兹维博迪金融学第二版试题库5TB(1)

1、 -Chapter FiveHousehold Savings and Investment DecisionsThis chapter contains 28 multiple choice questions, 10 short problems, and 9 longer problems.Multiple Choice1. Getting a professional degree can be evaluated as _.a) a social security decisionb) an investment in human capitalc) an investment in

2、 a consumer durabled) a tax exempt decisionAnswer: (b)2. Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%. You are 30 years before your retirement date and invest $10,000 to a tax deferred retirement plan. If you choose to withdraw the total accumulated am

3、ount at retirement, what will you be left with after paying taxes?a) $51,445b) $64,000c) $80,501d) $100,627Answer: (c)3. Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%. You are 30 years before your retirement date and have $10,000 to invest. If you inves

4、t this in an ordinary savings plan instead of a tax deferred retirement plan, what amount will you have accumulated at retirement? a) $51,445b) $64,000c) $80,501d) $100,627Answer: (a)4. When your tax rate remains unchanged, the benefit of tax deferral can be summarized in the rule, “deferral earns y

5、ou _.”a) the after-tax rate of return before taxb) the pretax rate of return after taxc) the after-tax rate of return after taxd) the pretax rate of return before taxAnswer: (b)5. From an economic perspective, professional training should be undertaken if the _ exceeds the _.a) future value of the b

6、enefit; present value of the costsb) present value of the benefits; future value of the costsc) future value of the benefits; future value of the costsd) present value of the benefits; future value of the costsAnswer: (d)6. Suppose you will face a tax rate of 30% before and after retirement. The int

7、erest rate is 6%. You are 35 years before your retirement date and $2,000 to a tax deferred retirement plan. If you choose to withdraw the total accumulated amount at retirement, what will you be left with after paying taxes?a) $7,532b) $10,760c) $12,298d) $15,372Answer: (b)7. Kecia is currently thi

8、rty years old and she plans to retire at age sixty. She is expected to live to age eighty-five. Her labor income is $45,000 per year and she intends to maintain a constant level of real consumption spending over the next fifty-five years. Assuming a real interest rate of 4% per year, no taxes, and n

9、o growth in real labor income, what is the value of Kecias human capital?a) $31,797b) $35,196c) $778,141d) $994,888Answer: (c)8. Kecia is currently thirty years old and she plans to retire at age sixty. She is expected to live to age eighty-five. Her labor income is $45,000 per year and she intends

10、to maintain a constant level of real consumption spending over the next fifty-five years. Assuming a real interest rate of 4% per year, no taxes, and no growth in real labor income, what is the value of Kecias permanent income?a) $31,797b) $35,196c) $778,141d) $994,888Answer: (b)9. Oscar is currentl

11、y thirty-five year old, plans to retire at age sixty-five, and to live to age eighty-five. His labor income is $40,000 per year, and he intends to maintain a constant level of real consumption spending over the next fifty years. Assuming a real interest rate of 4% per year, no taxes, and no growth i

12、n real labor income, what is the value of Oscars human capital?a) $884,344b) $691,681c) $39,999d) $32,198Answer: (b)10. Oscar is currently thirty-five year old, plans to retire at age sixty-five, and to live to age eighty-five. His labor income is $40,000 per year, and he intends to maintain a const

13、ant level of real consumption spending over the next fifty years. Assuming a real interest rate of 4% per year, no taxes, and no growth in real labor income, what is the value of Oscars permanent income?a) $884,344b) $691,681c) $39,999d) $32,198Answer: (d)11. You are currently renting a house for $1

14、2,000 per year, and you also have an option to buy it for $240,000. Maintenance and property taxes are estimated to be $4,320, and these costs are included in your rent. Property taxes ($2,880 of the $4,320) are deductible for income tax purposes. Your tax rate is 35%. You wish to provide yourself w

