1. No category

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn a 8% annual rate of return. How much money will his daughter have when she starts college? 1
Mike Carlson will receive $10,000 a year from the end of the third year to the end of the 12th year (10 payments). The discount rate is 10%. The present value today of this deferred annuity is: 2
Sharon Smith will receive $1M in 50 years. The discount rate is 14. As an alternative, she can receive $2,000 today. Which should she choose?
A. the $1M dollars in 50 years.
B. $2,000 today.
C. she should be indifferent.
D. need more information.
3
23. Assume that your required rate of return is 12 percent and you are given the following stream of cash flows:
Year
Cash Flow
0
$10,000
1
15,000
2
15,000
3
15,000
4
15,000
5
20,000
If payments are made at the end of each period, what is the present value of the cash flow stream?
$66,909, b. $57,323, c. $61,815, d. $52,345, e. $62,029
4
24. Steaks Galore needs to arrange financing for its expansion program. One bank offers to lend the required $1,000,000 on a loan which requires interest to be paid at the end of each quarter. The quoted rate is 10 percent, and the principal must be repaid at the end of the year. A second lender offers 9 percent, daily compounding (365­day year), with interest and principal due at the end of the year. What is the difference in the effective annual rates (EFF%) charged by the two banks?
5
You want to borrow $1,000 from a friend for one year, and you propose to pay her $1,120 at the end of the year. She agrees to lend you the $1,000, but she wants you to pay her $10 of interest at the end of each of the first 11 months plus $1,010 at the end of the 12th month. How much higher is the effective annual rate under your friend's proposal than under your proposal?
6
Ken borrows $15,000 from a bank at 10 percent annually compounded interest to be repaid in six equal installments. Calculate the interest paid in the twelfth year.
7
Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. Choice X pays $1,750,000 today. Choice Y pays $1,000,000 at the end of five years from now. Which would you choose and why would you choose it?
8
An employee and employer contribute a total of $3,000 annually for 20 years to a retirement account that earns 9 percent a year, how much will the employee be able to withdraw from the account annually for the next 25 years?
9