FIN5063 Problems

Question 1

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You want to retire in 40 years and you have $40,000 saved in your retirement account. You believe you will need $1,500,000 upon retirement. What rate will you need to earn on the account to achieve this goal?

Select one:

9.48 percent

9.13 percent

7.48 percent

6.75 percent

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The correct answer is: 9.48 percent

Question 2

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How many years will it take $1 million to grow to $3 million with an annual interest rate of 7 percent?

Select one:

14.52 years

33.33 years

10.29 years

16.24 years

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The correct answer is: 16.24 years

Question 3

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If you deposit $700 in an account today at 4% annual interest rate, 8 years from today you will have __________ in your account.

Select one:

$728

$924

$756

$958

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The correct answer is: $958

Question 4

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An average home in Chicago costs $295,000. If house prices are expected to grow at an average rate of 3 percent per year, what will a house cost in 5 years?

Select one:

$328,995.61

$341,985.85

$347,028.19

$338,941.27

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The correct answer is: $341,985.85

Question 5

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Assume you borrow $500 from a payday lender. The terms are that you must pay a fee of $75 in advance (today) and one year from now you need to repay $750. What implied interest rate are you paying?

Select one:

43.09 percent

76.47 percent

81.03 percent

55.78 percent

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The correct answer is: 76.47 percent

Question 1

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What is the value in year 2 of a $200 cash flow made in year 8 if interest rates are 3 percent?

Select one:

$152.91

$147.23

$132.89

$167.50

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The correct answer is: $167.50

Question 2

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What is the future value of $700 deposited for one year earning 4 percent interest rate annually?

Select one:

$28

$1,428

$728

$700

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The correct answer is: $728

Question 3

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Which of the following would you prefer?

Select one:

$500 to be received in 12 years when rates are 9 percent

$210 today

$400 to be received in nine years when rates are 8 percent

$500 to be received in 12 years when rates are 8 percent

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The correct answer is: $210 today

Question 4

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Assume you borrow $5,000 today and pay back the loan in one lump sum four years from today. You are charged 8 percent interest per year. What amount will you pay back and how much interest will you pay?

Select one:

$6,802.44; $1802.44

$6,399.56; $1,399.56

$7,902.11; $2,902.11

$6,508.21; $1,508.21

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The correct answer is: $6,802.44; $1802.44

Question 5

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Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years' supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store the chips?

Select one:

9.54 percent

18.23 percent

8.73 percent

6.57 percent

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The correct answer is: 8.73 percent

Question 1

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Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest rate for 25 years (end 20 years from now). James can make a 20-year investment today and lock in a 10 percent interest rate. How much money should he invest now in order to have the same amount of money in 20 years as Jane?

Select one:

$7,346.64

$5,089.91

$3,464.11

$3,160.43

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The correct answer is: $5,089.91

Question 2

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At age 20 you invest $1,000 that earns 7 percent each year. At age 30 you invest $1,000 that earns 10 percent per year. In which case would you have more money at age 60?

Select one:

There is not enough information to determine which case earns the most money at age 60.

Both yield the same amount at age 60.

At age 30 invest $1,000 at 10 percent.

At age 20 invest $1,000 at 7 percent.

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The correct answer is: At age 30 invest $1,000 at 10 percent.

Question 3

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What is the future value of $700 deposited for one year earning 4 percent interest rate annually?

Select one:

$1,428

$28

$700

$728

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The correct answer is: $728

Question 4

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Select one:

9.48 percent

6.75 percent

9.13 percent

7.48 percent

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The correct answer is: 9.48 percent

Question 5

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What is the present value of a $500 payment in one year when the discount rate is 5 percent?

Select one:

$500.00

$476.19

$475.00

$525.00

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The correct answer is: $476.19

Question 1

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Select one:

9.54 percent

18.23 percent

8.73 percent

6.57 percent

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The correct answer is: 8.73 percent

Question 2

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If you deposit $400 in an account today at 6% annual interest rate, one year from today you will have __________ in your account.

