公司理财精要第五章题库

Chapter05DiscountedCashFlowValuationMultipleChoiceQuestionsTravisisbuyingacarandwillfinanceitwithaloanwhichrequiresmonthlypaymentsof$265forthenext4years.Hiscarpaymentscanbedescribedbywhichoneofthefollowingterms?PerpetuityAnnuityConsolLumpsumFactorJanisjustwonascholarshipthatwillpayher$500amonth,startingtoday,andcontinuingforthenext48months.Whichoneofthefollowingtermsbestdescribesthesescholarshippayments?OrdinaryannuityAnnuitydueConsolOrdinaryperpetuityPerpetuitydueTheJonesBrothersrecentlyestablishedatrustfundthatwillprovideannualscholarshipsof$12,000indefinitely.Theseannualscholarshipscanbestbedescribedbywhichoneofthefollowingterms?OrdinaryannuityAnnuitydueAmortizedpaymentPerpetuityContinuationAperpetuityinCanadaisfrequentlyreferredtoaswhichoneofthefollowing?ConsulInfinityForevercashDowryForevermoreThestatedinterestrateistheinterestrateexpressed:ermsofaneffectiverate.Annapays1.5percentinterestmonthlyonhercreditcardaccount.Whentheinterestrateonthatdebtisexpressedasifitwerecompoundedonlyannually,theratewouldbereferredtoasthe:poundedrate.quotedrate.statedrate.effectiveannualrate.Leepaysonepercentpermonthinterestonhiscreditcardaccount.Whenhismonthlyrateismultipliedby12,theresultinganswerisreferredtoasthe:poundedrate.effectiveannualrate.perpetualrate.simplerate.Whichoneofthefollowingwilldecreasethepresentvalueofanannuity?Increaseintheannuity'sfuturevalueIncreaseinthepaymentamountIncreaseinthetimeperiodDecreaseinthediscountrateDecreaseintheannuitypaymentChristieisbuyinganewcartodayandispayinga$500cashdownpayment.Shewillfinancethebalanceat7.25percentinterest.Herloanrequires36equalmonthlypaymentsof$450eachwiththefirstpaymentdue30daysfromtoday.Whichoneofthefollowingstatementsiscorrectconcerningthispurchase?Thepresentvalueofthecarisequalto$500+(36x$450).The$500isthepresentvalueofthepurchase.Thecarloanisanannuitydue.Tocomputetheinitialloanamount,youmustuseamonthlyinterestrate.Thefuturevalueoftheloanisequalto36x$450.Whichoneofthefollowingstatementsistrueconcerningannuities?Allelseequal,anordinaryannuityismorevaluablethananannuitydue.Allelseequal,adecreaseinthenumberofpaymentsincreasesthefuturevalueofanannuitydue.Anannuitywithpaymentsatthebeginningofeachperiodiscalledanordinaryannuity.Allelseequal,anincreaseinthediscountratedecreasesthepresentvalueandincreasesthefuturevalueofanannuity.Allelseequal,anincreaseinthenumberofannuitypaymentsdecreasesthepresentvalueandincreasesthefuturevalueofanannuity.Whichoneofthefollowingistheannuitypresentvalueformula?Cx{{1-[1/(1+r)t]}/r}Cx{1-[1/(1+r)t]}-rCx{1-[r/(1+r)t]}/rCx{{1-[1/(1xr)t]}xr}Cx{1-[r/(1xr)t]}xrWhichoneofthefollowingisanexampleofaperpetuity?Trustincomeof$1,200ayearforeverRetirementpayof$2,200amonthfor20yearsLotterywinningsof$1,000amonthforlifeCarpaymentof$260amonthfor60monthsApartmentrentpaymentof$800amonthforoneyearWhichoneofthefollowingcanbeclassifiedasanannuitybutnotasaperpetuity?IncreasingmonthlypaymentsforeverIncreasingquarterlypaymentsfor6yearsUnequalpaymentseachyearfor9yearsEqualannualpaymentsforlifeEqualweeklypaymentsforeverWhichoneofthefollowingstatementsconcerningannuitiesiscorrect?Thepresentvalueofanannuityisequaltothecashflowamountdividedbythediscountrate.Anannuityduehaspaymentsthatoccuratthebeginningofeachtimeperiod.Thefuturevalueofanannuitydecreasesastheinterestrateincreases.Ifunspecified,youshouldassumeanannuityisanannuitydue.Anannuityisanunendingstreamofequalpaymentsoccurringatequalintervalsoftime.Whichoneofthefollowingqualifiesasanannuity?WeeklygrocerybillClothingpurchasesCarrepairsAutoloanpaymentMedicalbillsWhichofthefollowingcharacteristicsapplytoaperpetuity?ConstantcashflowdollaramountUnequalcashflowdollaramountLimitedtimeperiodInfinitetimeperiodIandIIIonlyIandIVonlyIIandIIIonlyIIandIVonlyIpluseitherIIIorIVWhichofthefollowingwillincreasethepresentvalueofanannuity,allelseheldconstant?I.IncreaseinthenumberofpaymentsII.IncreaseintheinterestrateDecreaseintheinterestrateDecreaseinthepaymentamountIandIIonlyIandIIIonlyIIandIVonlyI,II,andIVonlyI,III,andIVonlyYouarecomparingtwoannuities.AnnuityApays$100attheendofeachmonthfor10years.AnnuityBpays$100atthebeginningofeachmonthfor10years.Therateofreturnonbothannuitiesis8percent.Whichoneofthefollowingstatementsiscorrectgiventhisinformation?ThepresentvalueofAnnuityAisequaltothepresentvalueofAnnuityB.AnnuityBwillpayonemorepaymentthanAnnuityAwill.ThefuturevalueofAnnuityAisgreaterthanthefuturevalueofAnnuityB.AnnuityBhasbothahigherpresentvalueandahigherfuturevaluethanAnnuityA.AnnuityAhasahigherfuturevaluebutalowerpresentvaluethanAnnuityB.Whichoneofthefollowingfeaturesdistinguishesanordinaryannuityfromanannuitydue?NumberofequalpaymentsAmountofeachpaymentFrequencyofthepaymentsAnnuityinterestrateTimingoftheannuitypaymentsWhichoneofthefollowingisanordinaryannuity,butnotaperpetuity?$75paidatthebeginningofeachmonthperiodfor50years$15paidattheendofeachmonthlyperiodforaninfiniteperiodoftime$40paidquarterlyforfiveyears,startingtoday$50paideveryyearfortenyears,startingtoday$25paidweeklyforoneyear,startingoneweekfromtodayWhichoneofthefollowingcanNOTbecomputed?FuturevalueofanordinaryannuityFuturevalueofaperpetuityPresentvalueofaperpetuityPresentvalueofanannuityduePresentvalueofanordinaryannuityYouarecomparingthreeinvestments,allofwhichpay$100amonthandhavean8percentinterestrate.Oneisordinaryannuity,oneisanannuitydue,andthethirdinvestmentisaperpetuity.Whichoneofthefollowingstatementsiscorrectgiventhesethreeinvestmentoptions?Tobetheperpetuity,thepaymentsmustoccuronthefirstdayofeachmonthlyperiod.Theordinaryannuitywouldbemorevaluablethantheannuitydueifbothhadalifeof10years.Thepresentvalueoftheperpetuityhastobehigherthanthepresentvalueofeithertheordinaryannuityortheannuitydue.Thefuturevalueofallthreeinvestmentsmustbeequal.Thepresentvalueofallthreeinvestmentsmustbeequal.Whichoneofthefollowinghasthehighesteffectiveannualrate?6percentcompoundedannually6percentcompoundedsemi-annually6percentcompoundedquarterly6percentcompoundedmonthlyAlltheotheranswershavethesameeffectiveannualrate.Whencomparingsavingsaccounts,youshouldselecttheaccountthathasthe:lowestannualpercentagerate.highestannualpercentrate.higheststatedrate.lowesteffectiveannualrate.highesteffectiveannualrate.Acreditcardhasanannualpercentagerateof12.9percentandchargesinterestmonthly.Theeffectiveannualrateonthisaccount:willbelessthan12.9percent.caneitherbelessthanorequalto12.9percent.is12.9percent.caneitherbegreaterthanorequalto12.9percent.willbegreaterthan12.9percent.Whichoneofthefollowingstatementsiscorrect?TheAPRisequaltotheEARforaloanthatchargesinterestmonthly.TheEARisalwaysgreaterthantheAPR.TheAPRonamonthlyloanisequalto(1+monthlyinterestrate)12-1.TheAPRisthebestmeasureoftheactualrateyouarepayingonaloan.TheEAR,ratherthantheAPR,shouldbeusedtocomparebothinvestmentandloanoptions.AloanhasanAPRof