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Assume a project will produce cash flows of $22,400,$28,700,$30,300,$10,900 at the end of Years 1 to 4,respectively.If the discount rate is 14.7 percent,what is the current value of these cash flows?


A) $69,407.19
B) $64,221.80
C) $67,721.24
D) $70,407.16
E) $71,121.03

F) All of the above
G) B) and E)

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You will receive annual payments of $800 at the end of each year for 12 years.The first payment will be received in Year 3.What is the present value of these payments if the discount rate is 7 percent?


A) $5,465.20
B) $6,018.52
C) $6,299.80
D) $5,549.96
E) $6,856.60

F) B) and E)
G) All of the above

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What is the value today of $3,600 received at the end of each year for eight years if the first payment is paid at the end of Year 4 and the discount rate is 12 percent?


A) $11,694.21
B) $12,484.57
C) $12,729.12
D) $15,089.23
E) $14,429.52

F) D) and E)
G) A) and D)

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Which one of the following qualifies as an annuity payment?


A) Weekly grocery bill
B) Clothing purchases
C) Car repairs
D) Auto loan payment
E) Medical bills

F) A) and D)
G) None of the above

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ST Trucking just signed a $3.8 million contract.The contract calls for a payment of $1.1 million today,$1.3 million one year fromtoday,and $1.4 million two years from today.What is this contract worth today at a discount rate of 8.7 percent?


A) $3,783,648.48
B) $3,480,817.37
C) $2,108,001.32
D) $3,202,223.89
E) $3,202,840.91

F) A) and B)
G) D) and E)

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Dixie's Markets offers credit to its customers and charges interest of 1.2 percent per month.What is the effective annual rate?


A) 15.39 percent
B) 14.61 percent
C) 15.10 percent
D) 15.51 percent
E) 15.73 percent

F) A) and B)
G) C) and D)

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The Rent-to-Own Store has a six-year,interest-only loan at 7.6 percent interest.The firm originally borrowed $115,000.How much will the firm pay in total interest over the life of the loan?


A) $32,451.13
B) $53,666.67
C) $47,500.00
D) $69,000.00
E) $52,440.00

F) D) and E)
G) A) and B)

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Lacey will receive $135,000 a year for 5 years,starting today.If the rate of return is 8.9 percent,what are these payments worth today?


A) $568,346.72
B) $531,019.80
C) $573,323.90
D) $564,009.27
E) $526,468.23

F) C) and E)
G) B) and D)

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Standards Life Insurance offers a perpetuity that pays annual payments of $12,000.This contract sells for $250,000 today.What is the interest rate?


A) 4.80 percent
B) 3.87 percent
C) 4.10 percent
D) 4.21 percent
E) 4.39 percent

F) A) and B)
G) A) and C)

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A 30-year home mortgage is a classic example of:


A) a set of unequal cash flows.
B) an ordinary annuity.
C) a perpetuity.
D) an annuity due.
E) a consol.

F) A) and C)
G) B) and C)

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The stated interest rate is the interest rate expressed:


A) as if it were compounded one time per year.
B) as the quoted rate compounded by 12 periods per year.
C) in terms of the rate charged per day.
D) in terms of the interest payment made each period.
E) in terms of an effective rate.

F) None of the above
G) A) and B)

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JK's is borrowing $132,000 for three years at an APR of 7.6 percent.The loan calls for the principal balance to be reduced by equal amounts over the life of the loan.Interest is to be paid in full each year.The payments are to be made annually at the end of each year.How much will be paid in interest over the life of this loan?


A) $10,032
B) $30,096
C) $12,840
D) $20,064
E) $18,667

F) C) and D)
G) A) and D)

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Which one of the following can be classified as an annuity but not as a perpetuity?


A) Increasing monthly payments forever
B) Increasing quarterly payments for six years
C) Unequal payments each year for nine years
D) Equal annual payments for life
E) Equal weekly payments forever

F) None of the above
G) All of the above

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The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely.These annual scholarships are:


A) an ordinary annuity.
B) an annuity due.
C) amortized payments.
D) a perpetuity.
E) a perpetuity due.

F) D) and E)
G) A) and B)

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Today,you are purchasing a 20-year,6 percent annuity at a cost of $48,350.The annuity will pay annual payments starting one year from today.What is the amount of each payment?


A) $4,511.08
B) $4,215.37
C) $2,754.40
D) $4,013.20
E) $5,208.19

F) A) and C)
G) D) and E)

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Which statement is true?


A) All else equal, an ordinary annuity is more valuable than an annuity due.
B) All else equal, a decrease in the number of payments increases the future value of an annuity due.
C) An annuity with payments at the beginning of each period is called an ordinary annuity.
D) All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.
E) ..All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity.

F) C) and D)
G) A) and B)

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S&S Furniture is offering a bedroom suite for $3,200.The credit terms are 60 months at $55 per month.What is the interest rate on this offer?


A) 1.22 percent
B) 1.50 percent
C) 1.65 percent
D) 1.15 percent
E) 1.30 percent

F) All of the above
G) None of the above

Correct Answer

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Anne plans to save $40 a week,starting next week,for ten years and earn a rate of return of 4.6 percent,compounded weekly.After the ten years,she will discontinue saving and invest her account at 6.5 percent,compounded annually.How long from now will it be before she has accumulated a total of $50,000?


A) 10.32 years
B) 21.14 years
C) 15.08 years
D) 11.14 years
E) 20.32 years

F) C) and D)
G) A) and C)

Correct Answer

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Assume you can save $8,500 at the end of Year 2,$9,300 at the end of Year 3,and $7,100 at the end of Year 6.If today is Year 0,what is the future value of your savings 10 years from now if the rate of return is 7.8 percent annually?


A) $35,211.57
B) $37,235.16
C) $40,822.55
D) $42,321.68
E) $44,564.54

F) C) and D)
G) B) and E)

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Compass Bank is offering an APR of.8 percent,compounded daily,on its savings accounts.If you deposit $2,500 today,how much will you have in the account in 15 years?


A) $2,567.15
B) $2,675.10
C) $2,761.32
D) $2,818.74
E) $2,890.62

F) D) and E)
G) C) and D)

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