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QUESTION 1 If you invest $100 at 12 percent for four years, how much would you have at the end of four years using compound

QUESTION 1

If you invest $100 at 12 percent for four years, how much would you have at the end of four years using compound interest?

A. $269
B. 152.32
C. $193.96
D. $157.35

QUESTION 2

An initial investment of $500 produces a cash flow of $550 one year from today. Calculate the rate of return on the project.

A. 25 percent
B. 10 percent
C. 15 percent
D. 20 percent

QUESTION 3

Mr. Hopper expects to retire in 30 years, and he wishes to accumulate $1,000,000 in his retirement fund by that time. If the interest rate is 12 percent per year, how much should Mr. Hopper put into his retirement fund at the end of each year in order to achieve this goal?

A. $12,483.17
B. $4,000.00
C. $4,144
D. $8,287.32

QUESTION 4

Present value is defined as

A. future cash flows discounted to the present by an appropriate discount rate.
B. future cash flows multiplied by the factor (1 + r)t.
C. inverse of future cash flows.
D. present cash flows compounded into the future.

QUESTION 5

If we invest $1,500 in a bank savings account where it will earn a nominal rate of 2 percent per year, compounded semi-annually, how much will it be worth at the end of 3 years? (Round off the answer to the nearest cent.)

Answer ________

QUESTION 6

An investment at 12 percent APR compounded monthly is equal to an effective annual rate of

A. 12.00 percent.
B. 11.87 percent.
C. 12.36 percent.
D. 12.68 percent.

QUESTION 7

The concept of compound interest is best described as

A. the inverse of simple interest.
B. interest earned on an investment.
C. the total amount of interest earned over the life of an investment.
D. interest earned on interest.

QUESTION 8

A dollar today is worth more than a dollar tomorrow if the interest rate is positive.

True

False

QUESTION 9

An asset that pays a fixed amount each period for a specified number of periods is an annuity.

True

False

QUESTION 10

A perpetuity is defined as a sequence of

A. unequal cash flows occurring at equal intervals of time forever.
B. equal cash flows occurring at equal intervals of time forever.
C. unequal cash flows occurring at equal intervals of time for a specific number of periods.
D. equal cash flows occurring at equal intervals of time for a specific number of periods.

QUESTION 11

The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent per year, is

A. 75,000
B. 80,000
C. 100,000
D. 125,000

QUESTION 12

What is the present value of $10,000 per year in perpetuity at an annual interest rate of 10 percent? Assume the perpetuity starts in one year.

A. $10,000.00
B. $1,000.00
C. $200,000.00
D. $100,000.00

QUESTION 13

What is the present value of a $1,000 per year annuity for five years at an interest rate of 12 percent?

A. 3604.78
B. 6352.85
C. 2743.28
D. 567.43

QUESTION 14

For $10,000, you can purchase a five-year annuity that will pay $2,358.65 per year for five years. The payments occur at the beginning of each year. Calculate the effective annual interest rate implied by this arrangement.

A. 9 percent
B. 10 percent
C. 8 percent
D. 11 percent

QUESTION 15

Mr. Williams expects to retire in 30 years and would like to accumulate $1 million in his pension fund. If the annual interest rate is 12 percent, how much should Mr. Williams put into his pension fund each month in order to achieve his goal? (Assume that Mr. Williams will deposit the same amount each month into his pension fund, using monthly compounding.)

A. 345.3
B. 437.13
C. 771.6
D. 286.13

QUESTION 16

John House has taken a $250,000 mortgage on his house at an interest rate of 7 percent per year. If the mortgage calls for 25 equal annual payments, what is the amount of each payment?

A. 10,334.52
B. 16,616.36
C. 21,452.63
D. 23,943.78

QUESTION 17

You would like to have enough money saved after your retirement such that you and your heirs can receive $100,000 per year in perpetuity. How much would you need to have saved at the time of your retirement in order to achieve this goal? (Assume that the perpetuity payments start one year after the date of your retirement. The annual interest rate is 12.5 percent.)

A. $1,000,000.00
B. $800,000.00
C. $1,125,000.00
D. $10,000,000.00

QUESTION 18

After retirement, you expect to live for 25 years. You would like to have $90,000 income each year. How much should you have saved in your retirement account to receive this income, if the annual interest rate is 5 percent per year? (Assume that the payments start on the day of your retirement.)

A. $2,368,253.25
B. $3,389,837.39
C. $1,331,877.76
D. $1,221,906.21

QUESTION 19

You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly five more years. Assuming an 8 percent annual interest rate, what is the value of this trust?

A. $918,787
B. $850,729
C. $1,000,000
D. $1,250,000

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