8.5percentandanEARof8.5percent.Giventhis,theloanmust:haveaone-yearterm.haveazeropercentinterestrate.chargeinterestannually.mustbeaninterest-onlyloan.requiretheaccruedinterestbepaidinfullwitheachmonthlypayment.Scottborrowed$2,500today.Theloanagreementrequireshimtorepay$2,685inonelumpsumpaymentoneyearfromnow.Thistypeofloanisreferredtoasa(n):poundinterestloan.amortizedloan.Cindyistakingoutaloantoday.Thecashamountthatshewillreceivetodayisequaltothepresentvalueofthelumpsumpaymentwhichshewillberequiredtopay2yearsfromtoday.Whichtypeofloanisthis?Principal-onlyAmortizedInterest-onlyCompoundPurediscountTravisborrowed$10,000fouryearsagoatanannualinterestrateof7percent.Theloantermis6years.Sinceheborrowedthemoney,Travishasbeenmakingannualpaymentsof$700tothebank.Whichtypeofloandoeshehave?Interest-onlyPurediscountCompoundAmortizedComplexLetitiaborrowed$6,000fromherbank2yearsago.Theloantermis4years.Eachyear,shemustrepaythebank$1,500plustheannualinterest.Whichtypeofloandoesshehave?AmortizedBlendeddiscountInterest-onlyPurediscountComplexBilljustfinancedausedcarthroughhiscreditunion.Hisloanrequirespaymentsof$275amonthfor5years.Assumingthatallpaymentsarepaidtimely,hislastpaymentwillpayofftheloaninfull.WhattypeofloandoesBillhave?AmortizedComplexPurediscountLumpsumInterest-onlyYoujustborrowed$3,000fromyourbankandagreedtorepaytheinterestonanannualbasisandtheprincipalattheendof3years.Whattypeofloandidyouobtain?Interest-onlyAmortizedPerpetualPurediscountLumpsumTomisplanningtoinvestthefollowingamountsat4percentinterest.Howmuchmoneywillhehavesavedattheendofyear3?Endofyear:Amountsaved:]$5002$8003$900$2,200.00$2,238.47$2,272.80$2,309.16$2,363.71DresslerEngineTuningjustdecidedtosavemoneyeachyearforthenext4yearstohelpfundanewbuilding.Ifitearns5.5percentonitssavings,howmuchwillthefirmhavesavedattheendofyear4?Endofyear:Amountsaved:1$20,0002$24,0003$28,0004$32,000$107,525.40$108,392.69$110,414.14$111,737.43$117,882.99WebsterIndustrialProductsjustsignedasalescontractwithanewcustomer.Whatisthiscontractworthasoftheendofyear4ifthefollowingpaymentswillbereceivedandthefirmearns5percentonitssavings?Endofyear:Paymentamount:]$84,0002$113,0003$125,0004$130,000$397,425.35$402,311.19$460,000.00$478,887.78$483,073.00Jodie'sFashionshasjustsigneda$2.2millioncontract.Thecontractcallsforapaymentof$0.6milliontoday,$0.8milliononeyearfromtoday,and$0.8milliontwoyearsfromtoday.Whatisthiscontractworthtodayifthefirmcanearn7.2percentonitsmoney?$2,038,616.67$2,042,414.79$2,108,001.32$2,124,339.07$2,202,840.91CapstoneCrownsisconsideringaprojectthatwillproducecashinflowsof$11,000inyearone,$24,000inyeartwo,and$36,000inyearthree.Whatisthepresentvalueofthesecashinflowsifthecompanyassignstheprojectadiscountrateof14percent?$40,331.89$46,564.28$52,415.32$54,868.15$60,978.35ChandlerTireCo.istryingtodecidewhichoneoftwoprojectsitshouldaccept.Bothprojectshavethesamestart-upcosts.Project1willproduceannualcashflowsof$52,000ayearfor6years.Project2willproducecashflowsof$48,000ayearfor8years.Thecompanyrequiresa15percentrateofreturn.Whichprojectshouldthecompanyselectandwhy?Project1;becausetheannualcashflowsaregreaterthanthoseofProject2Project1;becausethepresentvalueofitscashinflowsexceedsthoseofProject2by$14,211.62Project2;becausethetotalcashinflowsare$70,000greaterthanthoseofProject1Project2;becausethepresentvalueofthecashinflowsexceedsthoseofProject1by$18,598.33Itdoesnotmatterasbothprojectshavealmostidenticalpresentvalues.Kristiisconsideringaninvestmentthatwillpay$5,000ayearfor7years,startingoneyearfromtoday.Howmuchshouldshepayforthisinvestmentifshewishestoearna12percentrateofreturn?