Deck 4: Discounted Cash Flow Valuation

Question 1

The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.

A)effective annual
B)annual percentage
C)periodic interest
D)compound interest
E)daily interest

Answer 1

annual percentage

Question 2

The interest rate expressed as if it were compounded once per year is called the _____ rate.

A)effective interest
B)compound interest
C)stated annual
D)daily interest
E)periodic interest

Answer 2

effective interest

Question 3

The present value of future cash flows minus initial cost is called:

A)the future value of the project.
B)the net present value of the project.
C)the equivalent sum of the investment.
D)the initial investment risk equivalent value.
E)None of the above.

Answer 3

the net present value of the project.

Question 4

The interest rate expressed in terms of the interest payment made each period is called the _____ rate.

A)periodic interest
B)daily interest
C)effective annual interest
D)stated annual interest
E)compound annual interest

Question 5

An annuity

A)has no value.
B)is a level stream of equal payments through time.
C)is a stream of payments that varies with current market interest.
D)is a debt instrument that pays no interest.
E)None of the above.

Question 6

The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as:

A).09^e -1.
B)e^.09 * q.
C)e * (1 + .09).
D)e^.09 - 1.
E)(1 + .09)^q.

Question 7

Compound interest

A)does not allow for the reinvestment of interest payments.
B)allows for the reinvestment of interest payments.
C)is the same as simple interest.
D)provides a value that is less than simple interest.
E)Both A and B.

Question 8

You are comparing two annuities which offer monthly payments for ten years.Both annuities are identical with the exception of the payment dates.Annuity A pays on the first of each month while annuity B pays on the last day of each month.Which one of the following statements is correct concerning these two annuities?

A)Both annuities are of equal value today.
B)Annuity B is an annuity due.
C)Annuity A has a higher future value than annuity B.
D)Annuity B has a higher present value than annuity A.
E)Both annuities have the same future value as of ten years from today.

Question 9

You are comparing two investment options.The cost to invest in either option is the same today.Both options will provide you with $20,000 of income.Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each.Option B pays five annual payments of $4,000 each.Which one of the following statements is correct given these two investment options?

A)Option A is preferable because it is an annuity due.
B)Option B has a higher present value than option A given a positive rate of return.
C)Option A is the better choice of the two given any positive rate of return.
D)Option B has a lower future value at year 5 than option A given a zero rate of return.
E)Both options are of equal value given that they both provide $20,000 of income.

Question 10

You are considering two projects with the following cash flows: Which of the following statements are true concerning these two projects?
I.Both projects have the same future value at the end of year 4,given a positive rate of return.
II.Project A has a higher future value than project B,given a positive rate of return.
III.Both projects have the same future value at any point in time,given a positive rate of return.
IV.Both projects have the same future value given a zero rate of return.

A)II only
B)IV only
C)I and IV only
D)II and IV only
E)I, II, and III only

Question 11

Annuities where the payments occur at the end of each time period are called _____,whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.

A)ordinary annuities; early annuities
B)ordinary annuities; annuities due
C)annuities due; ordinary annuities
D)straight annuities; late annuities
E)late annuities; straight annuities

Question 12

Which one of the following statements concerning the annual percentage rate is correct?

A)The annual percentage rate considers interest on interest.
B)The rate of interest you actually pay on a loan is called the annual percentage rate.
C)The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.
D)When firms advertise the annual percentage rate they are violating U.S.truth-in-lending laws.
E)The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.

Question 13

A perpetuity differs from an annuity because:

A)perpetuity payments vary with the rate of inflation.
B)perpetuity payments vary with the market rate of interest.
C)perpetuity payments are variable while annuity payments are constant.
D)perpetuity payments never cease.
E)annuity payments never cease.

Question 14

Which of the following statements concerning the effective annual rate are correct?
I.When borrowing and choosing which loan to accept,you should select the offer with the highest effective annual rate.
II.The more frequently interest is compounded,the higher the effective annual rate.
III.A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.
IV.When making financial decisions,you should compare effective annual rates rather than annual percentage rates.

A)I and II only
B)I and IV only
C)I, II, and III only
D)II, III, and IV only
E)I, II, III, and IV

Question 15

Which one of the following statements concerning interest rates is correct?

