Question 1

Mr. Miser loans money at an annual rate of 21%. Interest is compounded daily. What is the actual rate Mr. Miser is charging on his loans?

a. 23.36%

b. 23.21%

c. 23.08%

d. 22.97%

Question 2

Your car dealer is willing to lease you a new car for $299 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.9 percent, what is the current value of the lease? [Hint: Annuity due]

a. $15,882.75

b. $16,246.51

c. $15,947.61

d. $16,181.75

Question 3

The time value of money concept can be defined as:

a. the relationship between the supply and demand of money.

b. the relationship between money spent versus money received.

c. the relationship between a dollar to be received in the future and a dollar today.

d. the relationship between interest rate stated and amount paid.

Question 4

You are to receive $75 per year indefinitely. The market rate of interest for these types of payments is 8%. The price you would pay for this stream is:

a. $9.375

b. $81.00

c. $93.75

d. $937.50

Question 5

You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a 5.9% rate of interest. What is the amount of each payment?

a. $133.04

b. $130.62

c. $103.73

d. $131.26

Question 6

The Bluebird Company has a $10,000 liability it must pay three years from today. The company is opening a savings account so that the entire amount will be available when this debt needs to be paid. The plan is to make an initial deposit today and then deposit an additional $2,500 a year for the next three years, starting one year from today. The account pays a 3% rate of return. How much does the Bluebird Company need to deposit today? [Hint: We know FV=10,000]

a. $4,642.28

b. $1,867.74

c. $2,079.89

d. $4,276.34

Question 7

You are considering two savings options. Both options offer a 4% rate of return. The first option is to save $1,200, $1,500, and $2,000 a year over the next three years, respectively. The other option is to save one lump sum amount today. If you want to have the same balance in your savings at the end of the three years, regardless of the savings method you select, how much do you need to save today if you select the lump sum option?

a. $4,491.42

b. $4,551.78

c. $4,318.67

d. $4,857.92

Question 8

Phil can afford $160 a month for 6 years for a car loan. If the interest rate is 5.7 percent, how much can he afford to borrow to purchase a car?

a. $11,520.00

b. $10,137.60

c. $9,932.06

d. $9,737.31

Question 9

What is the present value of $14,450 to be received 5 years from today if the discount rate is4.50 percent?

a. $11,478.49

b. $11,595.42

c. $11,479.46

d. $12,117.21

Question 10

You are scheduled to receive annual payments of $9,100 for each of the next 30 years. The discount rate is 7.0 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

a. $7,904.56

b. $8,293.13

c. $8,714.62

d. $9,737.00

Question 11

Wicker Imports established a trust fund that provides $167,400 in scholarships each year for needy students. The trust fund earns a 3.00 percent rate of return. How much money did the firm contribute to the fund assuming that only the interest income is distributed? [Hint: The fund will provide the scholarships forever.]

a. $2,511,000.00

b. $5,022,000.00

c. $5,580,000.00

d. $6,696,000.00

Question 12

The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash flows of $4,894.35 monthly for 30 months. What is the rate of return on this project?

a. 13.44%

b. 13.59%

c. 14.02%

d. 14.59%

Question 13

What is the future value of $2,992 invested for 12 years at 5.50 percent compounded annually?

a. $1,517.55

b. $5,665.60

c. $5,688.41

d. $5,711.23

Question 14

Meadow Brook Manor would like to buy some additional land and build a new assisted living center. The anticipated total cost is $28 million. The CEO of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire construction project. Management has decided to save $1.4 million a quarter for this purpose. The firm earns 6 percent compounded quarterly on the funds it saves. How long does the company have to wait before expanding its operations? [Hint: read the "HP12C and N.pdf" file in the "Calculator related" directory on Google Docs. Or, better yet, solve this problem algebraically using the FVA formula.]

a. 3.91 years

b. 4.41 years

c. 5.31 years

d. 7.21 years

Question 15

Your mother helped you start saving $25 a month beginning on your 10th birthday. She always made you make your deposit on the first day of each month just to "start the month out right. "Today, you turn 21 and have $4,482.66 in your account. What is your rate of return on your savings? [Hint: This is an annuity due problem.]

a. 5.29%

b. 5.33%

c. 5.36%

d. 5.50%

Question 16

You just paid $338,000 for an annuity that will pay you and your heirs $11,700 a year forever. What rate of return are you earning on this policy?

a. 3.24%

b. 3.35%

c. 3.38%

d. 3.46%

Question 17

Holiday Tours (HT) has an employment contract with its newly hired CEO. The contract requires a lump sum payment of $26 million be paid to the CEO upon the successful completion of her first three years of service. HT wants to set aside an equal amount of money at the end of each year to cover this anticipated cash outflow and will earn 6.0 percent on the funds. How much must HT set aside each year for this purpose?

a. $1,560,000.00

b. $2,135,995.36

c. $7,921,849.48

d. $8,166,855.13

Question 18

Your credit card company quotes you a rate of 14.9%. Interest is billed monthly. What is the actual rate of interest you are paying?

a. 14.90%

b. 15.48%

c. 15.96%

d. 16.10%