$17,899.08$18,023.88$20,186.75$22,818.78$24,507.19HowmuchmoneydoesSuzieneedtohaveinherretirementsavingsaccounttodayifshewishestowithdraw$25,000ayearfor30years?Sheexpectstoearnanaveragerateofreturnof6percent.$324,642.24$331,288.67$333,333.33$340,025.00$344,120.78Karlcanaffordcarpaymentsof$235amonthfor48months.Thebankwilllendhimmoneytobuyacarat7.75percentinterest.Howmuchmoneycanheaffordtoborrow?$9,672.48$9,734.95$9,899.60$10,022.15$10,422.09ThemanagerofGloria'sBoutiquehasapprovedCarla'sapplicationforcredit.Themaximumpaymentthathasbeenapprovedis$65amonthfor24months.TheAPRis15.7percent.WhatisthemaximuminitialpurchasethatCarlacanmakegiventhiscreditapproval?$1,288.90$1,300.00$1,331.42$1,350.00$1,428.46WebsterMiningisconsideringthepurchaseofanewsortingmachine.Thequoteconsistsofaquarterlypaymentof$29,600for7yearsat8percentinterest.Whatisthepurchasepriceoftheequipment?$621,380.92$629,925.66$687,418.22$774,311.28$836,267.35Youwanttopurchaseanewcondominiumwhichcosts$329,000.Yourplanistopay20percentdownincashandfinancethebalanceover25yearsat6.25percent.Whatwillbeyourmonthlymortgagepayment?$1,736.25$1,833.33$1,908.16$2,221.43$2,406.11Today,youarepurchasinga20-year,6percentannuityatacostof$120,000.Theannuitywillpayannualpaymentsstartingoneyearfromtoday.Whatistheamountofeachpayment?$9,511.08$10,462.15$10,754.40$11,013.20$12,208.19Kurtwantstohave$25,000inaninvestmentaccount4yearsfromnow.Theaccountwillpay0.2percentinterestpermonth.Ifhesavesmoneyeverymonth,startingonemonthfromnow,howmuchwillhehavetosaveeachmonthtoreachhisgoal?$496.75$497.03$497.75$501.03$502.14Katie'sDinorspent$84,000torefurbishitscurrentfacility.Thefirmborrowed80percentoftherefurbishmentcostat9.2percentinterestfor5years.Whatistheamountofeachmonthlypayment?$1,108.91$1,282.16$1,333.33$1,401.49$1,487.06Yourgrandfatherstartedhisownbusiness52yearsago.Heopenedasavingsaccountattheendofhisthirdmonthofbusinessandcontributed$x.Everythreemonthssincethen,hefaithfullysavedanother$x.Hissavingsaccounthasearnedanaveragerateof4.5percentannually.Today,hisaccountisvaluedat$364,209.11.Howmuchdidyourgrandfathersaveevery3months?$425.15$428.67$431.09$443.13$462.25TurntableIndustrial,Inc.owesyourfirm$138,600.Thisamountisseriouslydelinquentsoyourfirmhasofferedtoarrangeapaymentplaninthehopesthatitmightatleastcollectaportionofthisreceivable.Yourfirm'sofferconsistsofweeklypaymentsforoneyearataninterestrateof3percent.Whatistheamountofeachpayment?$2,229.90$2,318.11$2,409.18$2,599.04$2,706.33TheFurnitureHutisofferingabedroomsuitefor$1,999.Thecredittermsare60monthsat$50permonth.Whatistheinterestrateonthisoffer?16.33percent16.50percent16.65percent17.15percent17.30percentTheSolventInsuranceCo.willpayyou$2,500ayearfor20yearsinexchangefor$30,000today.Whatinterestratewillyouearnonthisannuity?5.40percent5.45percent5.50percent5.55percent5.60percentUsedMotorswillsellyoua$13,000carfor$380amonthfor48months.Whatistheinterestrate?16.55percent16.67percent16.99percent17.58percent17.72percentYouhavejustwonacontest!Youcaneitherreceive$10,000ayearfor15yearsor$100,000asalumpsumpaymenttoday.Whatistheinterestrateontheannuityoption?5.56percent5.68percent6.20percent6.39percent6.50percentYourecentlysoldanantiquecaryouownedandvaluedgreatly.However,youneededmoneyandagreedtosellthecaratapriceof$48,000,tobepaidinmonthlypaymentsof$1,200eachfor48months.Whatinterestratedidyouchargeforfinancingthesale?8.65percent8.75percent8.88percent9.24percent9.49percentBerkleyTruckingrecentlypurchasedanewtruckcosting$147,800.Thefirmfinancedthispurchaseat7.6percentinterestwithmonthlypaymentsof$2,100.Howmanyyearswillittakethefirmtopayoffthisdebt?6.50years6.67years7.48years7.60years7.79yearsStanleyEnterprisesisacquiringBerkley,Inc.for$899,000.Berkleyhasagreedtoacceptannualpaymentsof$210,000ataninterestrateof7.5percent.HowmanyyearswillittakeStanleyEnterprisestopayforthispurchase?5.00years5.14years5.35years5.47years5.60yearsTodayisyour21stbirthdayandyoujustdecidedtostartsavingmoneysoyoucanretireearly.Thus,youaregoingtosave$500amonthstartingonemonthfromnow.Youplantoretireassoonasyoucanaccumulate$1million.Ifyoucanearnanaverageof8percentonyoursavings,howoldwillyoubewhenyouretire?33.39yearsold42.87yearsold54.39yearsold64.71yearsold63.87yearsoldYoujustreceivedaloanofferfromFriendlyLoans.Thecompanyisofferingyou$5,000at14.3percentinterest.Themonthlypaymentisonly$100.Ifyouacceptthisoffer,howlongwillittakeyoutopayofftheloan?5.84years6.37years6.80years7.33years7.59yearsJakeowes$3,400onhiscreditcard.Heisnotcharginganyadditionalpurchasesbecausehewantstogetthisdebtpaidinfull.ThecardhasanAPRof13.9percent.Howmuchlongerwillittakehimtopayoffthisbalanceifhemakesmonthlypaymentsof$50ratherthan$60?28.24months31.33months36.74months39.20months41.79monthsCurrently,youowethebank$9,800foracarloan.Theloanhasaninterestrateof7.75percentandmonthlypaymentsof$310.Yourfinancialsituationrecentlychangedsuchthatyoucannolongeraffordthesepayments.Aftertalkingwithyourbankerandexplainingthesituation,hehasagreedtolowerthemonthlypaymentsto$225whilekeepingtheinterestrateat7.75percent.Howmuchlongerwillittakeyoutorepaythisloanthanyouhadoriginallyplanned?12.29months14.47months15.84months17.19months19.90monthsTheFoodStoreisplanningamajorexpansionfor4yearsfromtoday.Inpreparationforthis,thecompanyissettingaside$35,000eachquarter,startingtoday,forthenext4years.Howmuchmoneywillthefirmhavewhenitisreadytoexpandifitcanearnanaverageof6.25percentonitssavings?$528,409.29$540,288.16$610,411.20$640,516.63$662,009.14Janiceplanstosave$75amonth,startingtoday,for20years.Kateplanstosave$80amonthfor20years,startingonemonthfromtoday.BothJaniceandKateexpecttoearnanaveragereturnof5.5percentontheirsavings.Attheendofthe20years,KatewillhaveapproximatelymorethanJanice.$2,028.39$2,066.67$2,091.50$2,178.14$2,189.12Whatisthefuturevalueof$20aweekfor10yearsat6percentinterest?Assumethefirstpaymentoccursattheendofthisweek.$14,239.14$14,361.08$14,727.15$15,003.14$15,221.80Attheendofthismonth,Leswillstartsaving$150amonthforretirementthroughhiscompany'sretirementplan.Hisemployerwillcontributeanadditional$0.50forevery$1.00thathesaves.Ifheisemployedbythisfirmfor30moreyearsandearnsanaverageof10.5percentonhisretirementsavings,howmuchwillLeshaveinhisretirementaccount30yearsfromnow?$389,406.19$401,005.25$540,311.67$566,190.22$603,289.01Steveisconsideringinvesting$3,600ayearfor40years.Howmuchwillthisinvestmentbeworthattheendofthe40yearsifheearnsanaverageannualrateofreturnof11.6percent?AssumeSteveinvestshisfirstpaymentoftheendofthisyear.