Question 1(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 12 years; and then increase to $5,000 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 25 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

Your Answer:

Question 1 options:

Answer

Question 2(10 points)

Assume that you have a lump sum $ 614 that you are investing for 3 years at a nominal rate of 19 %. What is the expected Future Value? Enter your answer to the nearest $.01. Do not use $ or , signs in your answer. Enter your answer as a positive number.Your Answer:

Question 2 options:

Answer

Question 3(10 points)

What is the future value of a 5-year ordinary annuity with annual payments of $ 1,062 , evaluated at a 8.68 percent interest rate? Enter your answer to the nearest $.01. Do not use $ or , signs in your answer. Enter your answer as a positive number.Your Answer:

Question 3 options:

Answer

Question 4(5 points)

An annuity

Question 4 options:

is a debt instrument that pays no interest.

is a stream of payments that varies with current market interest.

is a level stream of equal payments through time.

has no value.

None of the above.

Question 5(5 points)

Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

Question 5 options:

The periodic rate of interest is 1.25% and the effective rate of interest is greater than 5%.

The periodic rate of interest is 5% and the effective rate of interest is greater than 5%.

The periodic rate of interest is 1.25% and the effective rate of interest is 2.5%.

The periodic rate of interest is 5% and the effective rate of interest is also 5%.

Question 6(5 points)

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following wouldincreasethe calculated value of the investment?

Question 6 options:

The discount rateincreases.

The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000.

The discount ratedecreases.

The riskiness of the investment's cash flowsincreases.

Question 7(5 points)

Suppose Randy Jones plans to invest $1,000. He can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%. After 11 years, the compounded value of Security B should be somewhat less than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs annually.)

Question 7 options:

TrueFalse

Question 8(10 points)

You are planning on taking a loan for $ 77 ,000. You will repay the loan in annual payments over the next 4 years and the loan has a stated interest rate of 2 %. For the very last payment on your loan, how much of this is repayment of principal? For example, if the loan payment is $400 of which $30 is interest and $370 is principal, your answer is $370. Enter your answer to the nearest $.01. Do not use $ or , signs in your answer. Enter your answer as a positive number.Your Answer:

Question 8 options:

Answer

Question 9(10 points)

What is the future value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?

Question 9 options:

$ 670.44

$ 842.91

$1,169.56

$1,522.64

$1,348.48

Question 10(10 points)

A court settlement awarded an accident victim four payments of $50,000 to be paid at the end of each of the next four years. Using a discount rate of 4%, calculate the present value of the annuity.

Question 10 options:

$173,255

$178,495

$181,495

$184,095

$200,000

Question 11(10 points)

You have just taken out an installment loan for $100,000. Assume that the loan will be repaid in 12 equal monthly installments of $9,456 and that the first payment will be due one month from today. How much of your fourth monthly payment will go toward the repayment of interest?

Question 11 options:

$1,543.70

$7,212.50

$1,698.84

$7,912.30

$9,456.00

$8,333.33