A)The stated rate is the same as the effective annual rate.
B)An effective annual rate is the rate that applies if interest were charged annually.
C)The annual percentage rate increases as the number of compounding periods per year increases.
D)Banks prefer more frequent compounding on their savings accounts.
E)For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.

Question 16

An annuity stream where the payments occur forever is called a(n):

A)annuity due.
B)indemnity.
C)perpetuity.
D)amortized cash flow stream.
E)amortization table.

Question 17

Discounting cash flows involves

A)taking the cash discount offered on trade merchandise.
B)estimating only the cash flows that occur in the first 4 years of a project.
C)discounting all expected future cash flows to reflect the time value of money.
D)multiplying expected future cash flows by the cost of capital.
E)discounting only those cash flows that occur at least 10 years in the future.

Question 18

An annuity stream of cash flow payments is a set of:

A)level cash flows occurring each time period for a fixed length of time.
B)level cash flows occurring each time period forever.
C)increasing cash flows occurring each time period for a fixed length of time.
D)increasing cash flows occurring each time period forever.
E)arbitrary cash flows occurring each time period for no more than 10 years.

Question 19

The time value of money concept can be defined as:

A)the relationship between the supply and demand of money.
B)the relationship between money spent versus money received.
C)the relationship between a dollar to be received in the future and a dollar today.
D)the relationship of interest rate stated and amount paid.
E)None of the above.

Question 20

The stated rate of interest is 10%.Which form of compounding will give the highest effective rate of interest?

A)Continuous compounding.
B)Annual compounding.
C)Daily compounding.
D)Monthly compounding.
E)It is impossible to tell without knowing the term of the loan.

Question 21

Your parents are giving you $100 a month for four years while you are in college.At a 6% discount rate,what are these payments worth to you when you first start college?

A)$3,797.40
B)$4,167.09
C)$4,198.79
D)$4,258.03
E)$4,279.32

Question 22

Your employer contributes $20 a week to your retirement plan.Assume that you work for your employer for another twenty years and that the applicable discount rate is 5 percent.Given these assumptions,what is this employee benefit worth to you today?

A)$13,144.43
B)$15,920.55
C)$16,430.54
D)$16,446.34
E)$16,519.02

Question 23

You need some money today and the only friend you have that has any is your 'miserly' friend.He agrees to loan you the money you need,if you make payments of $20 a month for the next six months.In keeping with his reputation,he requires that the first payment be paid today.He also charges you 1.5% interest per month.How much money are you borrowing?

A)$113.94
B)$115.65
C)$119.34
D)$119.63
E)$119.96

Question 24

Bradley Snapp has deposited $7,000 in a guaranteed investment account with a promised rate of 6% compounded annually.He plans to leave it there for 4 full years when he will make a down payment on a car after graduation.How much of a down payment will he be able to make?

A)$1,960.00
B)$2,175.57
C)$8,960.00
D)$8,837.34
E)$9,175.57

Question 25

You are the beneficiary of a life insurance policy.The insurance company informs you that you have two options for receiving the insurance proceeds.You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years.You can earn 6.5% on your money.Which option should you take and why?

A)You should accept the payments because they are worth $56,451.91 today.
B)You should accept the payments because they are worth $56,523.74 today.
C)You should accept the payments because they are worth $56,737.08 today.
D)You should accept the $50,000 because the payments are only worth $47,757.69 today.
E)You should accept the $50,000 because the payments are only worth $47,808.17 today.

Question 26

If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compound interest at 7.5% for three years which one will pay more and by how much?

A)Simple interest by $50.00
B)Compound interest by $22.97
C)Compound interest by $150.75
D)Compound interest by $150.00
E)None of the above.

Question 27

You are comparing two annuities with equal present values.The applicable discount rate is 7.5 percent.One annuity pays $6,000 on the first day of each year for twenty years.How much does the second annuity pay each year for twenty years if it pays at the end of each year?

A)$5,651
B)$6,075
C)$6,450
D)$7,375
E)$7,405

Question 28

Todd is able to pay $175 a month for five years for a car.If the interest rate is 4.9 percent,how much can Todd afford to borrow to buy a car?