$1,887,411.26$1,919,200.08$2,103,018.90$2,311,416.67$2,471,685.70Kristinastartedsettingasidefunds3yearsagotosaveforadownpaymentonahouse.Shehassaved$900eachquarterandearnedanaveragerateofreturnof4.8percent.Howmuchmoneydoesshecurrentlyhavesavedforherdownpayment?$11,542.10$12,388.19$15,209.80$15,366.67$16,023.13UptownInsuranceoffersanannuityduewithsemi-annualpaymentsfor25yearsat6percentinterest.Theannuitycosts$200,000today.Whatistheamountofeachannuitypayment?$7,546.70$7,600.00$7,773.10$7,800.00$7,856.25Youjustwonacontest!Youwillreceive$100,000ayearfor20years,startingtoday.Ifyoucanearn12percentonyourinvestments,whatareyourwinningsworthtoday?$750,000.00$833,333.33$836,577.69$850,000.00$887,450.72Youwanttosave$200amonthforthenext24yearsandhopetoearnanaveragerateofreturnof11percent.Howmuchmorewillyouhaveattheendofthe24yearsifyouinvestyourmoneyatthebeginningofeachmonthratherthantheendofeachmonth?$1,611.29$1,807.70$2,238.87$2,569.14$2,707.27Alocalmagazineisofferinga$2,500grandprizetooneluckywinner.$1,000willbepaidonthedayofthedrawing.Theremaining$1,500willbepaidinthreeannualpaymentsof$500each,startingoneyearafterthedrawing.Howmuchwouldthisprizebeworthtoyouifyoucanearn9percentonyourmoney?$2,048.18$2,164.29$2,265.65$2,450.14$2,545.54Apreferredstockpaysanannualdividendof$7.Whatisoneshareofthisstockworthtoyoutodayifyourequirea14percentrateofreturn?$6.14$7.98$43.00$50.00$98.00Yourparentswouldliketoestablishatrustfundthatwouldpayannualpaymentstoyouandyourheirsof$100,000ayearforever.Howmuchdoyourparentsneedtodepositintothistrustfundtodaytoachievetheirgoalifthefundcanearn7percentinterest?$678,342$700,000$1,211,516$1,389,407$1,428,571WesternStatesLifeInsuranceoffersaperpetuitythatpaysannualpaymentsof$10,000.Thiscontractsellsfor$275,000today.Whatistheinterestrate?3.64percent3.87percent4.10percent4.21percent4.39percentEasternShoreBuildersisofferingpreferredstockforsalewitha7.75percentrateofreturn.Whatistheamountoftheannualdividendonthisstockifthecurrentmarketpricepershareis$83.87?$6.33$6.50$7.00$7.50$7.75Arecentalumnusofyouruniversitygiftedmoneytotheschooltofundannualscholarshipsforneedystudents.Theschoolexpectstoearnanaveragerateofreturnof6.5percentanddistribute$40,000annuallyinscholarships.Whatwastheamountofthegift?$260,000.00$328,500.00$615,384.62$658,929.38$661,423.33Kriswillreceive$800amonthforthenext5yearsfromaninsurancesettlement.Theinterestrateis4percent,compoundedmonthly,forthefirst2yearsand5percent,compoundedmonthly,forthefinal3years.Whatisthissettlementworthtohimtoday?$36,003.18$38,219.97$41,388.71$43,066.22$45,115.16Anneplanstosave$40aweekforthenext5years.Sheexpectstoearn3percentforthefirst2yearsand5percentforthelast3years.Howmuchwillhersavingsbeworthattheendofthe5years?$10,215.60$10,684.29$10,983.58$11,014.88$11,708.15Whatisthevaluetodayof$3,600receivedattheendofeachyearfor7yearsifthefirstpaymentispaidattheendofyear3andthediscountrateis12percent?$11,694.21$12,484.57$13,097.52$15,089.23$16,429.52Youwillreceiveannualpaymentsof$2,400attheendofeachyearfor15years.Thefirstpaymentwillbereceivedinyear6.Whatisthepresentvalueofthesepaymentsifthediscountrateis7percent?