ch6
Student: _______________________________________________________________________________________
Multiple Choice Questions
1. An annuity is a(n):
A.
B.
C.
D.
E.
level stream of perpetual cash flows.
level stream of cash flows occurring for a fixed period of time.
increasing stream of perpetual cash flows.
increasing stream of cash flows occurring for a fixed period of time.
decreasing stream of cash flows occurring for a fixed period of time.
2. Which one of the following is the annuity present value factor?
A. (1 + Present value factor) / r
B. (1 Present value factor) / r
C. Present value factor + (1 / r)
D. (Present value factor r) + (1 / r)
E. r (1 + Present value factor)
3. What is a consol?
A.
B.
C.
D.
E.
a type of annuity issued by an insurance company
a name used in Canada for a perpetuity
an annuity stream of payments received as an inheritance
a decreasing stream of perpetual payments
an increasing stream of perpetual payments
4. How is an annuity due defined?
A.
B.
C.
D.
E.
a stream of cash flows occurring for less than one year
an annuity stream of payments that are disbursed rather than received
an annuity stream of payments that are received rather than disbursed
a set of equal cash flows occurring at the end of each period
a set of equal cash flows occurring at the beginning of each period
5. An annuity stream where the payments occur forever is called a(n):
A.
B.
C.
D.
E.
annuity due.
indemnity.
perpetuity.
amortized cash flow stream.
ordinary annuity.
6. What is the interest rate that is expressed in terms of the interest payment made each period called?
A.
B.
C.
D.
E.
stated interest
compound interest
effective annual
periodic interest
daily interest
7. What is the interest rate that is expressed as if it were compounded once per year called?
A.
B.
C.
D.
E.
stated interest
compound interest
effective annual
periodic interest
daily interest
8. What is the interest rate charged per period multiplied by the number of periods per year called?
A.
B.
C.
D.
E.
effective annual
annual percentage
periodic interest
compound interest
daily interest
9. A loan where the borrower receives money today and repays a single lump sum on a future date is
called a(n) _____ loan.
A.
B.
C.
D.
E.
amortized
continuous
balloon
pure discount
interest-only
10. A loan where the borrower pays interest each period and repays the entire principal of the loan at
some point in the future is called a(n) _____ loan.
A.
B.
C.
D.
E.
amortized
continuous
balloon
pure discount
interest-only
11. A loan where the borrower pays interest each period, and repays some or all of the principal of the
loan over time is called a(n) _____ loan.
A.
B.
C.
D.
E.
12.
amortized
continuous
balloon
pure discount
interest-only
A loan where the borrower pays interest each period, repays part of the principal of the loan over
time, and repays the remainder of the principal at the end of the loan, is called a(n) _____ loan.
A.
B.
C.
D.
E.
amortized
continuous
balloon
pure discount
interest-only
13. You are comparing two annuities which offer monthly payments of $500 for ten years and pay 0.5
percent interest per month. Annuity A will pay you on the first of each month while annuity B will
pay you on the last day of each month. Which one of the following statements is correct concerning
these two annuities?
A.
B.
C.
D.
E.
Both annuities are of equal value today.
Annuity B is an annuity due.
Annuity A has a higher future value than annuity B.
Annuity B has a higher present value than annuity A.
Both annuities have the same future value as of ten years from today.
14. You are comparing two investment options that pay 7 percent interest annually. Both options will
provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the
first year followed by four annual payments of $3,000 each. Option B pays five annual payments of
$4,000 each. Which one of the following statements is correct given these two investment options?
A.
B.
C.
D.
E.
Both options are of equal value given that they both provide $20,000 of income.
Option A is the better choice.
Option B has a higher present value than option A.
Option B is a perpetuity.
Option A is preferable because it is an annuity due.
15. You are considering two projects with the following cash flows:
Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of return.
II. Both projects have the same future value given a zero rate of return.
III. Both projects have the same future value at any point in time, given a positive rate of return.
IV. Project B has a higher future value than project A, given a positive rate of return.
A.
B.
C.
D.
E.
II only
IV only
I and III only
II and IV only
I, II, and III only
16. How does a perpetuity differ from an annuity?
A.
B.
C.
D.
E.
perpetuity payments vary with the rate of inflation
perpetuity payments vary with the market rate of interest
perpetuity payments are variable while annuity payments are constant
perpetuity payments never cease
annuity payments are smaller in amount
17. Which one of the following statements concerning the annual percentage rate is correct?
A. The annual percentage rate considers interest on interest.
B. The rate of interest you actually pay on a loan is called the annual percentage rate.
C. The effective annual rate is lower than the annual percentage rate when an interest rate is
compounded quarterly.
D. When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.
E. The annual percentage rate equals the effective annual rate when the rate on an account is designated
as simple interest.
18. Which one of the following statements concerning interest rates is correct?
A.
B.
C.
D.
The stated rate is the same as the effective annual rate.
The effective annual rate is the rate that applies if interest is compounded annually.
The annual percentage rate increases as the number of compounding periods per year increases.
Borrowers prefer more frequent compounding on their loan accounts given a stated annual
percentage rate.
E. For any positive rate of interest, the effective annual rate will always exceed the annual percentage
rate.
19. Which of the following statements concerning the effective annual rate are correct?
I. When making financial decisions, you should compare effective annual rates rather than annual
percentage rates.
II. The more frequently interest is compounded, the higher the effective annual rate given a fixed
annual percentage rate.
III. A quoted rate of 6 percent compounded continuously has a higher effective annual rate than if
the rate were compounded daily.
IV. When choosing which loan to accept, you should select the offer with the highest effective
annual rate.
A.
B.
C.
D.
E.
I and II only
I and IV only
I, II, and III only
II, III, and IV only
I, II, III, and IV
20. The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is
computed as:
A. .09e
B. e.09
C. e
D.
1.
q.
(1 + .09).
e.09
1.
E. (1 + .09)q.
21. A pure discount loan is a(n):
A.
B.
C.
D.
E.
example of a present value problem.
loan that is interest-free.
loan that grants you a discount if you pay your payments on time.
loan that requires all interest to be paid at the time the loan is made.
loan that discounts the payments if you pay them in advance.
22. The principle amount of an interest-only loan is:
A.
B.
C.
D.
E.
never repaid.
repaid in equal increments and included in each loan payment.
repaid in full at the end of the loan period.
repaid in equal annual payments even when the loan interest is repaid monthly.
repaid in increasing increments and included in each loan payment.
23. An amortized loan:
A. requires the principle amount to be repaid in even increments over the life of the loan.
B. may have equal or increasing amounts applied to the principle from each loan payment.
C. requires that all interest be repaid on a monthly basis while the principle is repaid at the end of the
loan term.
D. requires that all payments be equal in amount and include both principle and interest.
E. repays both the principle and the interest in one lump sum at the end of the loan term.
24. Your parents are giving you $500 a month for five years while you attend college to earn both a
bachelor's and a master's degree. At a 7 percent discount rate, what are these payments worth to you
when you first enter college?
A.
B.
C.
D.
E.
$22,681.13
$24,601.18
$25,251.00
$27,209.17
$30,000.00
25. You just won the lottery! As your prize you will receive $1,500 a month for twenty years. If you can
earn 9 percent on your money, what is this prize worth to you today?
A.
B.
C.
D.
E.
$152,087.19
$156,098.29
$157,408.16
$164,313.82
$166,717.43
26. Angela is able to pay $230 a month for 6 years on a car loan. If the interest rate is 7.9 percent, how
much can she afford to borrow to buy a car?
A.
B.
C.
D.
E.
$13,154.54
$13,408.17
$13,528.28
$13,666.67
$13,809.19
27. You are the beneficiary of a life insurance policy. The insurance company informs you that you have
two options for receiving the insurance proceeds. You can receive a lump sum of $150,000 today or
receive payments of $1,627.89 a month for 10 years. You can earn 7.5 percent on your money.
Which option should you take and why?
A.
B.
C.
D.
E.
You should accept the payments because they are worth $151,291.91 to you today.
You should accept the payments because they are worth $153,417.68 to you today.
You should accept the payments because they are worth $154,311.12 to you today.
You should accept the $150,000 because the payments are only worth $137,141.17 to you today.
You should accept the $150,000 because the payments are only worth $134,808.17 to you today.
28. Your employer contributes $50 a week to your retirement plan. Assume that you work for your
employer for another 12 years and that the applicable discount rate is 8 percent. Given these
assumptions, what is this employee benefit worth to you today?
A.
B.
C.
D.
E.
$20,046.80
$21,212.12
$21,406.14
$22,989.76
$23,521.79
29. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual
payments of $82,000 for the next 3 years. At a discount rate of 9.5 percent, what is this job worth to
you today?
A.
B.
C.
D.
E.
$162,556.16
$205,730.36
$209,408.37
$211,417.06
$213,918.01
30. Swenson & Swenson just decided to save $2,200 a month for the next 6 years as a safety net for
recessionary periods. The money will be set aside in a separate savings account which pays 5.5
percent interest compounded monthly. They deposit the first $2,200 today. If the company had
wanted to deposit an equivalent lump sum today, how much would they have had to deposit?
A.
B.
C.
D.
E.
31.
$130,297.18
$134,656.34
$135,273.51
$137,778.92
$138,001.14
You need some money today and the only friend you have that has any is your miserly friend. He
agrees to loan you the money you need, if you make payments of $15 a month for the next nine
months. In keeping with his reputation, he requires that the first payment be paid today. He also
charges you 2 percent interest per month. How much money are you borrowing?
A.
B.
C.
D.
E.
$120.67
$122.43
$124.88
$126.49
$135.00
32. You buy an annuity which will pay you $7,800 a year for 15 years. The payments are paid on the
first day of each year. What is the value of this annuity today if the discount rate is 12 percent?
A.
B.
C.
D.
E.
$53,124.74
$59,499.71
$62,407.18
$64,311.21
$65,258.58
33. You are scheduled to receive annual payments of $15,000 for each of the next 13 years. The
discount rate is 9 percent. What is the difference in the present value if you receive these payments
at the beginning of each year rather than at the end of each year?
A.
B.
C.
D.
E.
$9,211.07
$9,698.17
$9,704.38
$9,876.47
$10,107.32
34. You are comparing two annuities with equal present values. The applicable discount rate is 11.25
percent. One annuity pays $6,000 on the first day of each year for 25 years. How much does the
second annuity pay each year for 25 years if it pays at the end of each year?
A.
B.
C.
D.
E.
$6,350
$6,408
$6,675
$6,921
$7,100
35. Betsy receives $600 on the first of each month. Jen receives $600 on the last day of each month.
Both Betsy and Jen will receive payments for four years. At a 7 percent discount rate, what is the
difference in the present value of these two sets of payments?
A.
B.
C.
D.
E.
$135.40
$137.46
$138.09
$141.41
$146.16
36. What is the future value of $3,400 a year for 6 years at a 9 percent rate of interest?
A.
B.
C.
D.
E.
$22,051.60
$23,876.49
$24,011.77
$25,579.34
$27,881.48
37. What is the future value of $1,650 a year for 9 years at a 7 percent rate of interest?
A.
B.
C.
D.
E.
$17,409.08
$19,763.68
$21,254.45
$23,136.19
$25,222.22
38. Marcia plans on saving $6,000 a year and expects to earn an annual rate of 11.5 percent. How much
will she have in her account at the end of 40 years?
A.
B.
C.
D.
E.
$4,007,098
$4,467,914
$5,911,408
$6,221,009
$6,347,238
39. Christie adds $2,000 to her savings account on the first day of each year. Todd adds $2,000 to his
savings account on the last day of each year. They both earn a 7 percent rate of return. What is the
difference in their savings account balances at the end of 25 years?
A.
B.
C.
D.
E.
