Question 1

Marla borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments.The actual end of year payment is: (Round to the nearest whole dollar)

Accepted Answer

A)  $942 
B)  $1,125 
C)  $1,482 
D)  $2,641

Question 2

The present value of $100 received at the end of year 1,$200 received at the end of year 2,and $300 received at the end of year 3,assuming an opportunity cost of 13 percent is: (Round to the nearest whole dollar)

Accepted Answer

A)  $453 
B)  $416 
C)  $1,181 
D)  $500

Question 3

You have the opportunity to buy a perpetuity which pays $1,000 annually.Your required rate of return on this investment is 15 percent.You should be essentially indifferent to buying or not buying the investment if it were offered at a price of:

Accepted Answer

A)  $5,000.00 
B)  $6,000.00 
C)  $6,666.67 
D)  $7,500.00 
E)  $8,728.50

Question 4

Gina has planned to start college education in four years from now.To pay for her college education,she has decided to save $1,000 a quarter for the next four years in a bank account paying 12 percent interest (compounded quarterly).How much will she have at the end of fourth year? (Round to the nearest whole dollar)

Accepted Answer

A)  $1,574 
B)  $19,116 
C)  $20,157 
D)  $16,000

Question 5

An ordinary annuity may be defined as:

Accepted Answer

A)  A series of equal payments made at regular intervals that are paid at the beginning of each period. 
B)  A series of payments, which may or may not be equal in value, that are received at regular intervals at the end of each period. 
C)  A series of equal payments made any time over the course of a year, extending for a period of several years. 
D)  Any series of payments that occur in the future. 
E)  A series of equal payments made at regular intervals that are received at the end of each period.

Question 6

You borrow $42,500 over a nine year term.Your bank charges an annual rate of 10%.If the loan is repayable in equal end-of-period,annual payments,then what is the loan payment?

Accepted Answer

A)  $7,379.72 
B)  $7,966.37 
C)  $6,916.68 
D)  $6,641.75 
E)  $8,117.70

Question 7

James plans to fund his individual retirement account,beginning today,with annual deposits of $2,000,which he will continue for the next 20 years.If he can earn an annual compound rate of 8 percent on his deposits,the amount in the account upon retirement would be: (Round to the nearest whole dollar)

Accepted Answer

A)  $19,636 
B)  $91,524 
C)  $98,846 
D)  $21,207

Question 8

John wants to have $6,215 in 13 years to buy a Laser 2 sailboat with a spinnaker and trapeze.After he has owned the boat for 15 years he will need $2,500 for hull maintenance.How much must he deposit at the end of each year for the next 13 years to save enough money for the purchase and maintenance? His savings account pays 9%.

Accepted Answer

A)  $300.67 
B)  $267.61 
C)  $213.02 
D)  $270.77 
E)  $211.68

Question 9

You are considering the purchase of a BMW M5.You will borrow the money from BMW Financial Services.The terms of the deal are outlined below.
BMW M5
RWD,500hp,0-100 in 4.7s
PRICE = $80,000
Term = 36 months
I = 4.0%
Down Payment = $0
Monthly Payments (end-of-month)= $2,361.92
How much interest does the borrower pay over the term of the loan? In other words,how much of the blended loan payments is interest?

Accepted Answer

A)  $5,029.08 
B)  $3,401.17 
C)  $3,200.00 
D)  $5,561.92 
E)  $5,763.09

Question 10

Molly,president of Molly's Muffins,is considering franchising.She has a potential franchise agreement that would see her receive payments of $28,000,$24,000,and $20,000 at the end of years 1,2,and 3 respectively,and then $12,000 per year after that for 17 years.If Molly requires a return of 10%,then what is the present value of this stream of cash flows? (Round answer to the nearest whole dollar)

Accepted Answer

A)  $132,636 
B)  $145,900 
C)  $143,354 
D)  $156,574 
E)  $124,440

Question 11

You have just take out a 30-year,$120,000 mortgage on your new home.This mortgage is to be repaid in 360 equal end-of-month installments.If each of the monthly installments is $1,500,what is the effective annual interest rate on this mortgage?

Accepted Answer

A)  15.87% 
B)  14.75% 
C)  13.38% 
D)  16.25% 
E)  16.49%

Question 12

Starting one month from now,you would like to withdraw $200 per month from your bank account to pay for your university education.You expect the education (and the withdrawals)to last for the next four years.If the account pays 0.3% interest per month,how much money must you have in your bank account today to support your future needs?

Accepted Answer

A)  $8,928.37 
B)  $7,157.02 
C)  $6,711.11 
D)  $8,794.50 
E)  $7,263.00

Question 13

What is the present value of a 5-year ordinary annuity with annual payments of $200,evaluated at a 15 percent interest rate?

Accepted Answer

A)  $670.43 
B)  $842.41 
C)  $1,169.56 
D)  $1,348.48 
E)  $1,522.64

Question 14

The present value of an ordinary annuity of $350 each year for five years,assuming an opportunity cost of 4 percent,is: (Round to the nearest whole dollar)

Accepted Answer

A)  $288 
B)  $1,896 
C)  $1,750 
D)  $1,558

Question 15

South Penn Tracking is financing a new truck with a loan of $10,000 to be repaid in 5 annual end-of-year installments of $2,504.56.What annual interest rate is the company paying?

Accepted Answer

A)  7% 
B)  8% 
C)  9% 
D)  10% 
E)  11%

Question 16

You expect to receive $800 at the end of each of the next twenty years.What is the present value of the stream of payments if the interest rate is 6%?

Accepted Answer

A)  $9,175.94 
B)  $9,411.26 
C)  $9,305.38 
D)  $9,687.79 
E)  $9,550.30

Question 17

You are late paying a bill for $11,200.66.You have made arrangements to pay off the bill in installments of $260 per month,and you will be charged monthly interest of 1.2% on the balance owing.How long will it take you to pay off the account balance? (round your answer to nearest month)

Accepted Answer

A)  61 months 
B)  60 months 
C)  62 months 
D)  63 months 
E)  64 months

Question 18

You just took out a $12,000 loan for your small business.The loan has a four year term and repayment is in the form of four equal end-of-year payments.The interest rate on the loan is 11.5%.Consider the final loan payment.How much interest do you pay in the final payment?

Accepted Answer

A)  $1,380.00 
B)  $1,089.13 
C)  $764.81 
D)  $403.20 
E)  $350.61

Question 19

You just took out a $12,000 loan for your small business.The loan has a four year term and repayment is in the form of four equal end-of-year payments.The interest rate on the loan is 11.5%.What is your total interest expense in the first year of the loan?

Accepted Answer

A)  $1,380.00 
B)  $1,089.13 
C)  $764.81 
D)  $403.20 
E)  $2,529.29

Question 20

A Silver Hummer H3 sells for $98,000 tax included.GMAC lends money at the rate of 6.9% APR.You are at the beginning of the fourth year of a seven year term.You are making monthly payments on the loan.How much interest do you pay in the first month of the fourth year of the loan?

Accepted Answer

A)  $354.70 
B)  $359.81 
C)  $395.62 
D)  $371.08 
E)  $362.44

Exam 4: Time Value of Money - Streams and Valuations