Question 6

Your grandparents would like to establish a trust fund that would pay annual payments to you and your heirs of $100,000 a year forever. How much do your parents need to deposit into this trust fund today to achieve their goal if the fund can earn 6 percent interest?

	$678,342.13
	$700,000.00
	$1,413,435.76
	$1,620,975.32
	$1,666,666.67

Question 14

First Trust offers personal loans at 7.7 percent compounded monthly. Second Bank offers similar loans at 7.75 percent compounded semiannually. Which one of the following statements is correct concerning these loans?

	The First Trust loan has an effective rate of 7.98 percent.
	The Second Bank loan has an effective rate of 8.03 percent.
	The annual percentage rate for the Second Bank loans is 7.90 percent.
	Borrowers should prefer the loans offered by Second Bank.
	First Trust offers the best deal on loans.

Question 16

Using the NPV function of Excel, calculate the present value of the following cash flows:

Year	Cash flow
1	20,000
2	15,000
3	12,000
4	10,000

Discount rate is 8% p.a.

Question 17

If you get a 5% 30-year mortgage of $200,000 today, what is the monthly payment?

Question 18

An insurance company is offering a new policy. The parent makes the following six payments to the insurance company, and no more payments after child's sixth birthday. When the child reaches age 65, he/she receives a fixed lump-sum amount of X dollars. If the interest rate is 10% for the first 6 years, and 7% for all subsequent years, what is the 'fair' amount of the X?

Year	Payment
1	$ 1,000
2	$ 1,000
3	$ 1,000
4	$ 1,000
5	$ 1,000
6	$ 1,000
# of years until retirement	65
Interest rate 1	10%
# of years	6
Interest rate 2	7%
# of years	59

Question 19

You are looking at a 1-year loan of $1,016. If the quoted interest is 14% plus 2 points, what rate would you actually paying for this loan?

Question 20

If an investment policy pays you $20,084 per year forever and you require 6% p.a. return on this investment, how much will you pay for this policy?