$8,854.86
$9,003.48
$9,126.39
$9,130.07
$9,041.14
40. You borrow $14,500 to buy a car. The terms of the loan call for monthly payments for 6 years at a
6.9 percent rate of interest. What is the amount of each payment?
A.
B.
C.
D.
E.
$238.87
$240.27
$246.51
$249.08
$252.50
41. You borrow $187,500 to buy a house. The mortgage rate is 7.25 percent and the loan period is 25
years. Payments are made monthly. If you pay for the house according to the loan agreement, how
much total interest will you pay?
A.
B.
C.
D.
$186,408
$219,079
$227,001
$264,319
E. $291,406
42. The Home Improvement Center (HIC) has an employment contract with the newly hired CEO. The
contract requires a lump sum payment of $32.4 million be paid to the CEO upon the successful
completion of her first five years of service. HIC wants to set aside an equal amount of money at the
end of each year to cover this anticipated cash outflow and will earn 7.25 percent on the funds. How
much must HIC set aside each year for this purpose?
A.
B.
C.
D.
E.
$5,227,064
$5,606,026
$5,668,987
$6,778,958
$7,270,433
43. Pat retires at age 58 and expects to live to age 90. On the day she retires, she has $287,409 in her
retirement savings account. She is conservative and expects to earn 5.25 percent on her money
during her retirement years. How much can she withdraw from her retirement savings each month if
she plans to die on the day she spends her last penny?
A.
B.
C.
D.
E.
$1,359.79
$1,364.18
$1,540.01
$1,546.75
$1,702.11
44. The Chelsey Group purchased a piece of property for $4.8 million. They paid a down payment of 25
percent in cash and financed the balance. The loan terms require monthly payments for 25 years at
an annual percentage rate of 8.65 percent compounded monthly. What is the amount of each
mortgage payment?
A.
B.
C.
D.
E.
$27,804.13
$27,989.62
$28,406.23
$29,142.91
$29,352.98
45. You estimate that you will have $31,870 in student loans by the time you graduate. The interest rate
is 5.45 percent. If you want to have this debt paid in full within four years, how much must you pay
each month?
A.
B.
C.
D.
E.
$737.11
$738.82
$739.34
$740.46
$741.09
46. You are buying a previously owned car today at a price of $4,950. You are paying $750 down in
cash and financing the balance for 42 months at 8.45 percent. What is the amount of each loan
payment?
A.
B.
C.
D.
E.
$108.54
$115.05
$115.86
$135.60
$136.55
47. The Helping Hand Insurance Company wants to sell you an annuity which will pay you $2,750 per
quarter for 20 years. You want to earn a minimum rate of return of 6.25 percent. What is the most
you are willing to pay as a lump sum today to buy this annuity?
A.
B.
C.
D.
E.
$125,085.43
$127,039.89
$179,544.36
$193,573.08
$198,747.27
48. Your car dealer is willing to lease you a new car for $199 a month for 72 months. Payments are due
on the first day of each month starting with the day you sign the lease contract. If your cost of
money is 5.45 percent, what is the current value of the lease?
A.
B.
C.
D.
E.
$11,708.18
$11,297.60
$12,197.74
$12,253.14
$13,008.31
49. Your favorite grandmother left you an inheritance in the form of a trust. The trust agreement states
that you are to receive $10,000 on the first day of each year, starting immediately and continuing for
25 years. What is the value of this inheritance today if the applicable discount rate is 7.5 percent?
A.
B.
C.
D.
E.
$107,006.67
$111,469.46
$114,141.41
$117,208.42
$119,829.67
50. You just received an insurance settlement offer related to an accident you had four years ago. The
offer gives you a choice of one of the following three offers:
Option A: $6,500 on the first day of each year for 40 years
Option B: $610 on the first day of each month for 25 years
Option C: $75,000 as a lump sum payment today
You can earn 8.75 percent on your investments. You do not care if you personally receive the funds
or if they are paid to your heirs should you die within the settlement period. Which one of the
following statements is correct given this information?
A. Option C is the best choice since you can earn 8.75 percent on the entire lump sum starting
immediately.
B. Option B is the best choice since it offers the largest number of payments.
C. Option A is the best choice since it has the largest present value.
D. Option B is the best choice since it has the largest present value.
E. You are indifferent to the three options as they are all equal in value to you.
51. Priestly Engineers wants to save $145,000 to buy some new equipment two years from now. The
plan is to set aside an equal amount of money on the first day of each quarter starting today. The
firm can earn a 5.5 percent rate of return. How much does the firm have to save each quarter to
achieve their goal?
A.
B.
C.
D.
E.
$17,084.43
$17,036.35
$17,270.60
$17,308.67
$17,421.18
52. Starting today, Stephen is going to contribute $200 on the first of each month to his retirement
account. His employer will contribute an additional 50 percent of the amount Stephen contributes. If
both Stephen and his employer continue to do this and he can earn a monthly rate of 0.75 percent,
how much will Stephen have in his retirement account 40 years from now?
A.
B.
C.
D.
E.
$936,264
$943,286
$1,404,396
$1,414,929
$1,672,413
53. You are considering an annuity which costs $250,000 today. The annuity pays $30,000 a year at an
annual interest rate of 6.25 percent. What is the length of the annuity time period?
A.
B.
C.
D.
E.
11.11 years
11.67 years
12.14 years
12.38 years
12.49 years
54. Today, you signed loan papers agreeing to borrow $35,000 at 9.75 percent compounded monthly.
The loan payment is $700 a month. How many loan payments must you make before the loan is paid
in full?
A.
B.
C.
D.
E.
55.
62.00
63.25
63.48
63.74
64.42
Huntington Manor would like to buy some additional land and build a new assisted living center.
The anticipated total cost is $12.4 million. The CEO of the firm is quite conservative and will only
do this when the company has sufficient funds to pay cash for the entire construction project.
Management has decided to save $235,000 a month for this purpose. The firm earns 7 percent
compounded monthly on the funds it saves. How long does the company have to wait before
expanding its operations?
A.
B.
C.
D.
E.
30.32 months
31.23 months
46.14 months
49.68 months
54.00 months
56. Today, you are retiring. You have a total of $387,419 in your retirement savings and have the funds
invested such that you expect to earn an average of 6.8 percent, compounded monthly, on this
money throughout your retirement years. You want to withdraw $3,000 at the beginning of every
month, starting today. How long will it be until you run out of money?
A.
B.
C.
D.
E.
225.05 months
228.47 months
230.19 months
232.14 months
233.33 months
57. Slow Poke Corp. is notoriously known as a slow-payer. The firm currently needs to borrow $36,000
and only one company will even deal with them. The terms of the loan call for daily payments of
$55. The first payment is due today. The interest rate is 24 percent compounded daily. What is the
time period of this loan?
A.
B.
C.
D.
E.
2.34 years
2.48 years
2.54 years
2.67 years
2.82 years
58. Jonathan's Apple Orchard is considering a project which has an initial cash requirement of $218,700.
The project will yield cash flows of $3,725 monthly for 72 months. What is the rate of return on this
project?
A.
B.
C.
D.
E.
6.97 percent
7.04 percent
7.28 percent
7.41 percent
7.56 percent
59. Your insurance agent is trying to sell you an annuity that costs $165,000 today. By buying this
annuity, your agent promises that you will receive payments of $775 a month for the next 40 years.
What is the rate of return on this investment?
A.
B.
C.
D.
E.
4.28 percent
4.39 percent
4.52 percent
4.67 percent
4.81 percent
60. You have been investing $165 a month for the last 12 years. Today, your investment account is
worth $60,508.29. What is your average rate of return on your investments?
A.
B.
C.
D.
E.
13.77 percent
13.80 percent
13.84 percent
13.89 percent
14.03 percent
61. Susan Sunshine has been investing $160,000 a year for the past 9 years into Sunshine in a Can, Inc.
Today, as the sole shareholder, she sold Sunshine in a Can, Inc. for $2.6 million. What is her rate of
return on this investment?
A.
B.
C.
D.
E.
14.13 percent
14.24 percent
14.29 percent
14.37 percent
14.42 percent
62. Your grandmother helped you start saving $10 a month beginning on your 6th birthday. She always
made you make your deposit on the first day of each month just to "start the month out right".
Today, you turn 21 and have $2,994.21 in your account. What is the rate of return on your savings?
A.
B.
C.
D.
E.
6.18 percent
6.21 percent
6.25 percent
6.28 percent
6.31 percent
63. Today, you turn 21. Your birthday wish is that you will be a millionaire by your 41st birthday. In an
attempt to reach this goal, you decide to save $30 a day, every day until you turn 41. You open an
investment account and deposit your first $30 today. What rate of return must you earn to achieve
your goal?
A.
B.
C.
D.
E.
12.65 percent
12.71 percent
12.78 percent
12.82 percent
12.85 percent
64. You just settled an insurance claim. The settlement calls for increasing payments over a 5-year
period. The first payment will be paid one year from now in the amount of $30,000. The following
payments will increase by 6 percent annually. What is the value of this settlement to you today if
you can earn 8.5 percent on your investments?
A.
B.
C.
D.
E.
$126,408.28
$129,417.11
$132,023.05
$141,414.14
$152,008.16
65. Your grandmother left you an inheritance that will provide an annual income for 25 years. You will
receive the first payment one year from now in the amount of $10,000. Every year after that, the
payment amount will increase by 5 percent. What is your inheritance worth to you today if you can
earn 12 percent on your investments?
A.
B.
C.
D.
E.
$114,400.49
$116,666.67
$121,121.21
$123,464.12
$126,908.17
66. You just won a national sweepstakes! For your prize, you opted to receive never-ending payments.
The first payment will be $10,000 and will be paid one year from today. Every year thereafter until
forever, the payments will increase by 4 percent annually. What is the present value of your prize at
a discount rate of 10 percent?
A.
B.
C.
D.
E.
$166,666.67
$172,500.00
$183,333.33
$191,406.15
$200,000.00
67. A wealthy benefactor just donated some money to the local college. This gift was established to
provide scholarships for worthy students. The first scholarships will be granted one year from now
for a total of $50,000. Annually thereafter the scholarship amount will be increased by 5 percent to
help offset the effects of inflation. The scholarship fund will last indefinitely. What is the value of
this gift today at a discount rate of 7.5 percent?
A.
B.
C.
D.
E.
$1,500,000
$1,666,667
$1,750,000
$1,885,000
$2,000,000
68. Chadwicke & Co. is considering acquiring S&K Industries. Chadwicke & Co. believes that S&K
Industries can generate cash flows of $245,000, $270,000, and $315,000 over the next three years,
respectively. After that time, they feel the business will be worthless. Chadwicke & Co. has
determined that a 15 percent rate of return is applicable to this potential acquisition. What is
Chadwicke & Co. willing to pay today to acquire S&K Industries?
A.
B.
C.
D.
E.
$622,570
$623,480
$624,320
$624,510
$625,000
69.
You are considering two savings options. Both options offer a 6 percent rate of return. The first
option is to save $1,500, $2,500, and $3,500 a year over the next three years, respectively. The other
option is to save one lump sum amount today. If you want to have the same balance in your savings
account at the end of the three years, regardless of the savings method you select, how much do you
need to save today if you select the lump sum option?
A.
B.
C.
D.
E.
$6,211.16
$6,578.75
$7,013.47
$7,063.33
$7,500.00
70. You are considering two insurance settlement offers. The first offer includes annual payments of
$15,000, $22,500, and $25,000 over the next three years, respectively. The other offer is the
payment of one lump sum amount today. You are trying to decide which offer to accept given the
fact that your discount rate is 6.5 percent. What is the minimum amount that you will accept today if
you are to select the lump sum offer?
A.
B.
C.
D.
E.
