Question 1

Jasmine has decided that she wants to build enough retirement wealth that,if invested at 6 percent per year,will provide her with $3,000 of monthly income for 30 years.To date,she has saved nothing but she still has 25 years until she retires.Jasmine believes that she can earn 9 percent on her investments until she retires.How much money does she need to contribute per month to reach her goal?

Accepted Answer

A)  $446.32 
B)  $521.84 
C)  $667.13 
D)  $722.05

Question 2

Which of the following will decrease the present value of an annuity?

Accepted Answer

A)  The discount rate increases. 
B)  The discount rate decreases. 
C)  The number of periods the annuity is received increases. 
D)  The final payment increases.

Question 3

Due to poor spending habits,Ricky has accumulated $10,000 in credit card debt.He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card,how long will it take Ricky to pay off the card?

Accepted Answer

A)  121.5 months 
B)  148.50 months 
C)  162.5 months 
D)  Ricky never pays off the card.

Question 4

To compute the present or future value of an annuity due,one computes the value of an ordinary annuity and then

Accepted Answer

A)  multiplies it by (1 + i). 
B)  divides it by (1 + i). 
C)  multiplies it by (1 − i). 
D)  divides it by (1 − i).

Question 5

Due to poor spending habits,Ricky has accumulated $10,000 in credit card debt.He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card,in total,how much interest expense does Ricky pay to the credit card company?

Accepted Answer

A)  $15,987.50 
B)  $17,008.52 
C)  $12,905.13 
D)  $8,714.62

Question 6

A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred).How much would you have to deposit each month in a savings account earning 3.5 percent APR,compounded monthly,to be able to pay the $3,500 bill in three years?

Accepted Answer

A)  $92.35 
B)  $108.13 
C)  $112.86 
D)  $121.97

Question 7

What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

Accepted Answer

A)  $204.17 
B)  $440.80 
C)  $1,197.81 
D)  $1,938.96

Question 8

Hank purchased a $20,000 car two years ago using an 8 percent,5-year loan.He has decided that he would sell the car now,if he could get a price that would pay off the balance of his loan.What is the minimum price Hank would need to receive for his car?

Accepted Answer

A)  $8,000.00 
B)  $12,079.65 
C)  $12,941.12 
D)  $15,133.64

Question 9

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how soon do you pay off your mortgage?

Accepted Answer

A)  329.67 months 
B)  311.56 months 
C)  291.78 months 
D)  288.45 months

Question 10

You are deciding among several different bank accounts.Which of the following will generate the highest effective annual rate (EAR)?

Accepted Answer

A)  a 6 percent rate with monthly compounding 
B)  a 6 percent rate with annual compounding 
C)  a 6.08 percent rate with annual compounding 
D)  a 6 percent rate with quarterly compounding

Question 11

Due to poor spending habits,Ricky has accumulated $5,000 in credit card debt.He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card,in total,how much interest expense does Ricky pay to the credit card company?

Accepted Answer

A)  $847.50 
B)  $1,192.00 
C)  $2,118.75 
D)  $6,192.00

Question 12

Your 30-year $95,000 mortgage calls for payments to be made at the end of each month.The loan has a 5.85 percent annual interest rate.What is the remaining balance after five years?

Accepted Answer

A)  $68,194.73 
B)  $76,903.26 
C)  $81,072.85 
D)  $88,236.17

Question 13

Payday loans are very short-term loans that charge very high interest rates.You can borrow $500 today and repay $550 in two weeks.What is the compound annual rate implied by this 10 percent rate charged for only two weeks?

Accepted Answer

A)  10.50 percent 
B)  12.00 percent 
C)  1091.78 percent 
D)  110.50 percent

Question 14

If the future value of an ordinary,4-year annuity is $1,000 and interest rates are 6 percent,what is the future value of the same annuity due?

Accepted Answer

A)  $943.40 
B)  $1,000.00 
C)  $1,040.00 
D)  $1,060.00

Question 15

Given an 8 percent interest rate,compute the present value of payments made in years 1,2,3,and 4 of $900,$800,$700,and $600.

Accepted Answer

A)  $2,409.33 
B)  $2,515.90 
C)  $2,591.72 
D)  $2,611.38

Question 16

Given a 7 percent interest rate,compute the year 8 future value of deposits made in years 1,2,3,and 4 of $750,$1,200,$500,and $250.

Accepted Answer

A)  $3,801.62 
B)  $3,899.17 
C)  $4,034.20 
D)  $4,167.29

Question 17

After saving diligently your entire career,you and your spouse are ready to retire with a nest egg of $500,000.You need to invest this money in a mix of stocks and bonds that will allow you to earn $4,000 per month for 30 years.What annual interest rate (APR)do you need to earn?

Accepted Answer

A)  6.92 percent 
B)  7.45 percent 
C)  8.94 percent 
D)  9.17 percent

Question 18

Jane has been saving $500 in her retirement account each month for the last 20 years and plans to continue contributing $500 each month for the next 20 years.Her account has been earning an 8 percent annual interest rate and she expects to earn the same rate for the next 20 years.Her twin brother,Hal,has not saved anything for the last 20 years.Due to sibling rivalry,he wants to have as much as Jane is expected to have at the end of 20 years.If Hal expects to earn the same annual interest rate as Jane,how much must Hal save each month to achieve his goal?

Accepted Answer

A)  $1,043.71 
B)  $1,517.92 
C)  $2,007.53 
D)  $2,963.40

Question 19

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment.If you get a 15-year mortgage with a 6 percent interest rate,what are the monthly payments?

Accepted Answer

A)  $997.28 
B)  $1,072.51 
C)  $1,139.21 
D)  $1,238.93

Question 20

If the future value of an ordinary,7-year annuity is $10,000 and interest rates are 4 percent,what is the future value of the same annuity due?

Accepted Answer

A)  $9,615.38 
B)  $10,000.00 
C)  $10,400.00 
D)  $10,700.00

Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows