Question 1

A local magazine is offering a $2,500 grand prize to one lucky winner.The prize will be paid in four annual payments of $625 each,starting one year after the drawing.How much would this prize be worth to you if you can earn 9 percent on your money?

Accepted Answer

A)  $1,848.18
B)  $1,934.24
C)  $2,024.82
D)  $2,450.14
E)  $2,545.54F) B) and E)
G) A) and B)

Question 2

Hometown Builders is borrowing $195,000 today for four years.The loan is an interest-only loan with an APR of 7.65 percent.Payments are to be made annually.What is the amount of the first annual payment?

Accepted Answer

A)  $14,917.50
B)  $20,610.90
C)  $18,029.18
D)  $58,416.55
E)  $63,667.50F) A) and E)
G) A) and B)

Question 3

Chandler Tire Co.is trying to decide which one of two projects it should accept.Both projects have the same start-up costs.Project 1 will produce annual cash flows of $52,000 a year for six years.Project 2 will produce cash flows of $48,000 a year for eight years.The company requires a 15 percent rate of return.Which project should the company select and why?

Accepted Answer

A)  Project 1, because the annual cash flows are greater by $4,000 than those of Project 2
B)  Project 1, because the present value of its cash inflows exceeds those of Project 2 by $14,211.62
C)  Project 2, because the total cash inflows are $72,000 greater than those of Project 1
D)  Project 2, because the present value of the cash inflows exceeds those of Project 1 by $18,598.33
E)  It does not matter as both projects have almost identical present values.F) B) and E)
G) A) and E)

Question 4

Appalachian Bank offers you a $30,000,2-year term loan at an APR of 5.5 percent,compounded monthly.What will be your monthly loan payment?

Accepted Answer

A)  $1,307.16
B)  $1,250.00
C)  $1,960.02
D)  $1,389.20
E)  $1,322.87F) A) and B)
G) C) and D)

Question 5

You want to buy a new sports car from Roy's Cars for $51,800.The contract is in the form of a 48-month annuity due at an APR of7.8 percent,compounded monthly.What would be your monthly payment?

Accepted Answer

A)  $1,251.60
B)  $1,109.29
C)  $1,245.70
D)  $1,152.98
E)  $1,084.32F) A) and D)
G) C) and D)

Question 6

Kurt will receive $1,200 a month for five years from an insurance settlement.The first payment was received today.If he invests the full amount of each payment at a guaranteed 6.15 percent rate,how much will he have saved at the end of the five years?

Accepted Answer

A)  $76,003.18
B)  $88,219.97
C)  $91,388.71
D)  $84,478.33
E)  $95,115.16F) B) and D)
G) A) and D) D

Question 7

You have an outstanding loan with an EAR of 14.61 percent.What is the APR if interest is compounded monthly?

Accepted Answer

A)  13.48 percent
B)  13.71 percent
C)  14.60 percent
D)  15.41 percent
E)  15.62 percentF) A) and D)
G) C) and E)

Question 8

You want to borrow $4,700 for 24 months and can afford monthly payments of $210,but no more.Assuming monthly compounding,what is the highest APR rate you can afford?

Accepted Answer

A)  5.95 percent
B)  6.33 percent
C)  6.80 percent
D)  6.25 percent
E)  7.13 percentF) B) and E)
G) A) and E)

Question 9

Walker's charges a daily rate of .049 percent on its store credit cards.What interest rate is the company required by law to report to potential customers? Assume each quarter has exactly 91.25 days.

Accepted Answer

A)  15.98 percent
B)  17.89 percent
C)  16.67 percent
D)  17.45 percent
E)  16.65 percentF) D) and E)
G) A) and B)

Question 10

McClary Tires plans to save $20,000,$25,000,$27,500,and $30,000 at the end of each year for Years 1 to 4,respectively.If itearns 3.3 percent on its savings,how much will the firm have saved at the end of Year 4?

Accepted Answer

A)  $107,525.40
B)  $108,392.69
C)  $111,860.57
D)  $107,130.78
E)  $110,426.41F) B) and C)
G) B) and D)

Question 11

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years.His car payments can be described by which one of the following terms?

Accepted Answer

A)  Perpetuity
B)  Annuity
C)  Consol
D)  Lump sum
E)  Present valueF) None of the above
G) C) and D) B

Question 12

Anna pays .85 percent interest monthly on her credit card account.When the interest rate on that debt is expressed as if it were compounded annually,the rate would be referred to as the:

Accepted Answer

A)  annual percentage rate.
B)  simplified rate.
C)  quoted rate.
D)  stated rate.
E)  effective annual rate.F) A) and B)
G) B) and E)

Question 13

Which one of the following is an ordinary annuity,but not a perpetuity?