15、ith housing at the lowest present value of cost. If the real after-tax rate is 2.52%, should you rent or buy?a) rent the house; the PV cost of renting is $476,190b) rent the house; the PV cost of renting is $309,524c) buy the house; the PV cost of owning is $442,198d) buy the house; the PV cost of o

16、wning is $371,429Answer: (d)12. You are currently renting a house for $12,000 per year and you also have an option to buy it for $240,000. Maintenance and property taxes are estimated to be $4,320, and these costs are included in your rent. Property taxes ($2,880 of the $4,320) are deductible for in

17、come tax purposes. Your tax rate is 35%. You wish to provide yourself with housing at the lowest present value of cost. The real after-tax rate is 2.52%. What is the break-even rent?a) $6,048b) $9,360c) $10,128d) $12,302Answer: (b)13. As one gets older, the _ declines, so _ falls steadily until it r

18、eaches zero at age 65.a) future value of remaining labor income; human capitalb) future value of remaining labor income; initial wealthc) present value of remaining labor income; human capitald) present value of initial wealth; optimizationAnswer: (c)14. Any lifetime consumption spending plan that s

19、atisfies your budget constraint is:a) an optimal modelb) a feasible planc) a model benefitd) a target replacementAnswer: (b)15. There is an advantage to tax deferred retirement savings plans for those _ when the money is withdrawn.a) who will be in a lower tax bracketb) who will be in the same tax b

20、racketc) both (a) and (b)d) neither (a) nor (b)Answer: (c)16. In the United States, individual retirement accounts (IRAs) are called _ rather than _ because any amounts withdrawn from the plan are taxed at the time of withdrawal.a) tax advantaged; tax deferredb) tax deferred; tax exemptc) tax advant

21、aged; tax loopholesd) tax exempt; tax deferredAnswer: (b)17. The present value of ones future labor income is called _ and the constant level of consumption spending that has a present value equal to ones human capital is called _.a) human income; taxable incomeb) human capital; permanent incomec) p

22、ermanent capital; taxable incomed) permanent income; human capitalAnswer: (b)18. The _ the interest rate, the _ the value of human capital, but the higher the level of permanent income.a) lower; lowerb) higher; lowerc) higher; higherd) lower; higherAnswer: (b)19. The _ states that the present value

23、of ones lifetime consumption spending and bequests equals the present value of ones initial wealth and future labor income.a) consumption budget constraintb) spending constraintc) intertemporal budget constraintd) income and spending constraintAnswer: (c)20. According to the text, many experts recom

24、mend that in making a savings plan one should aim for a replacement rate of _ of pre-retirement income.a) 100%b) 25%c) 50%d) 75%Answer: (d)21. Economic costs that are said to be explicit costs include items such as _.a) tuitionb) foregone rentc) foregone earningsd) all of the aboveAnswer: (a)22. Eco

25、nomic costs that are said to be implicit costs include items such as _.a) tuitionb) administrative fees while undertaking a professional degreec) foregone earningsd) all of the aboveAnswer: (c)23. In making lifetime saving/consumption decisions it is considered simpler to do the analysis _.a) in nom

26、inal termsb) in inflationary termsc) in perpetual termsd) in real termsAnswer: (d)24. In terms of a lifetime saving/consumption decision such as buying or renting an apartment or a consumer durable, the alternative you should choose is _.a) the one with the lower present value of benefitsb) the one

27、with the lower present value of costsc) the one with the higher present value of costsd) the one with the lower present value of benefits and the higher present costsAnswer: (b)25. Among the approaches you can use for saving for your retirement is/are _.a) aiming to maintain the same level of consum

28、ption spending before and after retirementb) aiming for a target replacement rate of incomec) bypassing graduate school and continuing to consume at the same leveld) (a) and (b)Answer: (d)26. In the equation known as the intertemporal budget constraint, _.a) the present value of lifetime consumption

29、 spending equals the present value of bequestsb) the present value of lifetime consumption spending and bequests equals the present value of lifetime resourcesc) the present value of lifetime consumption spending equals the future value of labor incomed) the future value of lifetime consumption spen

