Finance Applications and Theory 4th Edition By Cornett - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Time Value of Money 2: Analyzing Annuity Cash Flows Answer Key Multiple Choice Questions 1. When saving for future expenditures, we can add the ________ …
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Finance Applications and Theory 4th Edition By Cornett – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05 Time Value of Money 2: Analyzing Annuity Cash Flows Answer Key
Multiple Choice Questions
| 1. | When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| When moving from the left to the right of a time line, we are using
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| 2. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Time value of money |
| 3. | Level sets of frequent, consistent cash flows are called
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Annuities |
| 4. | The length of time of the annuity is very important in accumulating wealth within an annuity. What other factor also has this effect?
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Annuities |
| 5. | In order to discount multiple cash flows to the present, one would use
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Time value of money |
| 6. | Your credit rating and current economic conditions will determine
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-04 Compute the present value of an annuity. Topic: Loan interest and rates |
| 7. | When interest rates are lower, borrowers can
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Loan interest and rates |
| 8. | The present value of annuity payments made far into the future is
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 9. | A perpetuity, a special form of annuity, pays cash flows
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 10. | Many people who want to start investing for their future want to start today, which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred to as
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Annuities |
| 11. | To compute the present or future value of an annuity due, one computes the value of an ordinary annuity and then
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Intermediate Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Annuities |
| 12. | When computing the future value of an annuity, the higher the compound frequency
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Future value – annuity |
| 13. | Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 14. | The simple form of an annualized interest rate is called the annual percentage rate (APR). The effective annual rate (EAR) is a
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 15. | People refinance their home mortgages
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan interest and rates |
| 16. | Loan amortization schedules show
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 17. | When you get your credit card bill, it will offer a minimum payment, which
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Amortization |
| 18. | When you get your credit card bill, if you make a payment larger than the minimum payment
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| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Amortization |
| 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.
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| 19. |
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| Compute the future value in year 4 of a $500 deposit in year 1, and another $1,000 deposit at the end of year 3 using a 5 percent interest rate.
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| 20. |
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| 21. | What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?
N = 15
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 22. | What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?
N = 4
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 23. | 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?
0 = CFO
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 24. | What is the present value of a $250 deposit in year 1, and another $50 deposit at the end of year 6 if interest rates are 10 percent?
0 = CFO
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 25. | What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?
FV = 0
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 26. | What is the present value of a $600 annuity payment over 4 years if interest rates are 6 percent?
FV = 0
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 27. | What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?
$100/0.065 = $1538.46.
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 28. | What is the present value, when interest rates are 10 percent, of a $75 payment made every year forever?
$75/0.10 = $750.
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 29. | If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?
END MODE
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Present value – annuity |
| 30. | If the future value of an ordinary, 7-year annuity is $10,000 and interest rates are 4 percent, what is the future value of the same annuity due?
END MODE
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Future value – annuity |
| 31. | If the future value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the future value of the same annuity due?
END MODE
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Future value – annuity |
| 32. | A loan is offered with monthly payments and a 10 percent APR. What is the loan’s effective annual rate (EAR)?
(1 + 0.10/12)^12 − 1 = 0.1047 = 10.47 percent.
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 33. | A loan is offered with monthly payments and a 6.5 percent APR. What is the loan’s effective annual rate (EAR)?
(1 + 0.065/12)^12 − 1 = 0.06697 = 6.697 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 34. | Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.
N = 5, I = 4, PV = 1000, PMT = 0, CPT FV = 1216.65
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| 35. | Given a 6 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.
N = 5, I = 6, PV = 1200, PMT = 0, CPT FV = 1605.8707
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| 36. | Assume that you contribute $100 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $200 per month for another 20 years. Given a 6 percent interest rate, what is the value of your retirement plan after 40 years?
N = 40 × 12 = 480, I = 6/12 = 0.5, PV = 0, PMT = 100, CPT FV = 199149
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 37. | Assume that you contribute $200 per month to a retirement plan for 15 years. Then you are able to increase the contribution to $400 per month for another 25 years. Given a 5 percent interest rate, what is the value of your retirement plan after 40 years?
N = 40 × 12 = 480, I = 5/12 = 0.4167, PV = 0, PMT = 200, CPT FV = 305,204.03
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 38. | 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.
0 = CF0
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 39. | Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.
0 = CF0
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 40. | Given a 4 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.
0 = CF0
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 41. | Given a 6 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.
