. $964.11

c. $1,050.66 d. $1,303.98

7. An investor invested $5,000 in a mutual fund three years ago. The next year he made no investment, but then the next year (one year ago) he invested $2,000. If the fund earned 11% each year, how much is the total investment worth today?

a. $9,058 b. $9,641

c. $9,990 d. $10,376

8. During 2019, an auction house sold a painting for a price of $3,170,000. The previous owner had purchased it seven years earlier at a price of $1,750,000. What was his annual rate of return on this painting?

a. -12.56% b. -4.57%

c. 1.46% d. 8.86%

9. You deposit a single amount of $50,000 in a savings account that pays 7.2% annual interest (compounded monthly). How much will you have at the end of four and one-half years?

a. $68,145 b. $69,065

c. $72,664 d. $75,050

10. Kant Miss Company is promising its investors that it will produce an annual return of 15%. How long will it take for your money to quadruple according to the promise?

a. between 6 and 7 years b. between 8 and 9 years

c. between 9 and 10 years d. between 11 and 12 years

II. Show how you get your answer.

1. What is the present value of a series of $5,000 annual payments that will start six years from now and last until fifteen years from now (10 payments), if the interest rate is 6.3%?

2. Farmer Jones owns 300 acres of farmland in Swedesboro, New Jersey. Nearby farmland of about the same acreage produces an average annual gross rental of $50,000. Average annual state and local real estate taxes are $8,000. Assume the interest rate for loans from the Federal Land Bank is 7.5 percent. The average annual computations are made on the basis of the 5 most recent calendar years before the farmers death. What is the fair value of the farmland?

(The following information is for the next three questions.)

Lorkay Seidens Inc. just borrowed $250,000. The loan is to be repaid in equal installments at the end of each of the next thirty years, and the interest rate is eight percent.

3. What is the annual payment that the company has to make?

4. How much of the tenth payment is used to pay for interest?

5. How much of the twentieth payment is used to pay for principal?