Select one:

$424

$420

$400

$24

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The correct answer is: $424

Question 3

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Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

Select one:

1.5 percent

12.65 percent

20.11 percent

16.65 percent

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The correct answer is: 20.11 percent

Question 4

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Which of the following is the equivalent of $300 received today?

Select one:

$100 to be received two years from now and $200 three years from now.

All of these are the equivalent of $300 received today.

$795.99 to be received 20 years in the future assuming a 5 percent annual interest rate.

$300 compounded at 10 percent for one year.

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The correct answer is: $795.99 to be received 20 years in the future assuming a 5 percent annual interest rate.

Question 5

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Select one:

$6,399.56; $1,399.56

$6,508.21; $1,508.21

$7,902.11; $2,902.11

$6,802.44; $1802.44

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The correct answer is: $6,802.44; $1802.44

Question 1

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If you deposit $700 in an account today at 4% annual interest rate, 8 years from today you will have __________ in your account.

Select one:

$958

$924

$756

$728

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The correct answer is: $958

Question 2

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How much do you need to deposit in your account today if you want to have $10,000 accumulated in your account in 6 years? Assume 5% interest rate.

Select one:

$7,000

$7,462

$9,524

$9,434

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The correct answer is: $7,462

Question 3

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The present value of an $500 payment to be received 4 years from now is closest to _____, assuming an annual interest rate of 5%.

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$442

$480

$411

$495

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The correct answer is: $411

Question 4

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What annual rate of return is earned on a $200 investment when it grows to $850 in 10 years?

Select one:

4.25 percent

13.47 percent

15.57 percent

3.25 percent

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The correct answer is: 15.57 percent

Question 5

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Select one:

$7,346.64

$3,160.43

$3,464.11

$5,089.91

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The correct answer is: $5,089.91

Question 1

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You wish to buy a $30,000 car. The dealer offers you a 5-year loan with a 9 percent APR. What are the monthly payments? What is the monthly payment if you paid interest only?

Select one:

$701.23; $291.23

$622.75; $225.00

$659.41; $291.23

$712.03; $271.19

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The correct answer is: $622.75; $225.00

Question 2

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Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

Select one:

$5,305.00

$5,047.62

$4,360.32

$4,665.65

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The correct answer is: $4,665.65

Question 3

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If you start making $115 monthly contributions today and continue them for six years, what is their present value if the compounding rate is 12 percent APR? What is the present value of this annuity?

Select one:

$5,633.10

$5,882.30

$5,941.12

$5,512.90

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The correct answer is: $5,941.12

Question 4

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Consider that you are 30 years old and have just changed to a new job. You have $91,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $4,800 each year into your new employer's plan. If the rolled-over money and the new contributions both earn a 7 percent return, how much should you expect to have when you retire in 38 years?

Select one:

$2,012,560.60

$2,018,506.60

$2,216,781.60

$2,106,718.60

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The correct answer is: $2,018,506.60

Question 5

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What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?

Select one:

$6.50

$1,000.00

$1,538.46

$650.00

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The correct answer is: $1,538.46

Question 1

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You wish to buy a $20,000 car. The dealer offers you a 5-year loan with an 8 percent APR. What are the monthly payments?

Select one:

$272.19

$4,080.35

$405.53

$333.33

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The correct answer is: $405.53

Question 2

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You wish to buy a $30,000 car. The dealer offers you a 5-year loan with a 9 percent APR. What are the monthly payments? What is the monthly payment if you paid interest only?