$51,006.01
$52,398.29
$52,473.15
$54,618.07
$55,318.09
71. You are considering changing jobs. Your goal is to work for three years and then return to school
full-time in pursuit of an advanced degree. A potential employer just offered you an annual salary of
$36,000, $39,000, and $42,000 a year for the next three years, respectively. The offer also includes a
starting bonus of $1,000 payable immediately. What is this offer worth to you today at a discount
rate of 7.5 percent?
A.
B.
C.
D.
E.
$94,925.29
$98,206.13
$102,044.69
$104,879.92
$107,311.16
72. You are considering a project which will provide cash inflows of $2,100, $4,000, and $5,500 per
year over the next three years, respectively. What is the present value of these cash flows, given a 13
percent discount rate?
A.
B.
C.
D.
E.
$7,487.78
$7,711.42
$8,050.00
$8,213.09
$8,802.77
73. You just signed a contract that will pay you $13,000, $18,000, and $25,000 annually over the next
three years, respectively. What is the present value of these cash flows given a 15 percent discount
rate?
A.
B.
C.
D.
$41,352.84
$42,607.11
$42,908.17
$43,333.33
E. $46,827.94
74. You have some property for sale and have received two offers. The first offer is for $197,500 today
in cash. The second offer is the payment of $45,000 today and an additional $200,000 two years
from today. If the applicable discount rate is 12.50 percent, which offer should you accept and why?
A.
B.
C.
D.
E.
You should accept the $197,500 today because it has the higher net present value.
You should accept the $197,500 today because it has the lower future value.
You should accept the second offer because you will receive $245,000 total.
You should accept the second offer because you will receive about $5,525 more in today's dollars.
You should accept the second offer because it has a present value of $202,778.
75. Your local travel agent is advertising an upscale winter vacation package for travel two years from
now to Antarctica. The package requires that you pay $15,000 today, $25,000 one year from today,
and a final payment of $65,000 on the day you depart two years from today. What is the cost of this
vacation in today's dollars if the discount rate is 9 percent?
A.
B.
C.
D.
E.
$92,644.98
$94,607.78
$95,250.00
$97,411.18
$99,987.47
76. One year ago, Dover Supply deposited $5,200 in an investment account for the purpose of buying
new equipment four years from today. Today, they are adding another $5,200 to this account. The
company plans on making a final deposit of $12,000 to the account one year from today. How much
will be available when they are ready to buy the equipment, assuming they earn a 6.5 percent rate of
return?
A.
B.
C.
D.
E.
$22,109.16
$25,277.78
$25,409.18
$26,581.67
$28,309.47
77. Marcia will receive $6,350 this year, $7,280 next year, and $8,470 the following year. The cash
flows occur at the end of each year. What is the future value of these cash flows at the end of year 3
if the interest rate is 8 percent?
A.
B.
C.
D.
E.
$22,008.19
$22,116.23
$23,739.04
$24,258.58
$24,611.87
78. You plan on saving $6,500 this year, nothing next year, and $6,500 the following year. You will
deposit these amounts into your investment account at the end of the year. What will your
investment account be worth at the end of year three if you can earn 11.75 percent on your funds?
A. $14,617.24
B.
C.
D.
E.
$15,213.80
$15,916.78
$16,334.77
$17,001.42
79. Suzette is going to receive $25,000 today as the result of an insurance settlement. In addition, she
will receive $30,000 one year from today and $50,000 two years from today. She plans on saving all
of this money and investing it for her retirement. If Suzette can earn an average of 12 percent on her
investments, how much will she have in her account if she retires 20 years from today?
A.
B.
C.
D.
E.
$789,320.06
$807,446.41
$884,038.47
$930,178.26
$1,012,860.78
80. Stevenson Interiors has a $67,500 liability they must pay four years from today. The company is
opening a savings account so that the entire amount will be available when this debt needs to be
paid. The plan is to make an initial deposit today and then deposit an additional $10,000 a year for
the next four years, starting one year from today. The account pays a 5 percent rate of return. How
much does the firm need to deposit today?
A.
B.
C.
D.
E.
$18,299.95
$20,072.91
$21,400.33
$24,398.75
$31,076.56
81. The government has imposed a fine on the Shady Trader. The fine calls for annual payments of
$650,000, $900,000, and $1.2 million respectively over the next three years. The first payment is
due one year from today. The government plans to invest the funds until the final payment is
collected and then donate the entire amount, including the investment earnings, to a national
securities training center. The government will earn 4.25 percent on the funds held. How much will
the national securities training center receive three years from today?
A.
B.
C.
D.
E.
$2,844,674.06
$2,866,875.00
$2,884,549.69
$2,965,572.71
$3,115,737.67
82. Mrs. Black established a trust fund that provides $65,000 in scholarships each year for needy
students. The trust fund earns a fixed 5.5 percent rate of return. How much money did Mrs. Black
contribute to the fund assuming that only the interest income is distributed?
A.
B.
C.
D.
E.
$41,935.48
$61,904.76
$68,575.00
$1,300,000.00
$1,181,818.18
83. A preferred stock pays an annual dividend of $3.75. What is one share of this stock worth today if
the rate of return is 8 percent?
A.
B.
C.
D.
E.
$.30
$4.05
$8.00
$46.88
$52.50
84. You would like to establish a trust fund that will provide $300,000 a year forever for your heirs. The
trust fund is going to be invested very conservatively so the expected rate of return is only 4.5
percent. How much money must you deposit today to fund this gift for your heirs?
A.
B.
C.
D.
E.
$3.14 million
$3.22 million
$6.00 million
$6.67 million
$6.97 million
85. You just paid $425,000 for an insurance annuity that will pay you and your heirs $15,000 a year
forever. What rate of return are you earning on this policy?
A.
B.
C.
D.
E.
3.31 percent
3.33 percent
3.42 percent
3.47 percent
3.53 percent
86. Your father won a lottery years ago. The value of his winnings at the time was $225,000. He
invested this money such that it will provide annual payments of $12,000 a year to his heirs forever.
What is the rate of return?
A.
B.
C.
D.
E.
1.88 percent
2.85 percent
5.33 percent
5.49 percent
6.02 percent
87. The preferred stock of Western Mines has a 4.62 percent dividend yield. The stock is currently
priced at $38.50 per share. What is the amount of the annual dividend?
A.
B.
C.
D.
E.
$1.78
$1.84
$2.10
$2.13
$2.34
88. Your credit card company charges you 1.45 percent per month. What is the annual percentage rate
on your account?
A.
B.
C.
D.
E.
16.67 percent
16.79 percent
17.40 percent
18.00 percent
18.86 percent
89. What is the annual percentage rate on a loan with a stated rate of 1.75 percent per quarter?
A.
B.
C.
D.
E.
6.50 percent
7.00 percent
7.19 percent
8.00 percent
8.13 percent
90. You are paying an effective annual rate of 19.56 percent on your credit card. The interest is
compounded monthly. What is the annual percentage rate on this account?
A.
B.
C.
D.
E.
17.50 percent
18.00 percent
18.25 percent
18.64 percent
19.00 percent
91. What is the effective annual rate if a bank charges you 8.48 percent compounded quarterly?
A.
B.
C.
D.
E.
8.20 percent
8.48 percent
8.75 percent
9.02 percent
9.46 percent
92. Your credit card company quotes you a rate of 18.9 percent. Interest is billed monthly. What is the
actual rate of interest you are paying?
A.
B.
C.
D.
E.
19.48 percent
19.67 percent
20.63 percent
20.87 percent
21.21 percent
93. Tight-Wad Rosie loans money at an annual rate of 22 percent and compounds interest daily. What is
the actual rate she is charging on her loans?
A.
B.
C.
D.
E.
94.
24.49 percent
24.60 percent
25.54 percent
26.78 percent
26.99 percent
You are considering two loans. The terms of the two loans are equivalent with the exception of the
interest rates. Loan A offers a rate of 8.10 percent compounded daily. Loan B offers a rate of 8.25
percent compounded semi-annually. Loan _____ is the better offer because______.
A.
B.
C.
D.
E.
A; the effective annual rate is 8.41 percent
A; the annual percentage rate is 8.41 percent
B; the annual percentage rate is 8.32 percent
B; the interest is compounded less frequently
B; the effective annual rate is 8.42 percent
95. You have $3,500 that you want to use to open a savings account. You have found five different
accounts that are acceptable to you. All you have to do now is determine which account you want to
use such that you can earn the highest rate of interest possible. Which account should you use based
upon the annual percentage rates quoted by each bank?
account A: 3.25 percent, compounded annually
account B: 3.18 percent, compounded monthly
account C: 3.20 percent, compounded semi-annually
account D: 3.15 percent, compounded continuously
account E: 3.15 percent, compounded quarterly
A.
B.
C.
D.
E.
account A
account B
account C
account D
account E
96. What is the effective annual rate of 17.9 percent compounded continuously?
A.
B.
C.
D.
E.
18.86 percent
18.98 percent
19.37 percent
19.44 percent
19.60 percent
97. What is the effective annual rate of 10.35 percent compounded continuously?
A.
B.
C.
D.
E.
10.67 percent
10.84 percent
10.90 percent
10.97 percent
11.02 percent
98. Newtown Bank wants to appear competitive based on quoted loan rates and thus must offer an 8.7
percent annual percentage rate on its loans. What is the maximum rate the bank can actually earn
based on the quoted rate?
A.
B.
C.
D.
E.
8.89 percent
8.94 percent
8.98 percent
9.02 percent
9.09 percent
99. You are going to loan your friend $1,500 for one year at a 6 percent rate of interest. How much
additional interest can you earn if you compound the rate continuously rather than annually?
A.
B.
C.
D.
E.
$1.97
$2.75
$3.14
$3.36
$4.20
100. You are borrowing money today at a 7.9 percent interest rate. You will repay the principle plus all
the interest in one lump sum of $7,500 four years from today. How much are you borrowing?
A.
B.
C.
D.
E.
$5,250.00
$5,233.50
$5,533.19
$5,611.08
$6,000.00
101. This morning you borrowed $6,000 at 8.45 percent annual interest. You are to repay the loan
principle plus all of the loan interest in one lump sum three years from today. How much will you
have to repay?
A.
B.
C.
D.
E.
$7,653.14
$7,680.29
$7,711.21
$7,450.89
$7,682.20
102. On this date last year, you borrowed $12,500. You have to repay the loan principle plus all of the
interest five years from today. The payment that is required at that time is $17,500. What is the
interest rate on this loan?
A.
B.
C.
D.
E.
5.77 percent
7.87 percent
8.25 percent
8.40 percent
9.89 percent
103. The Corner Drug Store just borrowed $250,000 from the bank. The loan terms require annual
interest payments with the entire principle payable after six years. The interest rate is 9.45 percent.
How much will The Corner Drug Store owe the bank in year five of the loan?
A.
B.
C.
D.
E.
$23,625.00
$32,750.00
$44,367.21
$56,479.75
$65,025.31
104.
On the day you enter college you borrow $12,000 from your local bank. The terms of the loan
include an interest rate of 5.45 percent. The terms stipulate that the principle is due in full one year
after you graduate. Interest is to be paid annually at the end of each year. Assume that you complete
college in four years. How much will you pay the bank one year after you graduate?
A.
B.
C.
D.
E.
$2,806.27
$3,419.59
$12,000.00
$12,654.00
$15,646.39
105. On the day you enter college you borrow $18,000 from your local bank. The terms of the loan
include an interest rate of 5.75 percent. The terms stipulate that the principle is due in full one year
after you graduate. Interest is to be paid annually at the end of each year. Assume that you complete
college in four years. How much total interest will you pay on this loan?
A.
B.
C.
D.
E.
$1,035
$4,140
$4,051
$4,181
$5,175
106. On November 1, you take out a mortgage in the amount of $189,500 at an 8.5 percent interest rate
compounded monthly. Payments are to be made at the end of each month for thirty years. How
much of the first loan payment is interest? (Assume that each month is equal to 1/12 of a year.)
