Chapter 3
Multiple-Choice Questions
and
Answers
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1. Which of the following is not a goal, as defined
in this chapter?
(a)
(b)
(c)
(d)
(e)
Dave wants to have $500,000 on June 30th, 2014.
Jill wants to save and invest 10% of her annual
income every year, from now until she retires at 65.
Jeff wants to buy his son a car when he graduates
at the end of the year.
Chris wants to cut his expenses by 10% per month.
All of the above are goals.
The answer is (c).
© Captus Press Inc., 2012
2. Jason inherited $80,000 when his father passed away
recently. He wants to invest the money so that he can
buy a house in 5 years, and the expected downpayment required is $100,000. What is the rate of return
that he must earn to reach his goal?
(a)
(b)
(c)
(d)
(e)
10%
4.56%
13.25%
15.78%
None of the above
The answer is (b).
© Captus Press Inc., 2012
Why?
PV
FV
N
CPT I/Y
-80,000
100,000
5
4.56%
© Captus Press Inc., 2012
3. David Siu, 50, wants to have $550,000 in 15
years. He plans to save and invest an equal
amount of money at the end of every year for
the next 15 years in order to reach his goal. If
the rate of interest is 10%, what is the amount
he must save every year?
(a)
(b)
(c)
(d)
(e)
$79,542
$19,042
$17,311
$72,311
None of the above
The answer is (c).
© Captus Press Inc., 2012
Why?
FV
I/Y
N
CPT
550,000
10
15
PMT
-17,311
© Captus Press Inc., 2012
4. Barbara Bowens, 65, is planning to retire soon,
but she wonders if she has enough money to
support her retirement. Since her parents and
her siblings all died before they reached age 80,
she does not expect to live beyond the age of
85. With the help of a personal financial
planner, she estimates that her post-retirement
life style will cost $30,000, in today’s dollars, per
year, payable at the start of each year.
© Captus Press Inc., 2012
4.
(continued)
If the real rate of interest is 3%, what is the
minimum amount of money that she needs
today in order to support her retirement?
(a)
(b)
(c)
(d)
(e)
$459,714
$358,138
$446,342
$830,295
None of the above
The answer is (a).
© Captus Press Inc., 2012
Why?
• Set the calculator to annuity due
PMT
-30,000
I/Y
3
N
20
PV
459,714
Alternatively, you could leave the calculator in
ordinary annuity mode, and multiply the PV by
1.03, to get the same answer.
© Captus Press Inc., 2012
5. Sho-Lan, 35, plans to invest 10% of her income every
year until her retirement at age 65. Her current annual
income is $30,000, and this is expected to increase at
the rate of 3% per year. If the rate of interest that she
can earn on her investment is 8%, how much money
will she have at retirement? Assume that she invests
her money at the end of every year.
(a)
(b)
(c)
(d)
(e)
$905,639
$458,132
$494,774
$339,850
None of the above
The answer is (b).
© Captus Press Inc., 2012
Why?
 1.08 30  (1.03)30
FVCGA  3,000
(.08  .03)





 10.06265689  2.427262471

 3,000
(.05)


 7.635394419 

 3,000
(.05)


 3,000152.7078884
 458,124
© Captus Press Inc., 2012