0 = CF0
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 42. | A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $1,500 per month for the next three years and then $500 per month for the two years after that. If the bank is charging customers 5.5 percent APR, how much would it be willing to lend the business owner?
N = 5 × 12 = 60, I = 5.5/12 = 0.4583, FV = 0, PMT = 500, CPT PV = 26176.42
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Present value – multiple cash flows |
| 43. | A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $2,000 per month for the next three years and then $1,000 per month for the two years after that. If the bank is charging customers 8.5 percent APR, how much would it be willing to lend the business owner?
N = 5 × 12 = 60, I = 8.5/12 = 0.7083, FV = 0, PMT = 1000, CPT PV = 48741.18
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Present value – multiple cash flows |
| 44. | A perpetuity pays $100 per year and interest rates are 6.5 percent. How much would its value change if interest rates increased to 9 percent?
$100/0.065 = $1538.46, $100/0.09 = $1111.11.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 45. | A perpetuity pays $50 per year and interest rates are 9 percent. How much would its value change if interest rates decreased to 6 percent?
$50/0.09 = $555.55, $50/0.06 = $833.33.
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 46. | If you start making $100 monthly contributions today and continue them for five years, what is their future value if the compounding rate is 10 percent APR? What is the present value of this annuity?
N = 5 × 12 = 60, I = 10/12 = 0.83, PV = 0, PMT = 100, CPT FV = 7808.24
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Future value – annuity |
| 47. | If you start making $25 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?
N = 4 × 12 = 48, I = 6/12 = 0.5, PV = 0, PMT = 25, CPT FV = 1359.21
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Future value – annuity |
| 48. | Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $550 in two weeks. What is the compound annual rate implied by this 10 percent rate charged for only two weeks?
(1 + 0.10)^26 − 1 = 1091.78 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 49. | Payday loans are very short-term loans that charge very high interest rates. You can borrow $600 today and repay $675 in two weeks. What is the compound annual rate implied by this 12.5 percent rate charged for only two weeks?
((1 + 0.125)^26) − 1 = 2037.71 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 50. | Payday loans are very short-term loans that charge very high interest rates. You can borrow $200 today and repay $250 in two weeks. What is the compound annual rate implied by this 25 percent rate charged for only two weeks?
((1 + 0.25)^26) − 1 = 32,987.22 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 51. | What is the interest rate of a 4-year, annual $1,000 annuity with present value of $3,500?
N = 4, PV = −3500, PMT = 1000, FV = 0, CPT I = 5.56
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 52. | What is the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?
N = 6, PV = − 14000, PMT = 3000, FV = 0, CPT I = 7.69
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 53. | What annual interest rate would you need to earn if you wanted a $200 per month contribution to grow to $14,700 in five years?
N = 5 × 12 = 60, PV = 0, PMT = −200, FV = 14700, CPT I = 8.00
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 54. | What annual interest rate would you need to earn if you wanted a $500 per month contribution to grow to $27,050 in four years?
N = 4 × 12 = 48, PV = 0, PMT = −500, FV = 27050, CPT I = 6.00
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 55. | 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?
N = 5 × 12 = 60, PV = 20000, I = 8/12 = 0.6667, FV = 0, CPT PMT = −405.53
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 56. | You wish to buy a $15,000 car. The dealer offers you a 4-year loan with a 9 percent APR. What are the monthly payments?
N = 4 × 12 = 48, PV = 15000, I = 9/12 = 0.75, FV = 0, CPT PMT = −373.28
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 57. | 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?
PV = 3000, I = 18/12 = 1.5, FV = 0, PMT = −150, CPT N = 23.96
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 58. | Joey realizes that he has charged too much on his credit card and has racked up $4,000 in debt. If he can pay $200 each month and the card charges 20 percent APR (compounded monthly), how long will it take him to pay off the debt?
PV = 4000, I = 20/12 = 1.6667, FV = 0, PMT = −200, CPT N = 24.53
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 59. | Phoebe realizes that she has charged too much on her credit card and has racked up $7,000 in debt. If she can pay $200 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt?
PV = 7000, I = 17/12 = 1.416667, FV = 0, PMT = −200, CPT N = 48.68
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 60. | Phoebe realizes that she has charged too much on her credit card and has racked up $10,000 in debt. If she can pay $300 each month and the card charges 18 percent APR (compounded monthly), how long will it take her to pay off the debt?