A.
B.
C.
D.
E.
$536.92
$1,342.29
$2,684.58
$4,974.38
$6,316.67
107. On March 1, you borrow $239,000 to buy a house. The mortgage rate is 7.75 percent. The loan is to
be repaid in equal monthly payments over 20 years. The first payment is due on April 1. How much
of the third payment applies to the principle balance? (Assume that each month is equal to 1/12 of a
year.)
A.
B.
C.
D.
E.
$418.53
$421.23
$423.95
$1,540.84
$1,543.54
Essay Questions
108. Explain the difference between the effective annual rate (EAR) and the annual percentage rate
(APR).
109. Assume you are the advertising manager of your local bank. Which rate do you prefer to advertise
on monthly-compounded loans, the effective annual rate (EAR) or the annual percentage rate
(APR)? Which rate do you prefer to advertise on quarterly-compounded savings accounts, the EAR
or the APR? Explain. As a consumer, which rate do you prefer and why?
110. You are considering two annuities, both of which pay a total of $10,000 over the life of the annuity.
Annuity A pays $1,000 at the end of each year for the next 10 years. Annuity B pays $500 at the
end of each year for the next 20 years. Which annuity has the greater value today? Is there any
circumstance where the two annuities would have equal values as of today? Explain.
111. There are three factors that affect the present value of an annuity. Explain what these three factors
are and discuss how an increase in each factor will impact the present value of the annuity.
112. Bill owns a perpetuity which pays $5,000 at the end of each year. He comes to you and offers to
sell you all of the payments to be received after the 25th year for a price of $10,000. At an interest
rate of 8 percent, should you accept his offer? What does this suggest to you about the value of a
perpetuity?
ch6 KEY
Multiple Choice Questions
1. An annuity is a(n):
A.
B.
C.
D.
E.
level stream of perpetual cash flows.
level stream of cash flows occurring for a fixed period of time.
increasing stream of perpetual cash flows.
increasing stream of cash flows occurring for a fixed period of time.
decreasing stream of cash flows occurring for a fixed period of time.
Ross - Chapter 006 #1
SECTION: 6.2
TOPIC: ANNUITY
TYPE: DEFINITIONS
2. Which one of the following is the annuity present value factor?
A. (1 + Present value factor) / r
B. (1 Present value factor) / r
C. Present value factor + (1 / r)
D. (Present value factor r) + (1 / r)
E. r (1 + Present value factor)
Ross - Chapter 006 #2
SECTION: 6.2
TOPIC: PRESENT VALUE FACTOR FOR ANNUITIES
TYPE: DEFINITIONS
3. What is a consol?
A.
B.
C.
D.
E.
a type of annuity issued by an insurance company
a name used in Canada for a perpetuity
an annuity stream of payments received as an inheritance
a decreasing stream of perpetual payments
an increasing stream of perpetual payments
Ross - Chapter 006 #3
SECTION: 6.2
TOPIC: CONSOL
TYPE: DEFINITIONS
4. How is an annuity due defined?
A.
B.
C.
D.
E.
a stream of cash flows occurring for less than one year
an annuity stream of payments that are disbursed rather than received
an annuity stream of payments that are received rather than disbursed
a set of equal cash flows occurring at the end of each period
a set of equal cash flows occurring at the beginning of each period
Ross - Chapter 006 #4
SECTION: 6.2
TOPIC: ANNUITIES DUE
TYPE: DEFINITIONS
5. An annuity stream where the payments occur forever is called a(n):
A.
B.
C.
D.
E.
annuity due.
indemnity.
perpetuity.
amortized cash flow stream.
ordinary annuity.
Ross - Chapter 006 #5
SECTION: 6.2
TOPIC: PERPETUITY
TYPE: DEFINITIONS
6. What is the interest rate that is expressed in terms of the interest payment made each period called?
A.
B.
C.
D.
E.
stated interest
compound interest
effective annual
periodic interest
daily interest
Ross - Chapter 006 #6
SECTION: 6.3
TOPIC: STATED INTEREST RATES
TYPE: DEFINITIONS
7. What is the interest rate that is expressed as if it were compounded once per year called?
A.
B.
C.
D.
E.
stated interest
compound interest
effective annual
periodic interest
daily interest
Ross - Chapter 006 #7
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: DEFINITIONS
8. What is the interest rate charged per period multiplied by the number of periods per year called?
A.
B.
C.
D.
E.
effective annual
annual percentage
periodic interest
compound interest
daily interest
Ross - Chapter 006 #8
SECTION: 6.3
TOPIC: ANNUAL PERCENTAGE RATE
TYPE: DEFINITIONS
9. A loan where the borrower receives money today and repays a single lump sum on a future date is
called a(n) _____ loan.
A. amortized
B. continuous
C. balloon
D. pure discount
E. interest-only
Ross - Chapter 006 #9
SECTION: 6.4
TOPIC: PURE DISCOUNT LOAN
TYPE: DEFINITIONS
10. A loan where the borrower pays interest each period and repays the entire principal of the loan at
some point in the future is called a(n) _____ loan.
A.
B.
C.
D.
E.
amortized
continuous
balloon
pure discount
interest-only
Ross - Chapter 006 #10
SECTION: 6.4
TOPIC: INTEREST-ONLY LOAN
TYPE: DEFINITIONS
11. A loan where the borrower pays interest each period, and repays some or all of the principal of the
loan over time is called a(n) _____ loan.
A.
B.
C.
D.
E.
amortized
continuous
balloon
pure discount
interest-only
Ross - Chapter 006 #11
SECTION: 6.4
TOPIC: AMORTIZED LOAN
TYPE: DEFINITIONS
12. A loan where the borrower pays interest each period, repays part of the principal of the loan over
time, and repays the remainder of the principal at the end of the loan, is called a(n) _____ loan.
A.
B.
C.
D.
E.
amortized
continuous
balloon
pure discount
interest-only
Ross - Chapter 006 #12
SECTION: 6.4
TOPIC: BALLOON LOAN
TYPE: DEFINITIONS
13. You are comparing two annuities which offer monthly payments of $500 for ten years and pay 0.5
percent interest per month. Annuity A will pay you on the first of each month while annuity B will
pay you on the last day of each month. Which one of the following statements is correct concerning
these two annuities?
A. Both annuities are of equal value today.
B.
C.
D.
E.
Annuity B is an annuity due.
Annuity A has a higher future value than annuity B.
Annuity B has a higher present value than annuity A.
Both annuities have the same future value as of ten years from today.
Ross - Chapter 006 #13
SECTION: 6.2
TOPIC: ORDINARY ANNUITY VERSUS ANNUITY DUE
TYPE: CONCEPTS
14. You are comparing two investment options that pay 7 percent interest annually. Both options will
provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the
first year followed by four annual payments of $3,000 each. Option B pays five annual payments of
$4,000 each. Which one of the following statements is correct given these two investment options?
A.
B.
C.
D.
E.
Both options are of equal value given that they both provide $20,000 of income.
Option A is the better choice.
Option B has a higher present value than option A.
Option B is a perpetuity.
Option A is preferable because it is an annuity due.
Ross - Chapter 006 #14
SECTION: 6.1 AND 6.2
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: CONCEPTS
15. You are considering two projects with the following cash flows:
Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of return.
II. Both projects have the same future value given a zero rate of return.
III. Both projects have the same future value at any point in time, given a positive rate of return.
IV. Project B has a higher future value than project A, given a positive rate of return.
A.
B.
C.
D.
E.
II only
IV only
I and III only
II and IV only
I, II, and III only
Ross - Chapter 006 #15
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND FUTURE VALUE
TYPE: CONCEPTS
16. How does a perpetuity differ from an annuity?
A. perpetuity payments vary with the rate of inflation
B. perpetuity payments vary with the market rate of interest
C. perpetuity payments are variable while annuity payments are constant
D. perpetuity payments never cease
E. annuity payments are smaller in amount
Ross - Chapter 006 #16
SECTION: 6.2
TOPIC: PERPETUITY VERSUS ANNUITY
TYPE: CONCEPTS
17. Which one of the following statements concerning the annual percentage rate is correct?
A. The annual percentage rate considers interest on interest.
B. The rate of interest you actually pay on a loan is called the annual percentage rate.
C. The effective annual rate is lower than the annual percentage rate when an interest rate is
compounded quarterly.
D. When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.
E. The annual percentage rate equals the effective annual rate when the rate on an account is designated
as simple interest.
Ross - Chapter 006 #17
SECTION: 6.3
TOPIC: ANNUAL PERCENTAGE RATE
TYPE: CONCEPTS
18. Which one of the following statements concerning interest rates is correct?
A.
B.
C.
D.
The stated rate is the same as the effective annual rate.
The effective annual rate is the rate that applies if interest is compounded annually.
The annual percentage rate increases as the number of compounding periods per year increases.
Borrowers prefer more frequent compounding on their loan accounts given a stated annual
percentage rate.
E. For any positive rate of interest, the effective annual rate will always exceed the annual percentage
rate.
Ross - Chapter 006 #18
SECTION: 6.3
TOPIC: INTEREST RATES
TYPE: CONCEPTS
19. Which of the following statements concerning the effective annual rate are correct?
I. When making financial decisions, you should compare effective annual rates rather than annual
percentage rates.
II. The more frequently interest is compounded, the higher the effective annual rate given a fixed
annual percentage rate.
III. A quoted rate of 6 percent compounded continuously has a higher effective annual rate than if
the rate were compounded daily.
IV. When choosing which loan to accept, you should select the offer with the highest effective
annual rate.
A.
B.
C.
D.
E.
I and II only
I and IV only
I, II, and III only
II, III, and IV only
I, II, III, and IV
Ross - Chapter 006 #19
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: CONCEPTS
20. The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is
computed as:
A. .09e
B. e.09
1.
q.
C. e (1 + .09).
D. e.09 1.
E. (1 + .09)q.
Ross - Chapter 006 #20
SECTION: 6.3
TOPIC: CONTINUOUS COMPOUNDING
TYPE: CONCEPTS
21. A pure discount loan is a(n):
A.
B.
C.
D.
E.
example of a present value problem.
loan that is interest-free.
loan that grants you a discount if you pay your payments on time.
loan that requires all interest to be paid at the time the loan is made.
loan that discounts the payments if you pay them in advance.
Ross - Chapter 006 #21
SECTION: 6.4
TOPIC: PURE DISCOUNT LOAN
TYPE: CONCEPTS
22. The principle amount of an interest-only loan is:
A.
B.
C.
D.
E.
never repaid.
repaid in equal increments and included in each loan payment.
repaid in full at the end of the loan period.
repaid in equal annual payments even when the loan interest is repaid monthly.
repaid in increasing increments and included in each loan payment.
Ross - Chapter 006 #22
SECTION: 6.4
TOPIC: INTEREST-ONLY LOAN
TYPE: CONCEPTS
23. An amortized loan:
A. requires the principle amount to be repaid in even increments over the life of the loan.
B. may have equal or increasing amounts applied to the principle from each loan payment.
C. requires that all interest be repaid on a monthly basis while the principle is repaid at the end of the
loan term.
D. requires that all payments be equal in amount and include both principle and interest.
E. repays both the principle and the interest in one lump sum at the end of the loan term.
Ross - Chapter 006 #23
SECTION: 6.4
TOPIC: AMORTIZED LOAN
TYPE: CONCEPTS
24. Your parents are giving you $500 a month for five years while you attend college to earn both a
bachelor's and a master's degree. At a 7 percent discount rate, what are these payments worth to you
when you first enter college?
A.
B.
C.
D.
E.