A)$6,961.36
B)$8,499.13
C)$8,533.84
D)$8,686.82
E)$9,295.92

Question 29

The Ajax Company just decided to save $2,500 a month for the next five years as a safety net for recessionary periods.The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly.It deposits the first $2,500 today.If the company had wanted to deposit an equivalent lump sum today,how much would it have had to deposit?

A)$134,964.59
B)$135,189.29
C)$137,428.87
D)$138,648.81
E)$139,998.01

Question 30

You just won the lottery! As your prize you will receive $1,500 a month for 100 months.If you can earn 8% on your money,what is this prize worth to you today?

A)$87,003.69
B)$87,380.23
C)$87,962.77
D)$98,104.26
E)$109,225,29

Question 31

What is the future value of $2,400 a year for three years at an 8% rate of interest?

A)$6,185.03
B)$6,847.26
C)$7,134.16
D)$7,791.36
E)$8,414.67

Question 32

What is the future value of $1,000 a year for five years at a 6% rate of interest?

A)$4,212.36
B)$5,075.69
C)$5,637.09
D)$6,001.38
E)$6,801.91

Question 33

Toni adds $5,000 to her savings on the first day of each year.Tim adds $5,000 to his savings on the last day of each year.They both earn a 9% rate of return.What is the difference in their savings account balances at the end of thirty years?

A)$55,822.73
B)$56,803.03
C)$58,911.21
D)$61,338.40
E)$65,115.27

Question 34

Janet plans on saving $3,000 a year and expects to earn 8.5 percent.How much will Janet have at the end of twenty-five years if she earns what she expects?

A)$219,317.82
B)$230,702.57
C)$236,003.38
D)$244,868.92
E)$256,063.66

Question 35

You are scheduled to receive annual payments of $10,000 for each of the next 25 years.Your discount rate is 8.5 percent.What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

A)$8,699
B)$9,217
C)$9,706
D)$10,000
E)$10,850

Question 36

Find the present value of $5,325 to be received in one period if the rate is 6.5%.

A)$5,000.00
B)$5,023.58
C)$5,644.50
D)$5,671.13
E)None of the above.

Question 37

Martha receives $100 on the first of each month.Stewart receives $100 on the last day of each month.Both Martha and Stewart will receive payments for five years.At an 8% discount rate,what is the difference in the present value of these two sets of payments?

A)$32.88
B)$40.00
C)$99.01
D)$108.00
E)$112.50

Question 38

You borrow $5,600 to buy a car.The terms of the loan call for monthly payments for four years at a 5.9% rate of interest.What is the amount of each payment?

A)$103.22
B)$103.73
C)$130.62
D)$131.26
E)$133.04

Question 39

You buy an annuity which will pay you $12,000 a year for ten years.The payments are paid on the first day of each year.What is the value of this annuity today at a 7% discount rate?

A)$84,282.98
B)$87,138.04
C)$90,182.79
D)$96,191.91
E)$116,916.21

Question 40

You have a sub-contracting job with a local manufacturing firm.Your agreement calls for annual payments of $50,000 for the next five years.At a discount rate of 12 percent,what is this job worth to you today?

A)$180,238.81
B)$201,867.47
C)$210,618.19
D)$223,162.58
E)$224,267.10

Question 41

The Good Life Insurance Co.wants to sell you an annuity that will pay you $1,000 per quarter for 25 years.You want to earn a minimum rate of return of 5.5 percent.What is the most you are willing to pay as a lump sum today to buy this annuity?

A)$54,165.88
B)$57,082.94
C)$57,455.33
D)$58,450.67
E)$58,806.30

Question 42

Your great-aunt left you an inheritance in the form of a trust.The trust agreement states that you are to receive $2,000 on the first day of each year,starting immediately and continuing for fifty years.What is the value of this inheritance today if the applicable discount rate is 6.35 percent?

A)$29,811.30
B)$30,557.52
C)$31,953.94
D)$32,942.42
E)$34,006.09

Question 43

The Bad Guys Company is notoriously known as a slow-payer.It currently needs to borrow $25,000 and only one company will even deal with Bad Guys.The terms of the loan call for daily payments of $30.76.The first payment is due today.The interest rate is 21% compounded daily.What is the time period of this loan?

