interest-rate environment,
September 20, 2019
transfer money into her account
September 20, 2019

What’s the present value

Top of Form

1.

(Points: 2)

 (Monthly compounding) How much would you have to invest today at 12% annual interest, compounded monthly, in order to end up with $1,000 in your investment account at the end of 12 months?

[removed]a. $887.45

[removed]b. $892.86

[removed]c. $256.68

[removed]d. $990.10

[removed]

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2.

(Points: 2)

 (Annualizing a rate) The effective annual rate (EAR) of 1% interest per month is:

[removed]a. 12%

[removed]b. 12.68%

[removed]c. 1%

[removed]d. Not enough information to determine

[removed]

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3.

(Points: 2)

 (Annualizing a rate) Your bank advertises 12 month CDs with a stated annual interest rate of 12%, compounded monthly. What is the effective annual rate (EAR) on the CD?

[removed]a. 1%

[removed]b. 12%

[removed]c. 12.68%

[removed]d. 144%

[removed]

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4.

(Points: 2)

 (PV of annuity due) You are in charge of a new Missouri State Lottery. The lottery rules say that winners are to be paid $10 million in the form of 10 annual payments of $1 million each. Assuming that the interest rate is 10% and the payments are to be made at the beginning of each of the next 10 years, how much money does your lottery organization have to deposit in an account today in order to make the required payments to a lottery winner?

[removed]a. $10,000,000

[removed]b. $6,759,024

[removed]c. $6,144,567

[removed]d. $9,090,909

[removed]

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5.

(Points: 2)

 (Rate of return of annuity) If the Bank of America agreed to lend you $50,000 for 10 years in return for 10 annual payments of $7,791 (each payment due at the end of each year), what annual percent rate of interest are you being charged?

[removed]a. about 20%

[removed]b. about 16%

[removed]c. about 9%

[removed]d. 5.4%

[removed]

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6.

(Points: 2)

 (Rate of return of annuity) Joe’s Dockyard is financing a new boat with an amortizing loan of $24,000 which is to be repaid in 10 annual installments of $4,247.62 each. What annual interest rate is Joe paying on the loan?

[removed]a. 18.9%

[removed]b. 17.7%

[removed]c. 14.0%

[removed]d. 12.0%

[removed]

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7.

(Points: 2)

 (Loan payments) Tom’s Toyotas has a 2004 4 Runner on sale for $16,995. If you could borrow that amount from Tom’s Credit Union at 7% for 4 years, what would be your monthly loan payments?

[removed]a. $232.30

[removed]b. $378.85

[removed]c. $406.97

[removed]d. $5,017.40

[removed]

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8.

(Points: 2)

 (PV of a perpetuity) The PV of an endless stream of annual payments (the payments in the stream continue to be paid forever) of $1,200 each to an investor with a required rate of return of 10% is:

[removed]a. $1,000

[removed]b. $1,200

[removed]c. $12,000

[removed]d. $10,000

[removed]

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9.

(Points: 2)

 (FV of an uneven cash flow stream) What’s the future value (FV) of the following cash flow stream: (discount rate = 10%)

Year Cash Flow
1 100
2 200
3 300

[removed]a. $600

[removed]b. $660

[removed]c. $641

[removed]d. $799

[removed]

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10.

(Points: 2)

 (PV of uneven cash flow stream) What’s the present value (PV) of the following cash flow stream: (discount rate = 10%)

Year Cash Flow
1 100
2 200
3 300

[removed]a. $451

[removed]b. $482

[removed]c. $545

[removed]d. $600

[removed]

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