UNIT 1 – Finance 12 Questions
1. The U.S. Treasury offers to sell you a bond
for $613.81. No payments will be made until the bond matures 10 years from now,
at which time it will be redeemed for $1,000. What interest rate would you earn
if you bought this bond at the offer price? (Points: 4)
5.91%
6.71% 7.10% 5.59%
2. You want to buy a condo 5
years from now, and you plan to save $3,000 per year, beginning one year from
today. You will deposit the money in an account that pays 6% interest. How much
will you have just after you make the 5th deposit, 5 years from now? (Points:
4)
$14,764.40
$13,431.83 $16,911.28 $17,843.15 $15,119.76
3. Your father is about to retire, and he wants
to buy an annuity that will provide him with $50,000 of income per year for 20
years, beginning a year from today. The going rate on such annuities is 6%. How
much would it cost him to buy such an annuity today? (Points: 4)
$488,349.15
$416,110.34 $517,513.68 $615,976.84 $573,496.06
4. Suppose you inherited $200,000 and invested it
at 6% per year. How much could you withdraw at the end of each of the next 15
years? (Points: 4)
$24,764.40
$23,431.83 $20,592.55 $17,843.15 $15,119.76
5. An investment promises the following cash flow
stream: $1,000 at Time 0; $2,000 at the end of Year 1 (or at T=1); $3,000 at
the end of Year 2; and $5,000 at the end of Year 3. At a discount rate of 5%,
what is the present value of the cash flow stream? (Points: 4)
$9,324.89
$9,591.45 $9,945.04 $9,011.87 $9,854.13
6. What’s the future value of $2,000 after 3
years if the appropriate interest rate is 8%, compounded monthly? (Points: 4)
$2,854.13
$2,491.45 $2,324.89 $2,011.87 $2,540.47
7. Suppose you borrowed $25,000 at a rate of 8% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be? (Points: 4)
$7,691.45
$7,548.02 $7,324.89 $7,011.87 $7,854.13
8. You are buying your first house for $220,000,
and are paying $30,000 as a down payment. You have arranged to finance the
remaining $190,000 30-year mortgage with a 7% nominal interest rate and monthly
payments. What are the equal monthly payments you must make? (Points: 4)
$1,513
$1,110 $1,264 $1,976 $1,349
9. Your sister turned 30 today, and she is planning to save $3,000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund, which she expects to provide a return of 10% per year. She plans to retire 35 years from today, when she turns 65, and she expects to live for 30 years after retirement, to age 95. Under these assumptions, how much can she spend in each year after she retires? Her first withdrawal will be made at the end of her first retirement year. (Points: 4)
$78,976
$91,110 $88,513 $86,250 $83,049
10. A real estate investment has the following expected cash flows:
Year
Cash Flows 1 $10,000 2 25,000 3 50,000 4 35,000
If
the discount rate is 8%, what is the investment’s present value? (Points: 4)
$103,799
$ 96,110 $ 95,353 $120,000 $ 77,592
11. In order
to illustrate the concept of the time value of money, let's consider the
following scenario.
John
borrows $150,000. The terms of the loan are 7.5% over the next 5 years. It is
important to note that he makes annual rather than monthly payments.
Construct
a loan amortization schedule that shows the 5 payments of John's loan.
A
sample of a Loan Amortization Schedule can be found on page 53 in Table 2.4.
(Section 2.18 focuses on amortized loans). -Please see PDF Attachment of Unit 2 Reading
See
the excel file.
12. Is there a time recently when you could have (or
did) use a TVM calculation to make a decision? What was the decision and how
could (or did) the calculation have helped you make a more informed decision?
File name: Unit-1-finance-12-questions.xls File type: application/vnd.ms-excel Price:
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