A)2.88 years
B)2.94 years
C)3.00 years
D)3.13 years
E)3.25 years

Question 44

The McDonald Group purchased a piece of property for $1.2 million.It paid a down payment of 25% in cash and financed the balance.The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly.What is the amount of each mortgage payment?

A)$7,440.01
B)$7,978.26
C)$8,036.25
D)$8,399.18
E)$8,471.48

Question 45

Winston Enterprises would like to buy some additional land and build a new factory.The anticipated total cost is $136 million.The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project.Management has decided to save $450,000 a month for this purpose.The firm earns 6% compounded monthly on the funds it saves.How long does the company have to wait before expanding its operations?

A)184.61 months
B)199.97 months
C)234.34 months
D)284.61 months
E)299.97 months

Question 46

Your car dealer is willing to lease you a new car for $399 a month for 60 months.Payments are due on the first day of each month starting with the day you sign the lease contract.If your cost of money is 4.9 percent,what is the current value of the lease?

A)$17,882.75
B)$18,906.14
C)$19,947.61
D)$21,281.25
E)$23,289.54

Question 47

You have been investing $120 a month for the last 15 years.Today,your investment account is worth $47,341.19.What is your average rate of return on your investments?

A)9.34%
B)9.37%
C)9.40%
D)9.42%
E)9.46%

Question 48

Today is January 1.Starting today,Sam is going to contribute $150 on the first of each month to his retirement account.His employer contributes an additional 50% of the amount contributed by Sam.If both Sam and his employer continue to do this and Sam can earn a monthly rate of ½ of 1 percent,how much will he have in his retirement account 35 years from now?

A)$199,45.944.
B)$200,456.74
C)$249,981.21
D)$299,189.16
E)$322,162.61

Question 49

The Robertson Firm is considering a project that costs $135,500 to undertake.The project will yield cash flows of $5,894.35 monthly for 30 months.What is the rate of return on this project?

A)21.53%
B)22.44%
C)23.59%
D)21.74%
E)26.59%

Question 50

You borrow $149,000 to buy a house.The mortgage rate is 7.5% and the loan period is 30 years.Payments are made monthly.If you pay for the house according to the loan agreement,how much total interest will you pay?

A)$138,086
B)$218,161
C)$226,059
D)$287,086
E)$375,059

Question 51

Beatrice invests $2,000 in an account that pays 5% simple interest.How much more could she have earned over a five-year period if the interest had compounded annually?

A)$45.45
B)$45.97
C)$46.65
D)$52.56
E)$61.67

Question 52

You estimate that you will have $34,500 in student loans by the time you graduate.The interest rate is 6.5 percent.If you want to have this debt paid in full within five years,how much must you pay each month?

A)$671.30
B)$673.65
C)$675.03
D)$679.37
E)$680.40

Question 53

Your insurance agent is trying to sell you an annuity that costs $200,000 today.By buying this annuity,your agent promises that you will receive payments of $835.88 a month for the next 40 years.What is the rate of return on this investment?

A)3.95%
B)4.00%
C)4.15%
D)4.22%
E)4.55%

Question 54

Today,you are retiring.You have a total of $413,926 in your retirement savings and have the funds invested such that you expect to earn an average of 3 percent,compounded monthly,on this money throughout your retirement years.You want to withdraw $2,500 at the beginning of every month,starting today.How long will it be until you run out of money?

A)185.00 months
B)213.29 months
C)227.08 months
D)236.84 months
E)249.69 months

Question 55

The Great Giant Corp.has a management contract with its newly hired president.The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service.The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow.The company can earn 6.5% on these funds.How much must the company set aside each year for this purpose?

A)$1,775,042.93
B)$1,798,346.17
C)$1,801,033.67
D)$1,852,617.25
E)$1,938,018.22

Question 56

Your firm wants to save $250,000 to buy some new equipment three years from now.The plan is to set aside an equal amount of money on the first day of each year starting today.The firm can earn a 4.7% rate of return.How much does the firm have to save each year to achieve its goal?