30、ding equals the present value of labor incomeAnswer: (b)27. Salman is currently twenty-five years old and plans to live to age eighty. His labor income is $75,000 per year and he plans to maintain a constant level of real consumption spending over the next fifty-five years. Salman plans to retire at

31、 age 60. Assume the real interest rate is 5% per year and there are no taxes and no growth in real labor income. What is the value of Salmans permanent income?a) $75,000b) $65,906c) $85,348d) $1,228,064Answer: (b)28. You are currently renting a house for $25,800 a year and you have an option to buy

32、it for $350,000. Maintenance and property taxes are $6,150 per year and these costs are included in your rent. Property taxes ($4,150 of the $6,150) are deductible for income tax purposes. Your tax rate is 35%. The real after-tax rate is 3.5%. What is the break-even rent?a) $16,770.00b) $16,947.50c)

33、 $21,102.46d) $24,927.54Answer: (b)Short Problems1. You are currently renting a house for $17,000 a year and you also have an option to buy it for $300,000. Maintenance and property taxes are $5,040 per year and these costs are included in your rent. Property taxes ($3,360 of the $5,040) are deducti

34、ble for income tax purposes. Your tax rate is 40%. You wish to provide yourself with housing at the lowest present value of cost. The real after-tax rate is 3.1% per year. Should you rent or buy? What is the break-even rent?Answer:After-tax outflow for property taxes each year is 0.6 x $3,360 = $2,0

35、16Cash outflow in year t = $1,680 + $2,016 = $3,696PV cost of owning = $300,000 + $3,696/i = $300,000 + $3696/0.031 = $419,226PV cost of renting = $17,000/i = $17,000/0.031 = $548,387You would be better off buying the house.Break-even rent:X/0.031 = $300,000 +$3,696/0.031X = $12,996The break-even re

36、nt is $12,996.So if the rent is less than $12,996 per year, you would prefer to keep renting.2. You are currently renting a house for $16,000 a year and you also have an option to buy it for $250,000. Property taxes and maintenance care is $5,000 per year, and these costs are included in your rent.

37、Property taxes ($3,200 of the $5,000) are deductible for income tax purposes. Your tax rate is 40%. You wish to provide yourself with housing at the lowest present value of cost. The real before-tax discount rate is 3.5% per year. Should you rent or buy? What is the break-even rate?Answer:Real after

38、-tax rate = 0.6 x 0.035 = 0.021After-tax cash outflow for property taxes each year is 0.6 x $3,200 = $1,920Cash outflow for year t = $1,800 + $1,920 = $3,720PV cost of owning = $250,000 + $3,720/i = $250,000 + $3,720/0.021 = $427,143PV cost of renting = $16,000/i = $16,000/0.021 = $761,905You would

39、be better off buying the house.To find the break-even rent:X/0.021 = $250,000 + $3,720/0.021X = $8,970So if the rent is less than $8,970 per year, you would be better off renting.3. Kieran is currently twenty-five years old, plans to retire at age sixty, and to live to age eighty. His labor income i

40、s $45,000 per year, and he intends to maintain a constant level of real consumption spending over the next fifty-five years. Assuming a real interest rate of 3%, no taxes, and no growth in real labor income, what is the value of Kierans human capital? What is the value of Kierans permanent income?An

41、swer:niPVFVPMTResult353?045,000PV = $966,925niPVFVPMTResult553$966,9250?PMT = $36,114The value of Kierans human capital is $966,925.The value of Kierans permanent income is $36,114.4. Mariana is currently thirty years old, plans to retire at age seventy and to live to age ninety. Her labor income is

42、 $60,000 per year, and she intends to maintain a constant level of real consumption spending over the next sixty years. Assuming a real interest rate of 4% per year, no taxes and no growth in real labor income, what is the value of Marianas human capital? What is the value of Marianas permanent inco

