MATH 674.1 Quiz #2 Note: Numerical answers are rounded to 2 decimal places. 1. What is the price of a 30-day Government of Canada T-Bill if the rate is quoted at 2.2%? Assume a face value of $1,000.00. (A) $998.17 (D) $998.21 (B) $998.19 (E) none of the above (C) $998.20 2. Under what interest rate i(2) will money double in 10 years? (A) 6.93% (D) 7.20% (B) 7.05% (E) none of the above (C) 7.18% 3. John plans to save for his retirement. He wants to have $100,000 when he turns 65. Suppose he plans to deposit $25,000 into an account. At what age must he make this deposit if interest rates are i(4) = 4%? (A) before he turns 27 (D) between 31 and 33 (B) between 27 and 29 (E) after he turns 33 (C) between 29 and 31 4. Fred has a loan payment of $100 due today, and another $100 due in one month. Unfortunately, Fred does not have the money to make these payments, but he will have extra cash available in 6 months. What single payment due in 6 months will satisfy these loan payments? Assume i(12) = 6%. (A) $205.41 (D) $212.18 (B) $205.56 (E) none of the above (C) $206.08 5. I just found an old 1901 dime in my parents' basement. After inquiring at the local flea market, a coin collector told me that the coin is quite rare, and I could probably sell it for about $50. Given that it is now 2014, what rate of return did we enjoy on this coin? (A) 5.60% (D) 44.25% (B) 5.65% (E) none of the above 1 (C) 5.70% 6. My parents like to tell stories about how back in 1933, you could watch a \"double-bill\" (2 movies for the price of one) at the local theatre for only 10 cents. In the summer of 2014, it would cost about $12.00 for a movie. At what annual rate of inflation have movie prices increased? (A) 7.00% (D) 6.91% (B) 7.14% (E) none of the above (C) 7.09% 7. An investor with a 5-year time horizon has $10,000 and is faced with 2 choices: C1 : Invest in a tax-free account and earn 4% interest, C2 : Invest in a taxable account at a rate of 7%. If tax rates are 40% and the investor must pay taxes on interest when the interest is earned, which investment yields a better final accumulated value, and by how much? (A) C2 by $117.44 (D) C1 by $248.78 (B) C1 by $117.44 (E) none of the above (C) C2 by $248.78 8. James borrowed $5,000 from his parents one year ago. James' parents are accountants so they want him to learn about money, so they insist he pay interest to them at a rate of i(2) = 8%. He just paid them back $2,000 today. What final payment in 6 months will satisfy this loan? (A) $3,400.00 (D) $4,003.26 (B) $5,186.64 (E) none of the above (C) $4,083.26 9. Sally is 35 years old and is saving for her retirement. She deposited $100,000 into an account earning i(1) = 4%. Sally expects inflation to be 2.5%, and she must pay taxes at a rate of 40% on the interest her account earns. Sally is hoping to have $150,000 in real dollars in her account when she retires in about 30 years. Will she achieve her goal? (A) Yes, she will reach her goal before she turns 65. (B) No, she will reach the goal, but she will be in her seventies. (C) No, she will reach the goal, but she will be over 100 years old at the time. (D) No, she will never reach this goal, no matter how long she waits. (E) There is insufficient data in order to answer this question. 2 10. Fred borrowed $100 from his friend Sam for the weekend. After the weekend was up, he repaid the money and thanked his friend by buying him a beer. Assuming the beer costs $2.50, what is the effective annual interest rate charged on the loan? (A) 8959.53% (D) 456.25% (B) 9059.53% (E) none of the above 3 (C) 453.43%