A)$75,966.14
B)$76,896.16
C)$78,004.67
D)$81.414.14
E)$83,333.33

Question 57

You retire at age 60 and expect to live another 27 years.On the day you retire,you have $464,900 in your retirement savings account.You are conservative and expect to earn 4.5% on your money during your retirement.How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?

A)$2,001.96
B)$2,092.05
C)$2,398.17
D)$2,472.00
E)$2,481.27

Question 58

You are considering an annuity that costs $100,000 today.The annuity pays $6,000 a year.The rate of return is 4.5 percent.What is the length of the annuity time period?

A)24.96 years
B)29.48 years
C)31.49 years
D)33.08 years
E)38.00 years

Question 59

You are buying a previously owned car today at a price of $8,125.You are paying $600 down in cash and financing the balance for 36 months at 7.9 percent.What is the amount of each loan payment?

A)$198.64
B)$199.94
C)$202.02
D)$214.78
E)$235.46

Question 60

Today,you signed loan papers agreeing to borrow $4,954.85 at 9% compounded monthly.The loan payment is $143.84 a month.How many loan payments must you make before the loan is paid in full?

A)29.89
B)36.00
C)38.88
D)40.00
E)41.03

Question 61

Your mother helped you start saving $25 a month beginning on your 10^th birthday.She always made you make your deposit on the first day of each month just to "start the month out right." Today,you turn 21 and have $4,482.66 in your account.What is your rate of return on your savings?

A)5.25%
B)5.29%
C)5.33%
D)5.36%
E)5.50%

Question 62

What is the future value of the following cash flows at the end of year 3 if the interest rate is 7.25 percent? The cash flows occur at the end of each year.

A)$10,758.04
B)$10,806.39
C)$11,073.99
D)$11,146.49
E)$11,804.36

Question 63

You are considering a project with the following cash flows: What is the present value of these cash flows,given an 11% discount rate?

A)$8,695.61
B)$8,700.89
C)$13,732.41
D)$13,812.03
E)$19,928.16

Question 64

George Jefferson established a trust fund that provides $150,000 in scholarships each year for worthy students.The trust fund earns a 4.25% rate of return.How much money did Mr.Jefferson contribute to the fund assuming that only the interest income is distributed?

A)$3,291,613.13
B)$3,529,411.77
C)$3,750,000.00
D)$4,328,970.44
E)$6,375,000.00

Question 65

You are considering two insurance settlement offers.The first offer includes annual payments of $5,000,$7,500,and $10,000 over the next three years,respectively.The other offer is the payment of one lump sum amount today.You are trying to decide which offer to accept given the fact that your discount rate is 5 percent.What is the minimum amount that you will accept today if you are to select the lump sum offer?

A)$19,877.67
B)$20,203.00
C)$21,213.15
D)$23,387.50
E)$24,556.88

Question 66

You are considering a job offer.The job offers an annual salary of $52,000,$55,000,and $60,000 a year for the next three years,respectively.The offer also includes a starting bonus of $2,000 payable immediately.What is this offer worth to you today at a discount rate of 6 percent?

A)$148,283.56
B)$148,383.56
C)$150,283.56
D)$150,383.56
E)$152,983.56

Question 67

You are considering two savings options.Both options offer a 4% rate of return.The first option is to save $1,200,$1,500,and $2,000 a year over the next three years,respectively.The other option is to save one lump sum amount today.If you want to have the same balance in your savings at the end of the three years,regardless of the savings method you select,how much do you need to save today if you select the lump sum option?

A)$4,318.67
B)$4,491.42
C)$4,551.78
D)$4,607.23
E)$4,857.92

Question 68

Marko,Inc.is considering the purchase of ABC Company.Marko believes that ABC Co.can generate cash flows of $6,000,$9,000,and $16,000 over the next three years,respectively.After that time,management feels ABC will be worthless.Marko has determined that a 14% rate of return is applicable to this potential purchase.What is Marko willing to pay today to buy ABC Co.?

A)$19,201.76
B)$21,435.74
C)$22,987.91
D)$27,808.17
E)$31,758.00

Question 69

Suzette is going to receive $10,000 today as the result of an insurance settlement.In addition,she will receive $15,000 one year from today and $25,000 two years from today.She plans on saving all of this money and investing it for her retirement.If Suzette can earn an average of 11% on her investments,how much will she have in her account if she retires 25 years from today?