$22,681.13
$24,601.18
$25,251.00
$27,209.17
$30,000.00
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #24
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND PRESENT VALUE
TYPE: PROBLEMS
25. You just won the lottery! As your prize you will receive $1,500 a month for twenty years. If you can
earn 9 percent on your money, what is this prize worth to you today?
A.
B.
C.
D.
E.
$152,087.19
$156,098.29
$157,408.16
$164,313.82
$166,717.43
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #25
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND PRESENT VALUE
TYPE: PROBLEMS
26. Angela is able to pay $230 a month for 6 years on a car loan. If the interest rate is 7.9 percent, how
much can she afford to borrow to buy a car?
A.
B.
C.
D.
E.
$13,154.54
$13,408.17
$13,528.28
$13,666.67
$13,809.19
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #26
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND PRESENT VALUE
TYPE: PROBLEMS
27. You are the beneficiary of a life insurance policy. The insurance company informs you that you have
two options for receiving the insurance proceeds. You can receive a lump sum of $150,000 today or
receive payments of $1,627.89 a month for 10 years. You can earn 7.5 percent on your money.
Which option should you take and why?
A.
B.
C.
D.
E.
You should accept the payments because they are worth $151,291.91 to you today.
You should accept the payments because they are worth $153,417.68 to you today.
You should accept the payments because they are worth $154,311.12 to you today.
You should accept the $150,000 because the payments are only worth $137,141.17 to you today.
You should accept the $150,000 because the payments are only worth $134,808.17 to you today.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #27
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND PRESENT VALUE
TYPE: PROBLEMS
28. Your employer contributes $50 a week to your retirement plan. Assume that you work for your
employer for another 12 years and that the applicable discount rate is 8 percent. Given these
assumptions, what is this employee benefit worth to you today?
A.
B.
C.
D.
E.
$20,046.80
$21,212.12
$21,406.14
$22,989.76
$23,521.79
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #28
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND PRESENT VALUE
TYPE: PROBLEMS
29. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual
payments of $82,000 for the next 3 years. At a discount rate of 9.5 percent, what is this job worth to
you today?
A.
B.
C.
D.
E.
$162,556.16
$205,730.36
$209,408.37
$211,417.06
$213,918.01
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #29
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND PRESENT VALUE
TYPE: PROBLEMS
30. Swenson & Swenson just decided to save $2,200 a month for the next 6 years as a safety net for
recessionary periods. The money will be set aside in a separate savings account which pays 5.5
percent interest compounded monthly. They deposit the first $2,200 today. If the company had
wanted to deposit an equivalent lump sum today, how much would they have had to deposit?
A. $130,297.18
B.
C.
D.
E.
$134,656.34
$135,273.51
$137,778.92
$138,001.14
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #30
SECTION: 6.2
TOPIC: ANNUITY DUE AND PRESENT VALUE
TYPE: PROBLEMS
31. You need some money today and the only friend you have that has any is your miserly friend. He
agrees to loan you the money you need, if you make payments of $15 a month for the next nine
months. In keeping with his reputation, he requires that the first payment be paid today. He also
charges you 2 percent interest per month. How much money are you borrowing?
A.
B.
C.
D.
E.
$120.67
$122.43
$124.88
$126.49
$135.00
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #31
SECTION: 6.2
TOPIC: ANNUITY DUE AND PRESENT VALUE
TYPE: PROBLEMS
32. You buy an annuity which will pay you $7,800 a year for 15 years. The payments are paid on the
first day of each year. What is the value of this annuity today if the discount rate is 12 percent?
A.
B.
C.
D.
$53,124.74
$59,499.71
$62,407.18
$64,311.21
E. $65,258.58
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #32
SECTION: 6.2
TOPIC: ANNUITY DUE AND PRESENT VALUE
TYPE: PROBLEMS
33. You are scheduled to receive annual payments of $15,000 for each of the next 13 years. The
discount rate is 9 percent. What is the difference in the present value if you receive these payments
at the beginning of each year rather than at the end of each year?
A.
B.
C.
D.
E.
$9,211.07
$9,698.17
$9,704.38
$9,876.47
$10,107.32
Difference = $122,410.88
Note: The difference = .09
$112,303.56 = $10,107.32
$112,303.5589 = $10,107.32
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #33
SECTION: 6.2
TOPIC: ORDINARY ANNUITY VERSUS ANNUITY DUE
TYPE: PROBLEMS
34.
You are comparing two annuities with equal present values. The applicable discount rate is 11.25
percent. One annuity pays $6,000 on the first day of each year for 25 years. How much does the
second annuity pay each year for 25 years if it pays at the end of each year?
A.
B.
C.
D.
E.
$6,350
$6,408
$6,675
$6,921
$7,100
Because each payment is received one year later, then the cash flow has to equal: $6,000
= $6,675
(1 + .1125)
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #34
SECTION: 6.2
TOPIC: ORDINARY ANNUITY VERSUS ANNUITY DUE
TYPE: PROBLEMS
35. Betsy receives $600 on the first of each month. Jen receives $600 on the last day of each month.
Both Betsy and Jen will receive payments for four years. At a 7 percent discount rate, what is the
difference in the present value of these two sets of payments?
A.
B.
C.
D.
E.
$135.40
$137.46
$138.09
$141.41
$146.16
Difference = $25,202.28
$25,056.12 = $146.16
Note: Difference
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #35
SECTION: 6.2
TOPIC: ORDINARY ANNUITY VERSUS ANNUITY DUE
TYPE: PROBLEMS
36. What is the future value of $3,400 a year for 6 years at a 9 percent rate of interest?
A.
B.
C.
D.
E.
$22,051.60
$23,876.49
$24,011.77
$25,579.34
$27,881.48
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #36
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND FUTURE VALUE
TYPE: PROBLEMS
37. What is the future value of $1,650 a year for 9 years at a 7 percent rate of interest?
A.
B.
C.
D.
E.
$17,409.08
$19,763.68
$21,254.45
$23,136.19
$25,222.22
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #37
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND FUTURE VALUE
TYPE: PROBLEMS
38. Marcia plans on saving $6,000 a year and expects to earn an annual rate of 11.5 percent. How much
will she have in her account at the end of 40 years?
A.
B.
C.
D.
E.
$4,007,098
$4,467,914
$5,911,408
$6,221,009
$6,347,238
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #38
SECTION: 6.2
TOPIC: ORDINARY ANNUITY AND FUTURE VALUE
TYPE: PROBLEMS
39. Christie adds $2,000 to her savings account on the first day of each year. Todd adds $2,000 to his
savings account on the last day of each year. They both earn a 7 percent rate of return. What is the
difference in their savings account balances at the end of 25 years?
A.
B.
C.
D.
E.
$8,854.86
$9,003.48
$9,126.39
$9,130.07
$9,041.14
Difference = $135,352.94
$126,498.08 = $8,854.86
Note: Difference = $126,498.08
.07 = $8,854.8656
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #39
SECTION: 6.2
TOPIC: ANNUITY DUE VERSUS ORDINARY ANNUITY
TYPE: PROBLEMS
40. You borrow $14,500 to buy a car. The terms of the loan call for monthly payments for 6 years at a
6.9 percent rate of interest. What is the amount of each payment?
A.
B.
C.
D.
E.
$238.87
$240.27
$246.51
$249.08
$252.50
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #40
SECTION: 6.2
TOPIC: ORDINARY ANNUITY PAYMENTS
TYPE: PROBLEMS
41. You borrow $187,500 to buy a house. The mortgage rate is 7.25 percent and the loan period is 25
years. Payments are made monthly. If you pay for the house according to the loan agreement, how
much total interest will you pay?
A. $186,408
B.
C.
D.
E.
$219,079
$227,001
$264,319
$291,406
Total interest = ($1,355.262871
25
12)
$187,500 = $219,079
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #41
SECTION: 6.2 AND 6.4
TOPIC: ORDINARY ANNUITY PAYMENTS AND COST OF INTEREST
TYPE: PROBLEMS
42. The Home Improvement Center (HIC) has an employment contract with the newly hired CEO. The
contract requires a lump sum payment of $32.4 million be paid to the CEO upon the successful
completion of her first five years of service. HIC wants to set aside an equal amount of money at the
end of each year to cover this anticipated cash outflow and will earn 7.25 percent on the funds. How
much must HIC set aside each year for this purpose?
A.
B.
C.
D.
E.
$5,227,064
$5,606,026
$5,668,987
$6,778,958
$7,270,433
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #42
SECTION: 6.2
TOPIC: ORDINARY ANNUITY PAYMENTS AND FUTURE VALUE
TYPE: PROBLEMS
43. Pat retires at age 58 and expects to live to age 90. On the day she retires, she has $287,409 in her
retirement savings account. She is conservative and expects to earn 5.25 percent on her money
during her retirement years. How much can she withdraw from her retirement savings each month if
she plans to die on the day she spends her last penny?
A.
B.
C.
D.
E.
$1,359.79
$1,364.18
$1,540.01
$1,546.75
$1,702.11
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #43
SECTION: 6.2
TOPIC: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
44. The Chelsey Group purchased a piece of property for $4.8 million. They paid a down payment of 25
percent in cash and financed the balance. The loan terms require monthly payments for 25 years at
an annual percentage rate of 8.65 percent compounded monthly. What is the amount of each
mortgage payment?
A.
B.
C.
D.
E.
$27,804.13
$27,989.62
$28,406.23
$29,142.91
$29,352.98
Amount financed = $4,800,000
(1
.25) = $3,600,000
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #44
SECTION: 6.2
TOPIC: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
45. You estimate that you will have $31,870 in student loans by the time you graduate. The interest rate
is 5.45 percent. If you want to have this debt paid in full within four years, how much must you pay
each month?
A.
B.
C.
D.
E.
$737.11
$738.82
$739.34
$740.46
$741.09
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #45
SECTION: 6.2
TOPIC: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
46. You are buying a previously owned car today at a price of $4,950. You are paying $750 down in
cash and financing the balance for 42 months at 8.45 percent. What is the amount of each loan
payment?
A.
B.
C.
D.
E.
$108.54
$115.05
$115.86
$135.60
$136.55
Amount financed = $4,950
$750 = $4,200
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #46
SECTION: 6.2
TOPIC: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
47. The Helping Hand Insurance Company wants to sell you an annuity which will pay you $2,750 per
quarter for 20 years. You want to earn a minimum rate of return of 6.25 percent. What is the most
you are willing to pay as a lump sum today to buy this annuity?
A.
B.
C.
D.
E.
$125,085.43
$127,039.89
$179,544.36
$193,573.08
$198,747.27
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #47
SECTION: 6.2
TOPIC: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
48. Your car dealer is willing to lease you a new car for $199 a month for 72 months. Payments are due
on the first day of each month starting with the day you sign the lease contract. If your cost of
money is 5.45 percent, what is the current value of the lease?
A.
B.
C.
D.
E.
$11,708.18
$11,297.60
$12,197.74
$12,253.14
$13,008.31
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #48
SECTION: 6.2
TOPIC: ANNUITY DUE PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
49. Your favorite grandmother left you an inheritance in the form of a trust. The trust agreement states
that you are to receive $10,000 on the first day of each year, starting immediately and continuing for
25 years. What is the value of this inheritance today if the applicable discount rate is 7.5 percent?
A.
B.
C.
D.
E.
$107,006.67
$111,469.46
$114,141.41
$117,208.42
$119,829.67
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #49
SECTION: 6.2
TOPIC: ANNUITY DUE PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
50. You just received an insurance settlement offer related to an accident you had four years ago. The
offer gives you a choice of one of the following three offers:
Option A: $6,500 on the first day of each year for 40 years
Option B: $610 on the first day of each month for 25 years
Option C: $75,000 as a lump sum payment today
You can earn 8.75 percent on your investments. You do not care if you personally receive the funds
or if they are paid to your heirs should you die within the settlement period. Which one of the
following statements is correct given this information?