Accepted Answer

A)  $75 paid at the beginning of each monthly period for 50 years
B)  $15 paid at the end of each monthly period for an infinite period of time
C)  $40 paid quarterly for 5 years, starting today
D)  $50 paid every year for ten years, starting today
E)  $25 paid weekly for 1 year, starting one week from todayF) All of the above
G) A) and B)

Question 14

City Loans wants to earn an effective annual return on its consumer loans of 18.9 percent per year.The bank applies daily compounding.What interest rate is the firm required by law to report to potential borrowers?

Accepted Answer

A)  17.47 percent
B)  17.32 percent
C)  17.86 percent
D)  16.39 percent
E)  18.90 percentF) A) and B)
G) A) and D)

Question 15

E-Z Loans is offering a special on one-year loans.The company will loan you $1,500 today with no waiting and no credit check,in exchange for one payment of $2,000 one year from now.What is the APR on this loan?

Accepted Answer

A)  30.63 percent
B)  21.20 percent
C)  25.63 percent
D)  17.93 percent
E)  33.33 percentF) C) and D)
G) B) and C)

Question 16

Alfa Life Insurance Co.is trying to sell you an investment policy that will pay you and your heirs $10,000 per year forever.If the guaranteed rate of return on this investment is 3.6 percent,how much will you pay for the policy?

Accepted Answer

A)  $266,576.83
B)  $277,777.78
C)  $254,211.50
D)  $267,119.02
E)  $241,160.91F) C) and E)
G) A) and B)

Question 17

Recently,you needed money and agreed to sell a car you had inherited at a price of $55,000,to be paid in monthly payments of $1,500 for 42 months.What interest rate did you charge for financing the sale?

Accepted Answer

A)  7.25 percent
B)  6.50 percent
C)  6.84 percent
D)  7.78 percent
E)  8.33 percentF) A) and B)
G) B) and C)

Question 18

A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,with the first payment coming 6.5 years from now.If the discount rate is 7 percent,compounded semiannually,what is the value of this annuity 4 years from now?

Accepted Answer

A)  $37,139.58
B)  $38,399.20
C)  $40,687.14
D)  $41,811.67
E)  $42,618.52F) A) and D)
G) A) and E)

Question 19

Sheet Metals has an outstanding loan that calls for equal annual payments of $12,600.47 over the life of the loan.The original loan amount was $72,000 at an APR of 8.15 percent.How much of the third loan payment is interest?

Accepted Answer

A)  $5,868.00
B)  $4,725.89
C)  $4,896.48
D)  $5,009.16
E)  $4,687.53F) A) and E)
G) B) and C) B

Question 20

Perpetuities have:

Accepted Answer

A)  irregular payments but constant payment periods.
B)  equal payments and an infinite life.
C)  equal payments and a set number of equal payment periods.
D)  less value than comparable annuities.
E)  no application in today?s world.F) B) and E)
G) A) and D)

Exam 5: Discounted Cash Flow Valuation

A local magazine is offering a $2,500 grand prize to one lucky winner.The prize will be paid in four annual payments of $625 each,starting one year after the drawing.How much would this prize be worth to you if you can earn 9 percent on your money?

Correct Answer
verified

Hometown Builders is borrowing $195,000 today for four years.The loan is an interest-only loan with an APR of 7.65 percent.Payments are to be made annually.What is the amount of the first annual payment?

Correct Answer
verified

Correct Answer
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Appalachian Bank offers you a $30,000,2-year term loan at an APR of 5.5 percent,compounded monthly.What will be your monthly loan payment?

Correct Answer
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You want to buy a new sports car from Roy's Cars for $51,800.The contract is in the form of a 48-month annuity due at an APR of7.8 percent,compounded monthly.What would be your monthly payment?

Correct Answer
verified

Kurt will receive $1,200 a month for five years from an insurance settlement.The first payment was received today.If he invests the full amount of each payment at a guaranteed 6.15 percent rate,how much will he have saved at the end of the five years?

Correct Answer
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D

You have an outstanding loan with an EAR of 14.61 percent.What is the APR if interest is compounded monthly?

Correct Answer
verified

You want to borrow $4,700 for 24 months and can afford monthly payments of $210,but no more.Assuming monthly compounding,what is the highest APR rate you can afford?

Correct Answer
verified

Walker's charges a daily rate of .049 percent on its store credit cards.What interest rate is the company required by law to report to potential customers? Assume each quarter has exactly 91.25 days.

Correct Answer
verified

McClary Tires plans to save $20,000,$25,000,$27,500,and $30,000 at the end of each year for Years 1 to 4,respectively.If itearns 3.3 percent on its savings,how much will the firm have saved at the end of Year 4?

Correct Answer
verified

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years.His car payments can be described by which one of the following terms?

Correct Answer
verified
B

Anna pays .85 percent interest monthly on her credit card account.When the interest rate on that debt is expressed as if it were compounded annually,the rate would be referred to as the:

Correct Answer
verified

Which one of the following is an ordinary annuity,but not a perpetuity?