43、me?Answer:niPVFVPMTResult 404?060,000PV = $1,187,566nIPVFVPMTResult604$1,187,5660?PMT = $52,493The value of Marianas human capital is $1,187,566.The value of Marianas permanent income is $52,493.5. Your employer, Novocastrian Films, has agreed to make 60 quarterly payments of $1,000 each into a trus

44、t account to fund your early retirement. The first payment will be made 3 months from now. At the end of 15 years (60 payments), you will be paid 15 equal annual payments, with the first receipt to be made at the beginning of Year 16 (or the end of Year 15). The funds will be invested at a nominal r

45、ate of 10.0%, quarterly compounding, during both the accumulation and the distribution periods. How large will each of your 15 receipts be? Answer:First determine the effective annual rate:EFF = (1 + 0.10/4)4 1 = 10.38%Next, determine amount at end of year 15NIPMTResult_ 1510.38$4000FV = $130,983.39

46、At the end of year 15, there will be $130,983.39 in your retirement account.Since you will be making withdrawals at the beginning of each year, PV = $130,983/(1 + i), or $118,625.10.NIPVResult_ 1510.38-$118,625.10PMT = $15,935.89Each of the receipts will be $15,935.896. Mr. Palin has received a job

47、offer from a large investment bank as an assistant to the vice president and Mr. Palins base salary will be $90,000. In addition, he will receive his first annual salary payment one year from the day he begins work. He will also get an immediate $45,000 bonus for joining the company and his salary w

48、ill grow at 8 percent each year. Mr. Palin is expected to work for 20 years. What is the present value of the offer if the appropriate discount rate is 11 percent?Answer:Simplest approach is to set up a spreadsheet like:YearPMTPV11%045,00045,000190,00081,081.08297,20078,889.70.19359,641.7549,514.632

49、0388,413.10$48,176.39Total:$1,310,649.82The present value of the offer is $1,310,649.827. Natalia will face a tax rate of 25% before and after retirement. The interest rate is 9%. She is 35 years from her retirement date and invests $5,000 to a tax deferred retirement plan. If she chooses to withdra

50、w the total accumulated amount at retirement, what will she be left with after paying taxes?Answer:$5,000 x 1.0935 = $102,069After taxes this leaves $102,069 x 0.75 = $76,5528. Damian is currently twenty-five years old and plans to live to age eighty. His labor income is $80,000 per year, and he pla

51、ns to maintain a constant level of real consumption spending over the next fifty-five years. Damian plans to retire at age 60. Assume the real interest rate is 5% per year and there are no taxes and no growth in real labor income. What is the value of Damians human capital? What is the value of Dami

52、ans permanent income?Answer:NIPVFVPMTResult_355?0$80,000PV = $1,309,936NIPVFVPMTResult_555$1,309,9360?PMT = $70,300Damians human capital is $1,309,936.Damians permanent income is $70,300.9. You are currently renting a house for $25,800 a year and you have an option to buy it for $350,000. Maintenanc

53、e and property taxes are $6,150 per year, and these costs are included in your rent. Property taxes ($4,150 of the $6,150) are deductible for tax purposes. Your tax rate is 35%. The real after tax rate is 3.5%. What is the NPV of the investment in the house?Answer:After-tax outflow for property taxe

54、s each year is 0.65 x $4,150 = $2,697.50Cash outflow in year t = $2,697.50 + $2,000 = $4,697.50PV cost of owning = $350,000 + $4,697/0.035 = $350,000 + $134,214 = $484,214PV cost of renting = $25,800/0.035 = $737,143So the NPV of investing in the house instead of renting is $737,143 $484,214 = $252,

55、929.10. Carson will face a tax rate of 30% before and after retirement. The interest rate is 6%. He is 32 years from his retirement date and invests $3,000 to a tax deferred retirement plan. If he chooses to withdraw the total accumulated amount at retirement, what will he be left with after paying taxes? Show how to find the answer u