PV = 10000, I = 18/12 = 1.5, FV = 0, PMT = −300, CPT N = 46.56
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 61. | Given a 7 percent interest rate, compute the year 6 future value if deposits of $2,500 and $1,500 are made in years 2 and 3, respectively, and a withdrawal of $900 is made in year 4.
Step 1:
Step 2:
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| 62. | Given an 8 percent interest rate, compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3, respectively, and a withdrawal of $2,000 is made in year 5.
Step 1:
Step 2:
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| A car company is offering a choice of deals. You can receive $2,000 cash back on the purchase, or a 2 percent APR, 3-year loan. The price of the car is $17,000 and you could obtain a 3-year loan from your credit union, at 7 percent APR. Which deal is cheaper?
Car Company: PV = 17000, I = 2/12 = 0.1667, FV = 0, N = 3 × 12 = 36, PMT = −486.92
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| 63. |
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 64. | 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?
Step 1: FV = 0, I = 7/12 = 0.5833, PMT = 3000, N = 30 × 12 = 360, CPT PV = 450922.70.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Present value – annuity |
| 65. | Ross has decided that he wants to build enough retirement wealth that, if invested at 6 percent per year, will provide him with $2,500 monthly income for 30 years. To date, he has saved nothing, but he still has 20 years until he retires. How much money does he need to contribute per month to reach his goal?
Step 1: FV = 0, I = 6/12 = 0.5, PMT = 2500, N = 30 × 12 = 360, CPT PV = 416979.036.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Present value – annuity |
| 66. | Hank purchased a $20,000 car two years ago using an 8 percent, 5-year loan. He has decided that he would sell the car now, if he could get a price that would pay off the balance of his loan. What is the minimum price Hank would need to receive for his car?
FV = 0, I = 8/12 = 0.6667, N = 5 × 12 = 60, PV = 20000, CPT PMT = −405.53
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 67. | A mortgage broker is offering a 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5 percent APR interest rate. After the second year, the mortgage interest charged increases to 8 percent APR. What is the effective interest rate in the first two years? What is the effective interest rate after the second year?
(1 + 0.05/12)^12 − 1 = 0.05116 = 5.12 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Loan interest and rates |
| 68. | A mortgage broker is offering a 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5.5 percent APR interest rate. After the second year, the mortgage interest charged increases to 8.5 percent APR. What is the effective interest rate in the first two years? What is the effective interest rate after the second year?
(1 + 0.055/12)^12 − 1 = 0.0564 = 5.64 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Loan interest and rates |
| 69. | Compute the future value in year 12 of a $2,000 deposit in year 3 and another $4,000 deposit at the end of year 5 using a 10 percent interest rate.
Step 1: PV = 2000, N = 9, I = 10, => FV = 4715.90.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| 70. | What is the future value of a $500 annuity payment over eight years if interest rates are 14 percent?
PV = 0, PMT= 500, N = 8, I = 14, => FV = 6616.38
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 71. | Compute the present value of a $2,500 deposit in year 4 and another $10,000 deposit at the end of year 8 if interest rates are 15 percent.
Step 1: FV = 2500, N = 4, I = 15, => PV = 1429.38.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 72. | What is the present value of a $775 annuity payment over six years if interest rates are 11 percent?
PMT= 775, FV = 0, N = 6, I = 11, => PV = 3278.67
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 73. | What is the present value of a $1,100 payment made every year forever when interest rates are 4.5 percent?
1100/0.045 = 24444.44.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 74. | If the present value of an ordinary, 8-year annuity is $12,500 and interest rates are 9.1 percent, what is the present value of the same annuity due?
12500(1.091) = 13637.50.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Present value – annuity |
| 75. | If the future value of an ordinary, 11-year annuity is $5,575 and interest rates are 5.5 percent, what is the future value of the same annuity due?
5575(1.055) = 5881.63.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Future value – annuity |
| 76. | A loan is offered with monthly payments and a 14.5 percent APR. What is the loan’s effective annual rate (EAR)?
[(1 + 0.145/12)^12] − 1 = 0.1550.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Loan interest and rates |
| 77. | Given a 7 percent interest rate, compute the year 8 future value of deposits made in years 1, 2, 3, and 4 of $750, $1,200, $500, and $250.