A. Option C is the best choice since you can earn 8.75 percent on the entire lump sum starting
immediately.
B. Option B is the best choice since it offers the largest number of payments.
C. Option A is the best choice since it has the largest present value.
D. Option B is the best choice since it has the largest present value.
E. You are indifferent to the three options as they are all equal in value to you.
Option A has a present value of $77,966.27.
Option B has a present value of $74,737.30.
Option C has a present value of $75,000.
Option A is the best choice since it has the largest present value.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #50
SECTION: 6.2
TOPIC: ANNUITY DUE PAYMENTS AND PRESENT VALUE
TYPE: PROBLEMS
51. Priestly Engineers wants to save $145,000 to buy some new equipment two years from now. The
plan is to set aside an equal amount of money on the first day of each quarter starting today. The
firm can earn a 5.5 percent rate of return. How much does the firm have to save each quarter to
achieve their goal?
A.
B.
C.
D.
E.
$17,084.43
$17,036.35
$17,270.60
$17,308.67
$17,421.18
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #51
SECTION: 6.2
TOPIC: ANNUITY DUE PAYMENTS AND FUTURE VALUE
TYPE: PROBLEMS
52. Starting today, Stephen is going to contribute $200 on the first of each month to his retirement
account. His employer will contribute an additional 50 percent of the amount Stephen contributes. If
both Stephen and his employer continue to do this and he can earn a monthly rate of 0.75 percent,
how much will Stephen have in his retirement account 40 years from now?
A.
B.
C.
D.
E.
$936,264
$943,286
$1,404,396
$1,414,929
$1,672,413
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #52
SECTION: 6.2
TOPIC: ANNUITY DUE PAYMENTS AND FUTURE VALUE
TYPE: PROBLEMS
53. You are considering an annuity which costs $250,000 today. The annuity pays $30,000 a year at an
annual interest rate of 6.25 percent. What is the length of the annuity time period?
A.
B.
C.
D.
E.
11.11 years
11.67 years
12.14 years
12.38 years
12.49 years
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #53
SECTION: 6.2
TOPIC: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUE
TYPE: PROBLEMS
54. Today, you signed loan papers agreeing to borrow $35,000 at 9.75 percent compounded monthly.
The loan payment is $700 a month. How many loan payments must you make before the loan is paid
in full?
A.
B.
C.
D.
E.
62.00
63.25
63.48
63.74
64.42
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #54
SECTION: 6.2
TOPIC: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUE
TYPE: PROBLEMS
55. Huntington Manor would like to buy some additional land and build a new assisted living center.
The anticipated total cost is $12.4 million. The CEO of the firm is quite conservative and will only
do this when the company has sufficient funds to pay cash for the entire construction project.
Management has decided to save $235,000 a month for this purpose. The firm earns 7 percent
compounded monthly on the funds it saves. How long does the company have to wait before
expanding its operations?
A.
B.
C.
D.
E.
30.32 months
31.23 months
46.14 months
49.68 months
54.00 months
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #55
SECTION: 6.2
TOPIC: ORDINARY ANNUITY TIME PERIODS AND FUTURE VALUE
TYPE: PROBLEMS
56. Today, you are retiring. You have a total of $387,419 in your retirement savings and have the funds
invested such that you expect to earn an average of 6.8 percent, compounded monthly, on this
money throughout your retirement years. You want to withdraw $3,000 at the beginning of every
month, starting today. How long will it be until you run out of money?
A.
B.
C.
D.
E.
225.05 months
228.47 months
230.19 months
232.14 months
233.33 months
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #56
SECTION: 6.2
TOPIC: ANNUITY DUE TIME PERIODS AND PRESENT VALUE
TYPE: PROBLEMS
57. Slow Poke Corp. is notoriously known as a slow-payer. The firm currently needs to borrow $36,000
and only one company will even deal with them. The terms of the loan call for daily payments of
$55. The first payment is due today. The interest rate is 24 percent compounded daily. What is the
time period of this loan?
A.
B.
C.
D.
E.
2.34 years
2.48 years
2.54 years
2.67 years
2.82 years
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #57
SECTION: 6.2
TOPIC: ANNUITY DUE TIME PERIODS
TYPE: PROBLEMS
58. Jonathan's Apple Orchard is considering a project which has an initial cash requirement of $218,700.
The project will yield cash flows of $3,725 monthly for 72 months. What is the rate of return on this
project?
A.
B.
C.
D.
E.
6.97 percent
7.04 percent
7.28 percent
7.41 percent
7.56 percent
; This cannot be solved directly, so it's easiest to just use the
calculator method to get an answer. You can then use the calculator answer as the rate in the formula
just to verify that your answer is correct.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #58
SECTION: 6.2
TOPIC: ORDINARY ANNUITY INTEREST RATE
TYPE: PROBLEMS
59. Your insurance agent is trying to sell you an annuity that costs $165,000 today. By buying this
annuity, your agent promises that you will receive payments of $775 a month for the next 40 years.
What is the rate of return on this investment?
A.
B.
C.
D.
E.
4.28 percent
4.39 percent
4.52 percent
4.67 percent
4.81 percent
This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can
then use the calculator answer as the rate in the formula just to verify that your answer is correct.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #59
SECTION: 6.2
TOPIC: ORDINARY ANNUITY INTEREST RATE
TYPE: PROBLEMS
60. You have been investing $165 a month for the last 12 years. Today, your investment account is
worth $60,508.29. What is your average rate of return on your investments?
A.
B.
C.
D.
E.
13.77 percent
13.80 percent
13.84 percent
13.89 percent
14.03 percent
This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can
then use the calculator answer as the rate in the formula just to verify that your answer is correct.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #60
SECTION: 6.2
TOPIC: ORDINARY ANNUITY INTEREST RATE
TYPE: PROBLEMS
61. Susan Sunshine has been investing $160,000 a year for the past 9 years into Sunshine in a Can, Inc.
Today, as the sole shareholder, she sold Sunshine in a Can, Inc. for $2.6 million. What is her rate of
return on this investment?
A.
B.
C.
D.
E.
14.13 percent
14.24 percent
14.29 percent
14.37 percent
14.42 percent
This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can
then use the calculator answer as the rate in the formula just to verify that your answer is correct.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #61
SECTION: 6.2
TOPIC: ORDINARY ANNUITY INTEREST RATE
TYPE: PROBLEMS
62. Your grandmother helped you start saving $10 a month beginning on your 6th birthday. She always
made you make your deposit on the first day of each month just to "start the month out right".
Today, you turn 21 and have $2,994.21 in your account. What is the rate of return on your savings?
A.
B.
C.
D.
E.
6.18 percent
6.21 percent
6.25 percent
6.28 percent
6.31 percent
This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can
then use the calculator answer as the rate in the formula just to verify that your answer is correct.
To more decimal places, the answer is 6.2799899 percent.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #62
SECTION: 6.2
TOPIC: ANNUITY DUE INTEREST RATE
TYPE: PROBLEMS
63. Today, you turn 21. Your birthday wish is that you will be a millionaire by your 41st birthday. In an
attempt to reach this goal, you decide to save $30 a day, every day until you turn 41. You open an
investment account and deposit your first $30 today. What rate of return must you earn to achieve
your goal?
A.
B.
C.
D.
E.
12.65 percent
12.71 percent
12.78 percent
12.82 percent
12.85 percent
This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can
then use the calculator answer as the rate in the formula just to verify that your answer is correct.
To more decimal places, the answer is 12.65031578 percent.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #63
SECTION: 6.2
TOPIC: ANNUITY DUE INTEREST RATE
TYPE: PROBLEMS
64. You just settled an insurance claim. The settlement calls for increasing payments over a 5-year
period. The first payment will be paid one year from now in the amount of $30,000. The following
payments will increase by 6 percent annually. What is the value of this settlement to you today if
you can earn 8.5 percent on your investments?
A.
B.
C.
D.
E.
$126,408.28
$129,417.11
$132,023.05
$141,414.14
$152,008.16
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #64
SECTION: 6.2
TOPIC: GROWING ANNUITY PRESENT VALUE
TYPE: PROBLEMS
65. Your grandmother left you an inheritance that will provide an annual income for 25 years. You will
receive the first payment one year from now in the amount of $10,000. Every year after that, the
payment amount will increase by 5 percent. What is your inheritance worth to you today if you can
earn 12 percent on your investments?
A.
B.
C.
D.
E.
$114,400.49
$116,666.67
$121,121.21
$123,464.12
$126,908.17
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #65
SECTION: 6.2
TOPIC: GROWING ANNUITY PRESENT VALUE
TYPE: PROBLEMS
66. You just won a national sweepstakes! For your prize, you opted to receive never-ending payments.
The first payment will be $10,000 and will be paid one year from today. Every year thereafter until
forever, the payments will increase by 4 percent annually. What is the present value of your prize at
a discount rate of 10 percent?
A.
B.
C.
D.
E.
$166,666.67
$172,500.00
$183,333.33
$191,406.15
$200,000.00
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #66
SECTION: 6.2
TOPIC: GROWING PERPETUITY PRESENT VALUE
TYPE: PROBLEMS
67. A wealthy benefactor just donated some money to the local college. This gift was established to
provide scholarships for worthy students. The first scholarships will be granted one year from now
for a total of $50,000. Annually thereafter the scholarship amount will be increased by 5 percent to
help offset the effects of inflation. The scholarship fund will last indefinitely. What is the value of
this gift today at a discount rate of 7.5 percent?
A.
B.
C.
D.
$1,500,000
$1,666,667
$1,750,000
$1,885,000
E. $2,000,000
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #67
SECTION: 6.2
TOPIC: GROWING PERPETUITY PRESENT VALUE
TYPE: PROBLEMS
68. Chadwicke & Co. is considering acquiring S&K Industries. Chadwicke & Co. believes that S&K
Industries can generate cash flows of $245,000, $270,000, and $315,000 over the next three years,
respectively. After that time, they feel the business will be worthless. Chadwicke & Co. has
determined that a 15 percent rate of return is applicable to this potential acquisition. What is
Chadwicke & Co. willing to pay today to acquire S&K Industries?
A.
B.
C.
D.
E.
$622,570
$623,480
$624,320
$624,510
$625,000
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #68
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
69. You are considering two savings options. Both options offer a 6 percent rate of return. The first
option is to save $1,500, $2,500, and $3,500 a year over the next three years, respectively. The other
option is to save one lump sum amount today. If you want to have the same balance in your savings
account at the end of the three years, regardless of the savings method you select, how much do you
need to save today if you select the lump sum option?
A.
B.
C.
D.
E.
$6,211.16
$6,578.75
$7,013.47
$7,063.33
$7,500.00
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #69
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
70. You are considering two insurance settlement offers. The first offer includes annual payments of
$15,000, $22,500, and $25,000 over the next three years, respectively. The other offer is the
payment of one lump sum amount today. You are trying to decide which offer to accept given the
fact that your discount rate is 6.5 percent. What is the minimum amount that you will accept today if
you are to select the lump sum offer?
A.
B.
C.
D.
E.
$51,006.01
$52,398.29
$52,473.15
$54,618.07
$55,318.09
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #70
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
71. You are considering changing jobs. Your goal is to work for three years and then return to school
full-time in pursuit of an advanced degree. A potential employer just offered you an annual salary of
$36,000, $39,000, and $42,000 a year for the next three years, respectively. The offer also includes a
starting bonus of $1,000 payable immediately. What is this offer worth to you today at a discount
rate of 7.5 percent?
A.
B.
C.
D.
E.
$94,925.29
$98,206.13
$102,044.69
$104,879.92
$107,311.16
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #71
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
72. You are considering a project which will provide cash inflows of $2,100, $4,000, and $5,500 per
year over the next three years, respectively. What is the present value of these cash flows, given a 13
percent discount rate?