Select one:

$622.75; $225.00

$712.03; $271.19

$701.23; $291.23

$659.41; $291.23

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The correct answer is: $622.75; $225.00

Question 3

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Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

Select one:

$4,360.32

$4,665.65

$5,305.00

$5,047.62

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The correct answer is: $4,665.65

Question 4

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What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

Select one:

$1,938.96

$1,197.81

$204.17

$440.80

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The correct answer is: $1,197.81

Question 5

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Your client has been given a trust fund valued at $1 million. She cannot access the money until she turns 68 years old, which is in 12 years. At that time, she can withdraw $30,000 per month. If the trust fund is invested at a 7 percent interest rate, how many months will it last your client once she starts to withdraw the money? (Hint: assume annual compounding in the first stage of the problem, and monthly compounding in the second stage)

Select one:

119.05 months

99.05 months

81.05 months

77.05 months

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The correct answer is: 99.05 months

Question 1

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You wish to buy a $20,000 car. The dealer offers you a 5-year loan with an 8 percent APR. What are the monthly payments?

Select one:

$333.33

$405.53

$4,080.35

$272.19

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The correct answer is: $405.53

Question 2

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Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

Select one:

$4,360.32

$5,305.00

$4,665.65

$5,047.62

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The correct answer is: $4,665.65

Question 3

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Select one:

$2,012,560.60

$2,106,718.60

$2,018,506.60

$2,216,781.60

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The correct answer is: $2,018,506.60

Question 4

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What is the present value of a $500 deposit in year 1 and another $100 deposit at the end of year 4 if interest rates are 5 percent?

Select one:

$480.00

$582.27

$558.46

$493.62

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The correct answer is: $558.46

Question 5

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If you start making $115 monthly contributions today and continue them for six years, what is their present value if the compounding rate is 12 percent APR? What is the present value of this annuity?

Select one:

$5,633.10

$5,512.90

$5,882.30

$5,941.12

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The correct answer is: $5,941.12

Question 1

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Joey realizes that he has charged too much on his credit card and has racked up $3,000 in debt. If he can pay $150 each month and the card charges 18 percent APR (compounded monthly), how long will it take him to pay off the debt?

Select one:

23.96 months

13.03 months

14.68 months

20.00 months

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The correct answer is: 23.96 months

Question 2

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Assume you deposit $400 in an account, and that in 7 years you have $700. Assuming monthly compounding frequency what is the quoted annual interest rate associated with the account?

Select one:

8.32%

10.71%

8.02%

42.86%

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The correct answer is: 8.02%

Question 3

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Compute the future value in year 10 of a $1,000 deposit in year 1 and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

Select one:

$4,500.00

$3,120.73

$4,379.31

$5,397.31

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The correct answer is: $4,379.31

Question 4

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What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?

Select one:

$7,002.99

$18,620.78

$1,917.25

$12,720.00

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The correct answer is: $18,620.78

Question 5

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What is the present value of a $500 deposit in year 1 and another $100 deposit at the end of year 4 if interest rates are 5 percent?

Select one:

$480.00

$582.27

$493.62

$558.46

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The correct answer is: $558.46

Question 1

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Monica has decided that she wants to build enough retirement wealth that, if invested at 7 percent per year, will provide her with $3,000 monthly income for 30 years. To date, she has saved nothing, but she still has 20 years until she retires. How much money does she need to contribute per month to reach her goal?

Select one:

$7,025.77

$3,000.00

$671.78

$865.62

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The correct answer is: $865.62

Question 2

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Compute the future value in year 10 of a $1,000 deposit in year 1 and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

Select one:

$4,379.31

$4,500.00

$3,120.73

$5,397.31

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The correct answer is: $4,379.31

Question 3

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What is the interest rate of a 4-year, annual $1,000 annuity with present value of $3,500?

Select one:

9.70 percent

5.56 percent

8.84 percent

3.85 percent

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The correct answer is: 5.56 percent

Question 4

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Select one:

14.68 months

23.96 months

13.03 months

20.00 months

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The correct answer is: 23.96 months

Question 5

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What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?

Select one:

$1,538.46

$6.50

$650.00

$1,000.00

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The correct answer is: $1,538.46

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