Step 1: PV= 750, I = 7, N = 7, => FV= 1204.34.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-01 Compound multiple cash flows to the future. Topic: Future value – multiple cash flows |
| 78. | Assume that you contribute $300 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for 20 years. Given a 9 percent interest rate, what is the value of your retirement plan after 45 years?
Step 1: PV = 0, PMT = 300, I = 9/12, N = 300, => FV = 336336.58.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 79. | Given an 8 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $900, $800, $700, and $600.
0 = CF0 900 = C01, 1 F01 800 = C02, 2 F02 700 = C03, 1 F03 600 = C04, 1 F04 I = 8 NPV = 2,515.90
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-03 Discount multiple cash flows to the present. Topic: Present value – multiple cash flows |
| 80. | A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $2,500 per month for the next two years and then $3,000 per month for another two years after that. If the bank is charging customers 6.5 percent APR, how much would it be willing to lend the business owner?
Step 1: PMT = 3000, N = 48, I = 6.5/12, FV = 0 => PV = 126502.46. |
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Present value – multiple cash flows |
| 81. | A perpetuity pays $250 per year and interest rates are 8.5 percent. How much would its value change if interest decreased to 5.5 percent? Did the value increase or decrease?
Step 1: 250/0.085 = 2941.18.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 82. | A perpetuity pays $250 per year and interest rates are 5.5 percent. How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?
Step 1: 250/0.055 = 4545.45.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-05 Figure cash flows and present value of a perpetuity. Topic: Perpetuities |
| 83. | 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?
Set BEG mode. PMT = 115, N = 72, I = 1, FV = 0, => PV = 5941.12
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Present value – annuity |
| 84. | Payday loans are very short-term loans that charge very high interest rates. You can borrow $550 today and repay $675 in two weeks. What is the compounded annual rate implied by this 22.73 percent rate charged for only two weeks?
[(1 + 0.2273)^26] − 1 = 204.4561 = 20445.61 percent.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 85. | What is the interest rate of a 6-year, annual $10,000 annuity with a present value of $40,000?
PV = 40,000, PMT = 10,000, FV = 0, N = 6, => I = 12.98
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 86. | What annual interest rate would you need to earn if you wanted a $1,250 per month contribution to grow to $65,000 in three years?
PV = 0; N = 36, PMT = 1250, FV = 65000, => I = 2.00 annual rate = 2 × 12 = 24
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 87. | 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?
Step 1: PV = 30,000, N = 60, I = 9/12, FV = 0, => PMT = 622.75.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 88. | Isaac realizes that he charged too much on his credit card and has racked up $5,000 in debt. If he can pay $225 each month and the card charges 17.55 percent APR (compounded monthly), how long will it take him to pay off the credit card?
PV = 5000, PMT = 225, FV = 0, I = 17.55/12, => N = 27.07
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 89. | Isaac realizes that he charged too much on his credit card and has racked up $7,000 in debt. If he can pay $275 each month and the card charges 17.55 percent APR (compounded monthly), how long will it take him to pay off the credit card? How much interest expense will Isaac pay during this time?
Step 1: PV = 7000, PMT = 275, FV = 0, I = 17.55/12, => N = 32.07. |
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Number of time periods |
| 90. | Given a 10 percent interest rate, compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively, and a withdrawal of $5,000 is made in year 7.
Step 1: PV= 10,000, N = 8, I = 10, PMT= 0, => FV = 21435.89.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – multiple cash flows |
| 91. | A car company is offering a choice of deals. You can receive $600 cash back on the purchase, or a 2 percent APR, 4-year loan. The price of the car is $18,900 and you could obtain a 4-year loan from your credit union at 6 percent APR. What is the monthly payment of each deal?
Step 1: PV= 18300, FV = 0, I = 6/12, N = 48, => PMT = 429.78.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Blooms: Evaluate Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 92. | A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2 percent APR, 2-year loan. The price of the dining room set is $3,750 and you could obtain a 2-year loan from your credit union at 6 percent APR. What is the cost per month of each deal?
Step 1: Cash back: PV = 3650, N = 24, I = 6/12; FV = 0, => PMT = 161.77.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Blooms: Evaluate Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 93. | What is the amount of interest and repayment of principal balance in month 2 for a loan of $10,000, paid monthly over five years at a 7 percent APR?
