5L-F For shahinmermaid
blakli
5l-f.docxQuestion 1
1.
Billy Bob has decided to put $2,400 a year (at the end of each year) into an IRA over his 40 year working life and then retire. What will Billy have if the account will earn 10 percent compounded annually?
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a. $394,786 |
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b. $23,470 |
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c. $1,062,223 |
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d. $810,917 |
0.4 points
Question 2
1.
Determine how much $1,000 deposited in a savings account paying 8% (compounded annually) will be worth after 5 years.
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a. $5,526 |
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b. $784 |
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c. $1,400 |
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d. $1,469 |
0.4 points
Question 3
1.
A(n) ____ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever)
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a. annuity |
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b. annuity due |
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c. sinking fund |
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d. perpetuity |
0.4 points
Question 4
1.
You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases during the next 20 years.
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a. it will be worth less |
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b. it will be worth more |
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c. it will not change |
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d. it will increase during the first ten years |
0.4 points
Question 5
1.
Determine how much you would be willing to pay for a bond that pays $60 annual interest indefinitely and never matures (i.e. a perpetuity), assuming you require an 8 percent rate of return on this investment.
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a. $480 |
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b. $743 |
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c. $1,000 |
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d. $750 |
0.4 points
Question 6
1.
The present value of an ordinary annuity is the
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a. sum of the present value of a series of equal periodic payments |
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b. future value of an equal series of payments |
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c. receipt of equal cash flows for a specified amount of time |
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d. sum of the future value of an equal series of payments |
0.4 points
Question 7
1.
The Florida lottery agrees to pay the winner $250,000 at the end of each year for the next 20 years. What is the future value of this lottery if you plan to put each payment in an account earning 9 percent?
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a. $2.28 million |
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b. $12.79 million |
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c.$14.32 million |
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d. $5.00 million |
0.4 points
Question 8
1.
Your grandparents put $1,000 into a savings account for you when you were born 20 years ago. This account has been earning interest at a compound rate of 7 percent. What is its value today?
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a. $3,870 |
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b. $1,967 |
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c. $3,026 |
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d. $3,583 |
0.4 points
Question 9
1.
Finding the discounted current value of $1,000 to be received at the end of each of the next 5 years requires calculating the
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a. future value of an annuity |
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b. future value of an annuity due |
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c. present value of an annuity |
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d. present value of an annuity due |
0.4 points
Question 10
1.
If you invest $10,000 in a 4-year certificate of deposit (CD) paying 10 percent interest compounded annually, determine how much the CD will be worth at the end of 4 years.
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a. $13,600 |
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b. $45,730 |
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c. $14,640 |
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d. $15,958 |
0.4 points
Question 11
1.
The payment or receipt of a series of equal cash flows per period, at the end of each period, for a specified amount of time is called a(n):
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a. annuity due |
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b. perpetuity |
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c. ordinary annuity |
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d. simple interest |
0.4 points
Question 12
1.
Determine (to the nearest dollar) the amount you would be willing to pay for a $1,000 par value bond paying $80 interest each year and maturing in 12 years, assuming you wanted to earn a 9 percent rate of return.
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a. $929 |
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b. $573 |
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c. $1,316 |
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d. $1,960 |
0.4 points
Question 13
1.
You have just calculated the present value of the expected cash flows of a potential investment. Management thinks your figures are too low. Which of the following actions would improve the present value of your cash flows?
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a. extend the cash flows over a longer period of time |
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b. increase the discount rate |
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c. decrease the discount rate |
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d. extend the cash flows over a longer period of time, and decrease the discount rate |
0.4 points
Question 14
1.
____ is interest that is paid not only on the principal, but also on any interest earned but not withdrawn during earlier periods.
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a. basic interest |
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b. simple interest |
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c. future interest |
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d. compound interest |
0.4 points
Question 15
1.
More frequent compounding results in ____ future values and ____ present values than less frequent compounding at the same interest rate.
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a. higher, higher |
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b. lower, higher |
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c. higher, lower |
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d. lower, lower |