$11,465.20$12,018.52$13,299.80$15,585.16$16,856.60Whatistheeffectiveannualrateof13.9percentcompoundedquarterly?13.23percent13.82percent14.37percent14.64percent15.01percentWhatistheeffectiveannualrateof11percentcompoundedsemi-annually?11.26percent11.30percent11.37percent11.41percent11.45percentTheFurnitureShowroomofferscredittoitscustomersatarateof1.4percentpermonth.Whatistheeffectiveannualrateofthiscreditoffer?15.97percent16.52percent16.80percent17.34percent18.16percentFirstBankofferspersonalloansat7.6percentcompoundedmonthly.SecondBankofferssimilarloansat7.75percentcompoundedsemi-annually.Whichoneofthefollowingstatementsiscorrectconcerningtheseloans?TheFirstBankloanhasaneffectiverateof7.67percent.TheSecondBankloanhasaneffectiverateof8.03percent.TheannualpercentageratefortheSecondBankloansis7.90percent.BorrowersshouldprefertheloansofferedbySecondBank.TheFirstBankoffersthebestdealonloans.Whatistheeffectiveannualrateof14.9percentcompoundedmonthly?14.48percent14.67percent15.23percent15.74percent15.96percentAloanthatcompoundsinterestmonthlyhasanEARof15.40percent.WhatistheAPR?14.41percent14.58percent14.87percent14.99percent15.02percentAcreditcardhasastatedinterestrateof13.9percent.WhatistheAPRifinterestiscompoundedmonthly?13.09percent13.46percent13.90percent14.56percent14.82percentYourparentsloanedyoumoneyat0.25percentinterestpermonth.WhatistheAPRofthisloan?2.97percent3.00percent3.04percent4.00percent4.07percentGlamourClothingchargesadailyrateof0.05percentonitsstorecreditcards.Whatinterestrateisthecompanyrequiredbylawtoreporttopotentialcustomers?17.99percent18.25percent19.50percent20.02percent20.24percentTheGiftHouseofferscredittoitscustomersandchargesinterestof1.1percentpermonth.Whatistheannualpercentagerate?13.20percent13.39percent13.84percent14.03percent14.24percentTheMen'sStorecharges1.5percentinterestpermonth.Whatrateofinterestareitscreditcustomersactuallypaying?18.00percent18.92percent19.56percent19.90percent20.23percentToday,youareborrowing$13,800topurchaseacar.Whatwillbeyourmonthlypaymentamountiftheloanisfor4yearsat7.5percentinterest?$298.40$321.150$333.67$380.24$400.10YouhaveanoutstandingloanwithanEARof14.6percent.WhatistheAPRifinterestiscompoundedmonthly?13.48percent13.71percent14.60percent15.41percent15.62percentToday,youareborrowingmoneyfromyourlocalbank.Theloanistoberepaidinonelumpsumpaymentof$14,000oneyearfromnow.HowmuchmoneyareyouborrowingtodayiftheAPRis9.6percent?$11,899.48$12,550.00$12,773.72$13,221.64$14,000.00FriendlyFinanceisofferingaspecialonone-yearloans.Thecompanywillloanyou$5,000todayinexchangeforonepaymentof$5,700oneyearfromnow.WhatistheAPRonthisloan?13.67percent14.00percent14.40percent14.93percent15.04percentMillStoneBakeryneeds$210,000todaytofundanewproject.Theprojectwillnotproduceanycashflowsfor2yearsandthusthefirmagreedtoa2-year,purediscountloanat8.6percentinterest.Howmuchwillthefirmoweonthisloanatthetimeitmustberepaid?$228,060.00$237,540.21$240,860.00$246,120.00$247,673.16Anewfinancialservicescompanyjustopenedinyourtown.Toattractcustomers,itisofferinga"9-10"loanspecial.Thecompanywilllend$9todayinexchangeforapaymentof$10oneyearfromtoday.WhatistheAPRonthisloan?10.00percent10.38percent10.92percent11.11percent11.54percentCurtisBuildersisborrowing$140,000todayfor5years.Theloanisaninterest-onlyloanwithanAPRof9.5percent.Paymentsaretobemadeannually.Whatistheamountofthefirstannualpayment?$13,300.00$21,500.00$31,280.40$36,461.10$41,300.00Jack'sFriedChickenjusttookouta7percentinterest-onlyloanof$50,000for3years.Paymentsaretobemadeattheendofeachyear.Whatistheamountofthepaymentthatwillbedueattheendofyear3?$19,052.58$20,166.67$50,000.00$53,500.00$61,252.15TheGoodLifeStorehasa6-year,interest-onlyloanat9percentinterest.Thefirmoriginallyborrowed$125,000.Howmuchwillthefirmpayintotalinterestoverthelifeoftheloan?