Name:
Class: Finance Management
Date: 14/03/2022
Ch4 spring 2022
Indicate the answer choice that best completes the statement or answers the question.
1
2
3
4
5
a
e
a
e
b
6
7
8
9
10
A
C
B
C
e
11
12
13
14
15
B
B
E
B
a
16
17
18
19
20
D
E
B
B
B
1. Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 today or a 20-year annuity of
$1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity?
a. 3.44%
b. 3.79%
c. 4.17%
d. 4.58%
e. 5.04%
2. Suppose People's bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to make interest
payments of $250.00 at the end of each quarter and then pay off the principal amount at the end of the year. What is the
effective annual rate on the loan?
a. 8.46%
b. 8.90%
c. 9.37%
d. 9.86%
e. 10.38%
3. You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th
month, you will have $13,000 in your account. If the bank compounds interest monthly, what nominal annual interest rate
will you be earning?
a. 7.62%
b. 8.00%
c. 8.40%
d. 8.82%
e. 9.26%
4. Your bank pays 4% interest annually. You have $2,500 invested in the bank. How long will it take for your funds to
double?
a. 14.39
b. 15.15
c. 15.95
d. 16.79
e. 17.67
5. The going rate of interest on a 5-year treasury bond is 4.25%. You have one that will pay $2,500 five years from now.
How much is the bond worth today?
a. $1,928.78
b. $2,030.30
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Name:
Class: Finance Management
Date: 14/03/2022
Ch4 spring 2022
c. $2,131.81
d. $2,238.40
e. $2,350.32
6. Your sister's pet supplies business obtained a 30-year amortized mortgage loan for $250,000 at a nominal annual rate of
7.0%, with 360 end-of-month payments. The firm can deduct the interest paid for tax purposes. What will the interest tax
deduction be for for the first year of the loan? (Assume she took out the loan on January 1.)
a. $17,419.55
b. $17,593.75
c. $17,769.68
d. $17,947.38
e. $18,126.85
7. Cyberhost Corporation's sales were $225 million last year. If sales grow at 6% per year, how large (in millions) will
they be 5 years later?
a. $271.74
b. $286.05
c. $301.10
d. $316.16
e. $331.96
8. You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also
add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters)
from now, how much will be in the account three years (12 quarters) from now?
a. $15,234.08
b. $16,035.88
c. $16,837.67
d. $17,679.55
e. $18,563.53
9. You are in negotiations to make a 7-year loan of $25,000 to DeVille Corporation. To repay you, DeVille will pay
$2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently
unspecified cash flow, X, at the end of each year from Year 4 through Year 7. You are confident the payments will be
made, since DeVille is essentially riskless. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year
loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?
a. $4,271.67
b. $4,496.49
c. $4,733.15
d. $4,969.81
e. $5,218.30
10. You expect to receive $5,000 in 25 years. How much is it worth today if the discount rate is 5.5%?
a. $1,067.95
b. $1,124.16
c. $1,183.33
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Name:
Class: Finance Management
Date: 14/03/2022
Ch4 spring 2022
d. $1,245.61
e. $1,311.17
11. What's the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%?
a. $4,750
b. $5,000
c. $5,250
d. $5,513
e. $5,788
12. Wildwoods, Inc. earned $1.50 per share five years ago. Its earnings this year were $3.20. What was the growth rate in
earnings per share (EPS) over the 5-year period?
a. 15.54%
b. 16.36%
c. 17.18%
d. 18.04%
e. 18.94%
13. Your friend offers to pay you an annuity of $2,500 at the end of each year for 3 years in return for cash today. You
could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?
a. $5,493.71
b. $5,782.85
c. $6,087.21
d. $6,407.59
e. $6,744.83
14. How much would $100, growing at 5% per year, be worth after 75 years?
a. $3,689.11
b. $3,883.27
c. $4,077.43
d. $4,281.30
e. $4,495.37
15. JG Asset Services is recommending that you invest $1,500 in a 5-year certificate of deposit (CD) that pays 3.5%
interest, compounded annually. How much will you have when the CD matures?
a. $1,781.53
b. $1,870.61
c. $1,964.14
d. $2,062.34
e. $2,165.46
16. You are considering investing in a European bank account that pays a nominal annual rate of 18%, compounded
monthly. If you invest $5,000 at the beginning of each month, how many months would it take for your account to grow
to $250,000? Round fractional months up.
a. 23
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Name:
Class: Finance Management
Date: 14/03/2022
Ch4 spring 2022
b. 27
c. 32
d. 38
e. 44
17. Your investment advisor has recommended your invest in bonds that pay 6.0%, compounded annually. If you invest
$10,000 today, how many years will it take for your investment to grow to $30,000?
a. 12.37
b. 13.74
c. 15.27
d. 16.97
e. 18.85
18. Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 per year for
15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum
be to leave her as well off financially as with the annuity?
a. $225,367
b. $237,229
c. $249,090
d. $261,545
e. $274,622
19. Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year
annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity?
Disregard taxes.
a. 7.12%
b. 7.49%
c. 7.87%
d. 8.26%
e. 8.67%
20. You are considering investing in a bank account that pays a nominal annual rate of 7%, compounded monthly. If you
invest $3,000 at the end of each month, how many months will it take for your account to grow to $150,000?
a. 39.60
b. 44.00
c. 48.40
d. 53.24
e. 58.57
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