Correct Answer
verified

City Loans wants to earn an effective annual return on its consumer loans of 18.9 percent per year.The bank applies daily compounding.What interest rate is the firm required by law to report to potential borrowers?

Correct Answer
verified

E-Z Loans is offering a special on one-year loans.The company will loan you $1,500 today with no waiting and no credit check,in exchange for one payment of $2,000 one year from now.What is the APR on this loan?

Correct Answer
verified

Alfa Life Insurance Co.is trying to sell you an investment policy that will pay you and your heirs $10,000 per year forever.If the guaranteed rate of return on this investment is 3.6 percent,how much will you pay for the policy?

Correct Answer
verified

Recently,you needed money and agreed to sell a car you had inherited at a price of $55,000,to be paid in monthly payments of $1,500 for 42 months.What interest rate did you charge for financing the sale?

Correct Answer
verified

A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,with the first payment coming 6.5 years from now.If the discount rate is 7 percent,compounded semiannually,what is the value of this annuity 4 years from now?

Correct Answer
verified

Sheet Metals has an outstanding loan that calls for equal annual payments of $12,600.47 over the life of the loan.The original loan amount was $72,000 at an APR of 8.15 percent.How much of the third loan payment is interest?

Correct Answer
verified
B

Perpetuities have:

Correct Answer
verified

Exam 5: Discounted Cash Flow Valuation

A local magazine is offering a $2,500 grand prize to one lucky winner.The prize will be paid in four annual payments of $625 each,starting one year after the drawing.How much would this prize be worth to you if you can earn 9 percent on your money?

Correct AnswerverifiedShow Answer

Hometown Builders is borrowing $195,000 today for four years.The loan is an interest-only loan with an APR of 7.65 percent.Payments are to be made annually.What is the amount of the first annual payment?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Appalachian Bank offers you a $30,000,2-year term loan at an APR of 5.5 percent,compounded monthly.What will be your monthly loan payment?

Correct AnswerverifiedShow Answer

You want to buy a new sports car from Roy's Cars for $51,800.The contract is in the form of a 48-month annuity due at an APR of7.8 percent,compounded monthly.What would be your monthly payment?

Correct AnswerverifiedShow Answer

Kurt will receive $1,200 a month for five years from an insurance settlement.The first payment was received today.If he invests the full amount of each payment at a guaranteed 6.15 percent rate,how much will he have saved at the end of the five years?

Correct AnswerverifiedD

You have an outstanding loan with an EAR of 14.61 percent.What is the APR if interest is compounded monthly?

Correct AnswerverifiedShow Answer

You want to borrow $4,700 for 24 months and can afford monthly payments of $210,but no more.Assuming monthly compounding,what is the highest APR rate you can afford?

Correct AnswerverifiedShow Answer

Walker's charges a daily rate of .049 percent on its store credit cards.What interest rate is the company required by law to report to potential customers? Assume each quarter has exactly 91.25 days.

Correct AnswerverifiedShow Answer

McClary Tires plans to save $20,000,$25,000,$27,500,and $30,000 at the end of each year for Years 1 to 4,respectively.If itearns 3.3 percent on its savings,how much will the firm have saved at the end of Year 4?

Correct AnswerverifiedShow Answer

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years.His car payments can be described by which one of the following terms?

Correct AnswerverifiedB

Anna pays .85 percent interest monthly on her credit card account.When the interest rate on that debt is expressed as if it were compounded annually,the rate would be referred to as the:

Correct AnswerverifiedShow Answer

Which one of the following is an ordinary annuity,but not a perpetuity?

Correct AnswerverifiedShow Answer

City Loans wants to earn an effective annual return on its consumer loans of 18.9 percent per year.The bank applies daily compounding.What interest rate is the firm required by law to report to potential borrowers?

Correct AnswerverifiedShow Answer

E-Z Loans is offering a special on one-year loans.The company will loan you $1,500 today with no waiting and no credit check,in exchange for one payment of $2,000 one year from now.What is the APR on this loan?

Correct AnswerverifiedShow Answer

Alfa Life Insurance Co.is trying to sell you an investment policy that will pay you and your heirs $10,000 per year forever.If the guaranteed rate of return on this investment is 3.6 percent,how much will you pay for the policy?

Correct AnswerverifiedShow Answer

Recently,you needed money and agreed to sell a car you had inherited at a price of $55,000,to be paid in monthly payments of $1,500 for 42 months.What interest rate did you charge for financing the sale?

Correct AnswerverifiedShow Answer

A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,with the first payment coming 6.5 years from now.If the discount rate is 7 percent,compounded semiannually,what is the value of this annuity 4 years from now?

Correct AnswerverifiedShow Answer

Sheet Metals has an outstanding loan that calls for equal annual payments of $12,600.47 over the life of the loan.The original loan amount was $72,000 at an APR of 8.15 percent.How much of the third loan payment is interest?

Correct AnswerverifiedB

Perpetuities have:

Correct AnswerverifiedShow Answer

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D

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B

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B

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