A.
B.
C.
D.
E.
$7,487.78
$7,711.42
$8,050.00
$8,213.09
$8,802.77
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #72
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
73. You just signed a contract that will pay you $13,000, $18,000, and $25,000 annually over the next
three years, respectively. What is the present value of these cash flows given a 15 percent discount
rate?
A.
B.
C.
D.
E.
$41,352.84
$42,607.11
$42,908.17
$43,333.33
$46,827.94
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #73
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
74. You have some property for sale and have received two offers. The first offer is for $197,500 today
in cash. The second offer is the payment of $45,000 today and an additional $200,000 two years
from today. If the applicable discount rate is 12.50 percent, which offer should you accept and why?
A.
B.
C.
D.
E.
You should accept the $197,500 today because it has the higher net present value.
You should accept the $197,500 today because it has the lower future value.
You should accept the second offer because you will receive $245,000 total.
You should accept the second offer because you will receive about $5,525 more in today's dollars.
You should accept the second offer because it has a present value of $202,778.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #74
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
75. Your local travel agent is advertising an upscale winter vacation package for travel two years from
now to Antarctica. The package requires that you pay $15,000 today, $25,000 one year from today,
and a final payment of $65,000 on the day you depart two years from today. What is the cost of this
vacation in today's dollars if the discount rate is 9 percent?
A.
B.
C.
D.
E.
$92,644.98
$94,607.78
$95,250.00
$97,411.18
$99,987.47
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #75
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: PROBLEMS
76. One year ago, Dover Supply deposited $5,200 in an investment account for the purpose of buying
new equipment four years from today. Today, they are adding another $5,200 to this account. The
company plans on making a final deposit of $12,000 to the account one year from today. How much
will be available when they are ready to buy the equipment, assuming they earn a 6.5 percent rate of
return?
A.
B.
C.
D.
E.
$22,109.16
$25,277.78
$25,409.18
$26,581.67
$28,309.47
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #76
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND FUTURE VALUE
TYPE: PROBLEMS
77. Marcia will receive $6,350 this year, $7,280 next year, and $8,470 the following year. The cash
flows occur at the end of each year. What is the future value of these cash flows at the end of year 3
if the interest rate is 8 percent?
A.
B.
C.
D.
E.
$22,008.19
$22,116.23
$23,739.04
$24,258.58
$24,611.87
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #77
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND FUTURE VALUE
TYPE: PROBLEMS
78. You plan on saving $6,500 this year, nothing next year, and $6,500 the following year. You will
deposit these amounts into your investment account at the end of the year. What will your
investment account be worth at the end of year three if you can earn 11.75 percent on your funds?
A.
B.
C.
D.
E.
$14,617.24
$15,213.80
$15,916.78
$16,334.77
$17,001.42
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #78
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND FUTURE VALUE
TYPE: PROBLEMS
79. Suzette is going to receive $25,000 today as the result of an insurance settlement. In addition, she
will receive $30,000 one year from today and $50,000 two years from today. She plans on saving all
of this money and investing it for her retirement. If Suzette can earn an average of 12 percent on her
investments, how much will she have in her account if she retires 20 years from today?
A.
B.
C.
D.
E.
$789,320.06
$807,446.41
$884,038.47
$930,178.26
$1,012,860.78
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #79
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND FUTURE VALUE
TYPE: PROBLEMS
80. Stevenson Interiors has a $67,500 liability they must pay four years from today. The company is
opening a savings account so that the entire amount will be available when this debt needs to be
paid. The plan is to make an initial deposit today and then deposit an additional $10,000 a year for
the next four years, starting one year from today. The account pays a 5 percent rate of return. How
much does the firm need to deposit today?
A.
B.
C.
D.
E.
$18,299.95
$20,072.91
$21,400.33
$24,398.75
$31,076.56
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #80
SECTION: 6.1
TOPIC: PRESENT VALUE, PAYMENTS AND FUTURE VALUE
TYPE: PROBLEMS
81. The government has imposed a fine on the Shady Trader. The fine calls for annual payments of
$650,000, $900,000, and $1.2 million respectively over the next three years. The first payment is
due one year from today. The government plans to invest the funds until the final payment is
collected and then donate the entire amount, including the investment earnings, to a national
securities training center. The government will earn 4.25 percent on the funds held. How much will
the national securities training center receive three years from today?
A.
B.
C.
D.
E.
$2,844,674.06
$2,866,875.00
$2,884,549.69
$2,965,572.71
$3,115,737.67
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #81
SECTION: 6.1
TOPIC: UNEVEN CASH FLOWS AND FUTURE VALUE
TYPE: PROBLEMS
82. Mrs. Black established a trust fund that provides $65,000 in scholarships each year for needy
students. The trust fund earns a fixed 5.5 percent rate of return. How much money did Mrs. Black
contribute to the fund assuming that only the interest income is distributed?
A.
B.
C.
D.
E.
$41,935.48
$61,904.76
$68,575.00
$1,300,000.00
$1,181,818.18
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #82
SECTION: 6.2
TOPIC: PERPETUITY PRESENT VALUE
TYPE: PROBLEMS
83. A preferred stock pays an annual dividend of $3.75. What is one share of this stock worth today if
the rate of return is 8 percent?
A.
B.
C.
D.
E.
$.30
$4.05
$8.00
$46.88
$52.50
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #83
SECTION: 6.2
TOPIC: PERPETUITY PRESENT VALUE
TYPE: PROBLEMS
84. You would like to establish a trust fund that will provide $300,000 a year forever for your heirs. The
trust fund is going to be invested very conservatively so the expected rate of return is only 4.5
percent. How much money must you deposit today to fund this gift for your heirs?
A.
B.
C.
D.
E.
$3.14 million
$3.22 million
$6.00 million
$6.67 million
$6.97 million
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #84
SECTION: 6.2
TOPIC: PERPETUITY PRESENT VALUE
TYPE: PROBLEMS
85. You just paid $425,000 for an insurance annuity that will pay you and your heirs $15,000 a year
forever. What rate of return are you earning on this policy?
A.
B.
C.
D.
E.
3.31 percent
3.33 percent
3.42 percent
3.47 percent
3.53 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #85
SECTION: 6.2
TOPIC: PERPETUITY DISCOUNT RATE
TYPE: PROBLEMS
86. Your father won a lottery years ago. The value of his winnings at the time was $225,000. He
invested this money such that it will provide annual payments of $12,000 a year to his heirs forever.
What is the rate of return?
A.
B.
C.
D.
E.
1.88 percent
2.85 percent
5.33 percent
5.49 percent
6.02 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #86
SECTION: 6.2
TOPIC: PERPETUITY DISCOUNT RATE
TYPE: PROBLEMS
87. The preferred stock of Western Mines has a 4.62 percent dividend yield. The stock is currently
priced at $38.50 per share. What is the amount of the annual dividend?
A.
B.
C.
D.
E.
$1.78
$1.84
$2.10
$2.13
$2.34
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #87
SECTION: 6.2
TOPIC: PERPETUITY PAYMENT
TYPE: PROBLEMS
88. Your credit card company charges you 1.45 percent per month. What is the annual percentage rate
on your account?
A.
B.
C.
D.
E.
16.67 percent
16.79 percent
17.40 percent
18.00 percent
18.86 percent
APR = .0145
12 = .174 = 17.4 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #88
SECTION: 6.3
TOPIC: ANNUAL PERCENTAGE RATE
TYPE: PROBLEMS
89. What is the annual percentage rate on a loan with a stated rate of 1.75 percent per quarter?
A.
B.
C.
D.
6.50 percent
7.00 percent
7.19 percent
8.00 percent
E. 8.13 percent
APR = .0175
4 = .0700 = 7.00 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #89
SECTION: 6.3
TOPIC: ANNUAL PERCENTAGE RATE
TYPE: PROBLEMS
90. You are paying an effective annual rate of 19.56 percent on your credit card. The interest is
compounded monthly. What is the annual percentage rate on this account?
A.
B.
C.
D.
E.
17.50 percent
18.00 percent
18.25 percent
18.64 percent
19.00 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #90
SECTION: 6.3
TOPIC: ANNUAL PERCENTAGE RATE
TYPE: PROBLEMS
91. What is the effective annual rate if a bank charges you 8.48 percent compounded quarterly?
A.
B.
C.
D.
E.
8.20 percent
8.48 percent
8.75 percent
9.02 percent
9.46 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #91
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: PROBLEMS
92. Your credit card company quotes you a rate of 18.9 percent. Interest is billed monthly. What is the
actual rate of interest you are paying?
A.
B.
C.
D.
E.
19.48 percent
19.67 percent
20.63 percent
20.87 percent
21.21 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #92
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: PROBLEMS
93. Tight-Wad Rosie loans money at an annual rate of 22 percent and compounds interest daily. What is
the actual rate she is charging on her loans?
A.
B.
C.
D.
E.
24.49 percent
24.60 percent
25.54 percent
26.78 percent
26.99 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #93
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: PROBLEMS
94. You are considering two loans. The terms of the two loans are equivalent with the exception of the
interest rates. Loan A offers a rate of 8.10 percent compounded daily. Loan B offers a rate of 8.25
percent compounded semi-annually. Loan _____ is the better offer because______.
A.
B.
C.
D.
E.
A; the effective annual rate is 8.41 percent
A; the annual percentage rate is 8.41 percent
B; the annual percentage rate is 8.32 percent
B; the interest is compounded less frequently
B; the effective annual rate is 8.42 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #94
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: PROBLEMS
95. You have $3,500 that you want to use to open a savings account. You have found five different
accounts that are acceptable to you. All you have to do now is determine which account you want to
use such that you can earn the highest rate of interest possible. Which account should you use based
upon the annual percentage rates quoted by each bank?
account A: 3.25 percent, compounded annually
account B: 3.18 percent, compounded monthly
account C: 3.20 percent, compounded semi-annually
account D: 3.15 percent, compounded continuously
account E: 3.15 percent, compounded quarterly
A.
B.
C.
D.
E.
account A
account B
account C
account D
account E
x
Using e on a financial calculator: EAR = 3.20 percent
On the Texas Instruments BA II Plus, the input is:
nd
x
.0315, 2 , e ,
1, = .0320 = 3.20 percent
Account A offers the highest effective annual rate at 3.25 percent.
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #95
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: PROBLEMS
96. What is the effective annual rate of 17.9 percent compounded continuously?
A.
B.
C.
D.
E.
18.86 percent
18.98 percent
19.37 percent
19.44 percent
19.60 percent
x
Using e on a financial calculator: EAR = 19.60 percent
On the Texas Instruments BA II Plus, the input is:
nd
x
.179, 2 , e ,
1, = .1960 = 19.60 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #96
SECTION: 6.3
TOPIC: CONTINUOUS COMPOUNDING
TYPE: PROBLEMS
97. What is the effective annual rate of 10.35 percent compounded continuously?
A.
B.
C.
D.
E.
10.67 percent
10.84 percent
10.90 percent
10.97 percent
11.02 percent
x
Using e on a financial calculator: EAR = 10.90 percent
On the Texas Instruments BA II Plus, the input is:
nd
x
.1035, 2 , e ,
1, = .1090 = 10.90 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #97
SECTION: 6.3
TOPIC: CONTINUOUS COMPOUNDING
TYPE: PROBLEMS
98. Newtown Bank wants to appear competitive based on quoted loan rates and thus must offer an 8.7
percent annual percentage rate on its loans. What is the maximum rate the bank can actually earn
based on the quoted rate?
A.
B.
C.
D.
E.