Step 1: PV = 10000, N = 60, I = 7/12, FV = 0, => PMT = 198.01.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 94. | Jasmine has decided that she wants to build enough retirement wealth that, if invested at 6 percent per year, will provide her with $3,000 of monthly income for 30 years. To date, she has saved nothing but she still has 25 years until she retires. Jasmine believes that she can earn 6 percent on her investments until she retires. How much money does she need to contribute per month to reach her goal?
Step 1: FV = 0, PMT = 3000, N = 360, I = 6/12, PV = 500374.84.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Present value – annuity |
| 95. | Jasmine has decided that she wants to build enough retirement wealth that, if invested at 6 percent per year, will provide her with $3,000 of monthly income for 30 years. To date, she has saved nothing but she still has 25 years until she retires. Jasmine believes that she can earn 9 percent on her investments until she retires. How much money does she need to contribute per month to reach her goal?
Step 1: FV = 0, PMT = 3000, N = 360, I = 6/12, PV = 500374.84.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. |
| 96. | Chase purchased a $23,000 car three years ago using a 14 percent, 6-year car loan. He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan. What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)
Step 1: PV = 23000, FV = 0, N = 72, I − 14/12, => PMT = 473.93.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 97. | Chase purchased a $30,000 car three years ago using a 10 percent, 5-year car loan. He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan. What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)
Step 1: PV = 30000, FV = 0, N = 60, I − 10/12, => PMT = 637.4113.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 98. | A mortgage broker is offering a $225,000 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 2.5 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 8.5 percent APR. What are the mortgage payments in the first two years? What are the mortgage payments after the second year?
Step 1: N = 360, I = 2.5/12, PV = 225000, FV = 0, PMT = 889.02.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 99. | 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?
PV = 91000, I = 7, PMT = 4800, N = 38, => FV = 2018506.60
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 100. | 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 $400 each month into your new employer’s plan. If the rolled-over money and the new contributions both earn a 7 percent annual return, how much should you expect to have when you retire in 38 years?
PV = 91000, N = 456, I = 7/12, PMT = 400, => FV = 2195145.40
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 101. | 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?
Step 1: PV = 1000000, N = 12, I = 7, FV = 2252191.59.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 102. | A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much would you have to deposit each month in a savings account earning 3.5 percent APR, compounded monthly, to be able to pay the $3,500 bill in three years?
PV = 0, N = 36, I = 3.5/12, FV = 3500, => PMT = 92.35
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Topic: Time value payments |
| 103. | A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much money would you have to deposit now in a savings account earning 3.5 percent APR, compounded monthly, to pay the $3,500 bill in three years?
FV = 3500, I = 3.5/12, N = 36, PMT = 0, => PV = 3151.62
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Present value – single cash flow |
| 104. | You have secured a loan from your bank for two years to build your home. The terms of the loan are that you will borrow $120,000 now and an additional $52,000 in one year. Interest of 9 percent APR will be charged on the balance monthly. Since no payments will be made during the 2-year loan, the balance will grow. At the end of the two years, the balance will be converted to a traditional 30-year mortgage at a 6.5 percent interest rate. What will you pay as monthly mortgage payments (principal and interest only)?
Step 1: PV = 120000, PMT = 0, N = 12, I = 9/12, => FV = 131256.83.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 105. | Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?
PV = 135000, N = 180, I = 6/12, FV = 0, => PMT = 1139.21
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 106. | Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what would the loan balance be in seven years?
Step 1: PV = 135000, N = 180, I = 6/12, FV = 0, => PMT = 1139.21.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 107. | Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. Assume you get a 15-year mortgage with a 6 percent interest rate. If the house appreciates at a 2 percent rate per year, what will be the value of the house in seven years? How much of this value is equity?
Step 1: PV = 150000, N = 7, I = 2, PMT = 0, => FV = 172302.85.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 108. | A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,250 per month for the next three years and then $500 per month for two years after that. If the bank is charging customers 12 percent APR, how much would it be willing to lend the business owner?
Step 1: PMT = 500, N = 60, I = 1, => PV = 22477.52.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Present value – annuity |
| 109. | A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,500 per month for the next 3 years and then $500 per month for three years after that. If the bank is charging customers 10 percent APR, how much would it be willing to lend the business owner?
Step 1: PMT = 500, N = 72, I = 10/12, => PV = 26989.33.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Present value – annuity |
| 110. | You win $1,000 today, which happens to be your 20th birthday. You decide to deposit this money in an account and plan to add $1,000 to it each year on your birthday beginning one year from today. If you earn 10 percent per year in the account, how long will it take to grow to $750,000?