$42,189.84$53,666.67$67,500.00$69,000.00$74,500.00Billingsley,Inc.isborrowing$60,000for5yearsatanAPRof8percent.Theprincipalistoberepaidinequalannualpaymentsoverthelifeoftheloanwithinterestpaidannually.Paymentswillbemadeattheendofeachyear.Whatisthetotalpaymentdueforyear3ofthisloan?$13,920$14,880$15,220$15,840$16,800Julieisborrowing$12,800topurchaseacar.Theloantermsare36monthsat7.5percentinterest.Howmuchinterestwillshepayonthisloanifshepaystheloanasagreed?Roundyouranswertothenearestwholedollar.$1,338$1,414$1,459$1,506$1,534TheEggHousejustborrowed$260,000tobuildanewrestaurant.Theloantermscallforequalannualpaymentsattheendofeachyear.Theloanisfor15yearsatanAPRof8percent.Howmuchofthefirstannualpaymentwillbeusedtoreducetheprincipalbalance?$8,311.62$9,575.68$10,211.08$10,554.60$11,420.90WessonMetalshasanoutstandingloanthatcallsforequalannualpaymentsof$9,768.46overthelifeoftheloan.Theoriginalloanamountwas$50,000atanAPRof8.5percent.Howmuchofthesecondloanpaymentisinterest?$3,525.61$3,780.93$4,250.00$5,409.16$5,987.53TaylorFarmsisborrowing$75,000for3yearsatanAPRof9percent.Theloancallsfortheprincipalbalancetobereducedbyequalamountsoverthelifeoftheloan.Interestistobepaidinfulleachyear.Thepaymentsaretobemadeannuallyattheendofeachyear.HowmuchwillTaylorFarmspayininterestoverthelifeofthisloan?$12,311.67$12,484.90$12,840.00$13,500.00$13,887.32EssayQuestionsExplainthesimilaritiesanddifferencesamonganordinaryannuity,anannuitydue,andaperpetuity.Whatdoesitmeanwhenaloanisamortized?Explainhowamortizationmethodscanvaryfromoneloantoanother.Consideranordinaryannuityandthevariablesthatarerelatedtothatannuity.Foreachofthefollowingsetsofvariables,identifywhethertherelationshipbetweenthetwovariablesisdirect(D)orinverse(I).Assumeallothervariablesareheldconstant.DorIPresentvalueandnumberofpaymentsPresentvalueandinterestrateNumberofpaymentsandfuturevalueJessejustwonthestatelottery.Hehasbeengiventheoptionofreceivingeither$66.4milliontodayor$5millionayearforthenext30years,withthefirstpaymentpaidtoday.DescribetheprocessthatJesseshouldusetodeterminewhichpaymentoptionheprefers.IgnorealltaxesandassumethatJessewillliveforatleast45moreyears.Identify4waysthatyoucanuseannuitycomputationsinyoureverydaylife.MultipleChoiceQuestionsIfyouputup$46,000todayinexchangefora6.75percent15-yearannuity,whatwilltheannualcashflowbe?$4,519.27$4,666.67$4,971.10$5,203.16$5,338.09AppalachianBankoffersyoua$135,000,9-yeartermloanat7.5percentannualinterest.Whatwillyourannualloanpaymentbe?$18,507.16$19,229.08$20,660.02$20,889.20$21,163.57EasternShoreLifeInsuranceCo.istryingtosellyouaninvestmentpolicythatwillpayyouandyourheirs$10,000peryearforever.Iftherequiredreturnonthisinvestmentis5.5percent,howmuchwillyoupayforthepolicy?$178,407.26$181,818.18$185,000.00$187,511.02$191,001.74FriendlyCreditCorp.wantstoearnaneffectiveannualreturnonitsconsumerloansof13percentperyear.Thebankusesdailycompoundingonitsloans.Whatinterestrateisthebankrequiredbylawtoreporttopotentialborrowers?11.98percent12.22percent13.00percent13.57percent13.88percentWebsterBankisoffering2.8percentcompoundeddailyonitssavingsaccounts.Ifyoudeposit$2,500today,howmuchwillyouhaveintheaccountin15years?$3,465.24$3,611.09$3,727.48$3,804.84$3,890.62Youwanttobuyanewsportscoupefor$84,600,andthefinanceofficeatthedealershiphasquotedyoua7.1percentAPRloanfor48monthstobuythecar.Whatwillyourmonthlypaymentsbe?Whatist