8.89 percent
8.94 percent
8.98 percent
9.02 percent
9.09 percent
x
Using e on a financial calculator: EAR = 9.09 percent
On the Texas Instruments BA II Plus, the input is:
nd
x
.087, 2 , e ,
1, = .0909 = 9.09 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #98
SECTION: 6.3
TOPIC: CONTINUOUS COMPOUNDING
TYPE: PROBLEMS
99. You are going to loan your friend $1,500 for one year at a 6 percent rate of interest. How much
additional interest can you earn if you compound the rate continuously rather than annually?
A.
B.
C.
D.
$1.97
$2.75
$3.14
$3.36
E. $4.20
x
Using e on a financial calculator: EAR = 6.18365 percent
On the Texas Instruments BA II Plus, the input is:
nd
x
.06, 2 , e ,
1, = .0618365 = 6.18365 percent
Additional interest = $1,500
(.0618365
.06) = $2.75
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #99
SECTION: 6.3
TOPIC: CONTINUOUS COMPOUNDING VERSUS ANNUAL COMPOUNDING
TYPE: PROBLEMS
100. You are borrowing money today at a 7.9 percent interest rate. You will repay the principle plus all
the interest in one lump sum of $7,500 four years from today. How much are you borrowing?
A.
B.
C.
D.
E.
$5,250.00
$5,233.50
$5,533.19
$5,611.08
$6,000.00
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #100
SECTION: 6.4
TOPIC: PURE DISCOUNT LOAN
TYPE: PROBLEMS
101. This morning you borrowed $6,000 at 8.45 percent annual interest. You are to repay the loan
principle plus all of the loan interest in one lump sum three years from today. How much will you
have to repay?
A.
B.
C.
D.
E.
$7,653.14
$7,680.29
$7,711.21
$7,450.89
$7,682.20
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #101
SECTION: 6.4
TOPIC: PURE DISCOUNT LOAN
TYPE: PROBLEMS
102. On this date last year, you borrowed $12,500. You have to repay the loan principle plus all of the
interest five years from today. The payment that is required at that time is $17,500. What is the
interest rate on this loan?
A.
B.
C.
D.
E.
5.77 percent
7.87 percent
8.25 percent
8.40 percent
9.89 percent
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #102
SECTION: 6.4
TOPIC: PURE DISCOUNT LOAN
TYPE: PROBLEMS
103. The Corner Drug Store just borrowed $250,000 from the bank. The loan terms require annual
interest payments with the entire principle payable after six years. The interest rate is 9.45 percent.
How much will The Corner Drug Store owe the bank in year five of the loan?
A.
B.
C.
D.
E.
$23,625.00
$32,750.00
$44,367.21
$56,479.75
$65,025.31
Payment in year 6 = $250,000
.0945 = $23,625.00
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #103
SECTION: 6.4
TOPIC: INTEREST ONLY LOAN
TYPE: PROBLEMS
104. On the day you enter college you borrow $12,000 from your local bank. The terms of the loan
include an interest rate of 5.45 percent. The terms stipulate that the principle is due in full one year
after you graduate. Interest is to be paid annually at the end of each year. Assume that you complete
college in four years. How much will you pay the bank one year after you graduate?
A.
B.
C.
D.
E.
$2,806.27
$3,419.59
$12,000.00
$12,654.00
$15,646.39
Payment in year 5 = $12,000
(1 + .0545) = $12,654.00
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #104
SECTION: 6.4
TOPIC: INTEREST ONLY LOAN
TYPE: PROBLEMS
105. On the day you enter college you borrow $18,000 from your local bank. The terms of the loan
include an interest rate of 5.75 percent. The terms stipulate that the principle is due in full one year
after you graduate. Interest is to be paid annually at the end of each year. Assume that you complete
college in four years. How much total interest will you pay on this loan?
A.
B.
C.
D.
E.
$1,035
$4,140
$4,051
$4,181
$5,175
Total interest paid = $18,000
.0575
5 = $5,175
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #105
SECTION: 6.4
TOPIC: INTEREST ONLY LOAN
TYPE: PROBLEMS
106. On November 1, you take out a mortgage in the amount of $189,500 at an 8.5 percent interest rate
compounded monthly. Payments are to be made at the end of each month for thirty years. How
much of the first loan payment is interest? (Assume that each month is equal to 1/12 of a year.)
A.
B.
C.
D.
E.
$536.92
$1,342.29
$2,684.58
$4,974.38
$6,316.67
Interest portion of first loan payment =
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #106
SECTION: 6.4
TOPIC: AMORTIZED LOAN
TYPE: PROBLEMS
107. On March 1, you borrow $239,000 to buy a house. The mortgage rate is 7.75 percent. The loan is to
be repaid in equal monthly payments over 20 years. The first payment is due on April 1. How much
of the third payment applies to the principle balance? (Assume that each month is equal to 1/12 of a
year.)
A.
B.
C.
D.
E.
$418.53
$421.23
$423.95
$1,540.84
$1,543.54
AACSB TOPIC: ANALYTIC
Ross - Chapter 006 #107
SECTION: 6.4
TOPIC: AMORTIZED LOAN
TYPE: PROBLEMS
Essay Questions
108. Explain the difference between the effective annual rate (EAR) and the annual percentage rate
(APR).
The APR is a stated rate and is computed as (r
n), where r is the rate per period and n is the number
n
of periods per year. The EAR considers compounding and is computed as (1 + r) − 1, where r is the rate
per period and n is the number of periods per year. The effective annual rate will always be higher than
the annual percentage rate as long as the account is compounded more than once a year and the interest
rate is greater than zero. The EAR is the equivalent rate based on annual compounding.
AACSB TOPIC: REFLECTIVE THINKING
Ross - Chapter 006 #108
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE VERSUS ANNUAL PERCENTAGE RATE
109. Assume you are the advertising manager of your local bank. Which rate do you prefer to advertise
on monthly-compounded loans, the effective annual rate (EAR) or the annual percentage rate
(APR)? Which rate do you prefer to advertise on quarterly-compounded savings accounts, the EAR
or the APR? Explain. As a consumer, which rate do you prefer and why?
A bank prefers to advertise the APR on loans since this rate is lower and the EAR on savings accounts
since this rate is higher. As a consumer, the EAR is the relevant rate since the EAR allows you to
compare various options.
AACSB TOPIC: REFLECTIVE THINKING
Ross - Chapter 006 #109
SECTION: 6.3
TOPIC: EFFECTIVE ANNUAL RATE VERSUS ANNUAL PERCENTAGE RATE
110.
You are considering two annuities, both of which pay a total of $10,000 over the life of the annuity.
Annuity A pays $1,000 at the end of each year for the next 10 years. Annuity B pays $500 at the
end of each year for the next 20 years. Which annuity has the greater value today? Is there any
circumstance where the two annuities would have equal values as of today? Explain.
If the discount rate is a positive, Annuity A will have the greater value today. If the discount rate is zero,
then both annuities are worth $10,000 today.
AACSB TOPIC: REFLECTIVE THINKING
Ross - Chapter 006 #110
SECTION: 6.2
TOPIC: COMPARING ANNUITIES
111. There are three factors that affect the present value of an annuity. Explain what these three factors
are and discuss how an increase in each factor will impact the present value of the annuity.
The factors are the discount rate, payment amount, and number of payments. An increase in the payment
amount or number of payments will increase the present value. An increase in the discount rate will
decrease the present value.
AACSB TOPIC: REFLECTIVE THINKING
Ross - Chapter 006 #111
SECTION: 6.2
TOPIC: PRESENT VALUE OF AN ANNUITY
112. Bill owns a perpetuity which pays $5,000 at the end of each year. He comes to you and offers to
sell you all of the payments to be received after the 25th year for a price of $10,000. At an interest
rate of 8 percent, should you accept his offer? What does this suggest to you about the value of a
perpetuity?
The present value of the perpetuity is $62,500 and the present value of the first 25 payments is
th
$53,373.88. This means that the payments starting with the 26 year and continuing forever are only
worth $9,126.12. Thus, you should reject his offer. This illustrates how the bulk of an annuity's value is
derived from the payments in the near future.
AACSB TOPIC: REFLECTIVE THINKING
Ross - Chapter 006 #112
SECTION: 6.2
TOPIC: PERPETUITY PAYMENTS
ch6 Summary
Category
# of Questions
AACSB TOPIC: ANALYTIC
AACSB TOPIC: REFLECTIVE THINKING
Ross - Chapter 006
SECTION: 6.1
SECTION: 6.1 AND 6.2
SECTION: 6.2
SECTION: 6.2 AND 6.4
SECTION: 6.3
SECTION: 6.4
TOPIC: AMORTIZED LOAN
TOPIC: ANNUAL PERCENTAGE RATE
TOPIC: ANNUITIES DUE
TOPIC: ANNUITY
TOPIC: ANNUITY DUE AND PRESENT VALUE
TOPIC: ANNUITY DUE INTEREST RATE
TOPIC: ANNUITY DUE PAYMENTS AND FUTURE VALUE
TOPIC: ANNUITY DUE PAYMENTS AND PRESENT VALUE
TOPIC: ANNUITY DUE TIME PERIODS
TOPIC: ANNUITY DUE TIME PERIODS AND PRESENT VALUE
TOPIC: ANNUITY DUE VERSUS ORDINARY ANNUITY
TOPIC: BALLOON LOAN
TOPIC: COMPARING ANNUITIES
TOPIC: CONSOL
TOPIC: CONTINUOUS COMPOUNDING
TOPIC: CONTINUOUS COMPOUNDING VERSUS ANNUAL COMPOUNDING
TOPIC: EFFECTIVE ANNUAL RATE
TOPIC: EFFECTIVE ANNUAL RATE VERSUS ANNUAL PERCENTAGE RATE
TOPIC: GROWING ANNUITY PRESENT VALUE
TOPIC: GROWING PERPETUITY PRESENT VALUE
TOPIC: INTEREST ONLY LOAN
TOPIC: INTEREST RATES
TOPIC: INTEREST-ONLY LOAN
TOPIC: ORDINARY ANNUITY AND FUTURE VALUE
TOPIC: ORDINARY ANNUITY AND PRESENT VALUE
TOPIC: ORDINARY ANNUITY INTEREST RATE
TOPIC: ORDINARY ANNUITY PAYMENTS
TOPIC: ORDINARY ANNUITY PAYMENTS AND COST OF INTEREST
TOPIC: ORDINARY ANNUITY PAYMENTS AND FUTURE VALUE
TOPIC: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE
84
5
112
15
1
59
1
21
15
4
5
1
1
3
2
2
3
1
1
1
1
1
1
4
1
7
2
2
2
3
1
2
3
6
4
1
1
1
5
TOPIC: ORDINARY ANNUITY TIME PERIODS AND FUTURE VALUE
TOPIC: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUE
TOPIC: ORDINARY ANNUITY VERSUS ANNUITY DUE
TOPIC: PERPETUITY
TOPIC: PERPETUITY DISCOUNT RATE
TOPIC: PERPETUITY PAYMENT
TOPIC: PERPETUITY PAYMENTS
TOPIC: PERPETUITY PRESENT VALUE
TOPIC: PERPETUITY VERSUS ANNUITY
TOPIC: PRESENT VALUE FACTOR FOR ANNUITIES
TOPIC: PRESENT VALUE OF AN ANNUITY
TOPIC: PRESENT VALUE, PAYMENTS AND FUTURE VALUE
TOPIC: PURE DISCOUNT LOAN
TOPIC: STATED INTEREST RATES
TOPIC: UNEVEN CASH FLOWS AND FUTURE VALUE
TOPIC: UNEVEN CASH FLOWS AND PRESENT VALUE
TYPE: CONCEPTS
TYPE: DEFINITIONS
TYPE: PROBLEMS
1
2
4
1
2
1
1
3
1
1
1
1
5
1
6
9
11
12
84