Question 1(10 points)

What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?

Question 1 options:

$77.19

$81.25

$85.31

$89.58

Question 2(10 points)

You are hoping to buy a new boat 3 years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the 3rd deposit, 3 years from now?

Question 2 options:

$11,973

$12,603

$13,267

$13,930

Question 3(10 points)

You are considering buying a new car. The sticker price is $15,000 and you have $2,000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 10 percent and you wish to pay for the car over a 5-year period, what are your monthly car payments?

Question 3 options:

$216.67

$252.34

$276.21

$285.78

$318.71

Question 4(10 points)

Find the present value of $5,325 to be received in one period if the rate is 6.5%.

Question 4 options:

$5,000.00

$5,023.58

$5,644.50

$5,671.13

None of the above.

Question 5(10 points)

You want to borrow $47,170 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,160, but no more. Assume monthly compounding. What is the highest rate you can afford on a 48-month APR loan?

Question 5 options:

9.18 percent

9.01 percent

8.67 percent

8.38 percent

8.82 percent

Question 6(10 points)

You are planning to save for retirement over the next 15 years. To accomplish this, you will invest $1,100 a month in a stock account and $500 a month in a bond account. The return on the stock account is expected to be 7 percent, and the bond account will pay 4 percent. When you retire, you will combine your money into an account with a 5 percent return. How much can you withdraw each month during retirement assuming a 20-year withdrawal period?

Question 6 options:

$3,406.97

$3,113.04

$2,904.11

$3,008.21

$2,636.19

Question 7(5 points)

Of the following investments, which would have thelowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

Question 7 options:

Investment A pays $250 at theendof every year for the next 10 years (a total of 10 payments).

Investment B pays $125 at theendof every 6-month period for the next 10 years (a total of 20 payments).

Investment C pays $125 at thebeginningof every 6-month period for the next 10 years (a total of 20 payments).

Investment D pays $2,500 at theendof 10 years (just one payment).

Question 8(5 points)

Which of the following statements is most correct?

Question 8 options:

The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent.

If you are lending money, then, based on effective interest rates, you should prefer to lend at a 10 percent nominal, or quoted, rate but with semiannual payments, rather than at a 10.1 percent nominal rate with annual payments. However, as a borrower you should prefer the annual payment loan.

The value of a perpetuity (say for $100 per year) will approach infinity as the interest rate used to evaluate the perpetuity approaches zero.

Statements a, b, and c are all true.

Statements b and c are true.

Question 9(5 points)

If the compound period is greater than one

Question 9 options:

the effective annual interest rate is always equal to the annual percentage rate.

the effective annual interest rate is always less than the annual percentage rate.

the effective annual interest rate is always greater than the annual percentage rate.

the effective annual interest rate is never greater than the annual percentage rate.

None of the above.

Question 10(5 points)

As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan).

Question 10 options:

TrueFalse

Question 11(20 points)

You just graduated from college and are starting your new job. You realized the importance to save for the future and have figured out that you will save $2,000 per month for the next 13 years; and then increase to $7,000 per month for the following 5 years. The amount accumulated at the end of these investments will be your retirement egg nest. You plan to start retirement and start withdrawing monthly amounts the following month (you will be in retirement for 24 years).If your required rate of return is 12% compounded monthly, how much are your monthly withdrawals?

Do not use the $ sign. Use commas to separate thousands. Use to decimals. Round to the nearest dollar. For example if you obtain $1,432.728 then enter1,433;if you obtain $432.00 then enter432

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