A)$536,124.93
B)$541,414.14
C)$546,072.91
D)$570,008.77
E)$595,098.67

Question 70

What is the future value of the following cash flows at the end of year 3 if the interest rate is 6 percent? The cash flows occur at the end of each year.

A)$15,916.78
B)$18,109.08
C)$18,246.25
D)$19,341.02
E)$19,608.07

Question 71

What is the future value of the following cash flows at the end of year 3 if the interest rate is 9 percent? The cash flows occur at the end of each year.

A)$15,213.80
B)$15,619.70
C)$15,916.78
D)$16,177.14
E)$17,365.24

Question 72

You are considering a project with the following cash flows: What is the present value of these cash flows,given a 9% discount rate?

A)$4,713.62
B)$4,855.27
C)$5,103.18
D)$5,292.25
E)$6,853.61

Question 73

Brinker,Inc.has been investing $156,000 a year for the past 4 years into a business venture.Today,Brinker sold that venture for $825,000.What is its rate of return on this venture?

A)9.43%
B)11.06%
C)15.59%
D)16.67%
E)18.96%

Question 74

You are considering a project with the following cash flows:
Year 1 Year 2 Year 3
$4,200 $5,000 $5,400
What is the present value of these cash flows,given a 3% discount rate?

A)$13,732.41
B)$13,812.03
C)$14,308.08
D)$14,941.76
E)$14,987.69

Question 75

You have some property for sale and have received two offers.The first offer is for $189,000 today in cash.The second offer is the payment of $100,000 today and an additional $100,000 two years from today.If the applicable discount rate is 8.75 percent,which offer should you accept and why?

A)You should accept the $189,000 today because it has the higher net present value.
B)You should accept the $189,000 today because it has the lower future value.
C)You should accept the second offer because you will receive $200,000 total.
D)You should accept the second offer because you will receive an extra $11,000.
E)You should accept the second offer because it has a present value of $194,555.42.

Question 76

One year ago,the Jenkins Family Fun Center deposited $3,600 in an investment account for the purpose of buying new equipment four years from today.Today,it is adding another $5,000 to this account.It plans on making a final deposit of $7,500 to the account next year.How much will be available when it is ready to buy the equipment,assuming it earns a 7% rate of return?

A)$18,159.65
B)$19,430.84
C)$19,683.25
D)$20,194.54
E)$20,790.99

Question 77

The government has imposed a fine on the Imperial Company.The fine calls for annual payments of $100,000,$250,000,and $250,000,respectively over the next three years.The first payment is due one year from today.The government plans to invest the funds until the final payment is collected and then donate the entire amount,including investment earnings,to a national health center.The government will earn 3.5% on the funds held.How much will the national health center receive three years from today?

A)$613,590.00
B)$614,622.50
C)$615,872.50
D)$616,006.00
E)$619,050.05

Question 78

Today,you turn 21.Your birthday wish is that you will be a millionaire by your 40^th birthday.In an attempt to reach this goal,you decide to save $20 a day,every day until you turn 40.You open an investment account and deposit your first $20 today.What rate of return must you earn to achieve your goal?

A)16.07%
B)16.13%
C)16.17%
D)16.70%
E)17.24%

Question 79

Your local travel agent is advertising an extravagant global vacation.The package deal requires that you pay $5,000 today,$15,000 one year from today,and a final payment of $25,000 on the day you leave two years from today.What is the cost of this vacation in today's dollars if the discount rate is 6 percent?

A)$39,057.41
B)$41,400.85
C)$43,082.39
D)$44,414.14
E)$46,518.00

Question 80

The Bluebird Company has a $12,000 liability it must pay three years from today.The company is opening a savings account so that the entire amount will be available when this debt needs to be paid.The plan is to make an initial deposit today and then deposit an additional $3,500 a year for the next three years,starting one year from today.The account pays a 3% rate of return.How much does the Bluebird Company need to deposit today?

A)$867.74
B)$1,081.56
C)$1,108.09
D)$1,276.34
E)$1,642.28