PV = 1000, PMT = 1000, I = 10, FV = −750000, => N = 44.44
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Number of time periods |
| 111. | Your 30-year $95,000 mortgage calls for payments to be made at the end of each month. The loan has a 5.85 percent annual interest rate. What is the remaining balance after five years?
Step 1: PV = 95000, N = 360, I = 5.85/12, FV = 0, => PMT = 560.44.
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 112. | Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?
PV = 10000, PMT = −175, I = 18.95/12, FV = 0, => N = 148.50
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 113. | Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?
Step 1: PV = 10000, PMT = −175, I = 18.95/12, FV = 0, => N = 148.50.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 114. | Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?
Step 1: PV = 5000, PMT = −200, I = 16.75/12, FV = 0, => N = 30.96.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 115. | You deposit $1,000 today and want to save $100 each month beginning one month from today. Your account earns a 5 percent annual interest rate. How long will it take you to accumulate $5,000?
PV = 1000, PMT = 100, FV = −5000, I = 5/12, => N = 35.7 months
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Number of time periods |
| 116. | You are deciding among several different bank accounts. Which of the following will generate the highest effective annual rate (EAR)?
[(1 + 0.06/12)^12] − 1 = 6.17 percent.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 117. | You are deciding among several different bank accounts. Which of the following will generate the highest effective annual rate (EAR)?
[(1 + 0.1/12)^12] − 1 = 10.47 percent.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 118. | Which of the following will increase the present value of an annuity?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Apply Blooms: Evaluate Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 119. | Which of the following will decrease the present value of an annuity?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 120. | Which of the following statements is correct?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Apply Blooms: Evaluate Difficulty: 3 Advanced Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Simple and compound interest |
| 121. | You just bought a new home and have a 30-year mortgage with monthly payments. Which statement regarding your mortgage is correct?
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Blooms: Understand Difficulty: 2 Intermediate Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 122. | Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?
EAR for Bank B: [(1 + 0.07/12)^12] − 1 = 7.23; EAR for Bank A = 7.75 percent.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 123. | Bank A charges a 7.50 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 6.95 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?
EAR for Bank B: [(1 + 0.0695/12)^12] − 1 = 7.1757 percent; EAR for Bank A = 7.5 percent.
|
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 124. | Your company borrows $55,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $17,100 at the end of each year. What annual interest rate is your firm paying?
PV = 55000, PMT = −17100, N = 4, FV = 0, => I = 9.33
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 125. | Your company borrows $75,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $26,600 at the end of each year. What annual interest rate is your firm paying?
PV = 75000, N = 4, PMT = −26600, FV = 0, => I = 15.62
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 126. | Your company borrows $275,000 today to fund its growth initiatives. It must repay the bank in five annual payments of $76,300 at the end of each year. What annual interest rate is your firm paying?
PV = 275000, N = 5, PMT = −76,300, FV = 0, => I = 12.0065
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 127. | As a college student, you probably receive many credit card offers in the mail. Consider these two offers. The first card charges a 17 percent APR. An examination of the footnotes reveals that this card compounds monthly. The second credit card charges 16.25 percent APR and compounds weekly. What is the effective annual rate of the cheaper card?
Step 1: EAR of card 1: [(1 + 0.17/12)^12] − 1 = 18.39 percent.
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 128. | As a college student, you probably receive many credit card offers in the mail. Consider these two offers. The first card charges a 17 percent APR. An examination of the footnotes reveals that this card compounds daily (365 day year). The second credit card charges 18 percent APR and compounds semiannually. What is the effective annual rate of the cheaper card?
Step 1: EAR of card 1: [(1 + 0.17/365)^365] − 1 = 18.53 percent.
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Simple and compound interest |
| 129. | You have reviewed your budget and determine that the most you can afford on a car loan is $375 per month. What is the most you can borrow if interest rates are 8 percent and you can pay the loan over five years?
FV = 0, PMT = −375, N = 60, I = 8/12, => PV = 18494.41
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 130. | You have reviewed your budget and determine that the most you can afford on a car loan is $455 per month. What is the most you can borrow if interest rates are 7 percent and you can pay the loan over four years?
FV = 0, N = 48, I = 7/12, PMT = −455, => PV = 19000.89
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 131. | You have reviewed your budget and determine that the most you can afford on a car loan is $550 per month. What is the most you can borrow if interest rates are 6 percent and you can pay the loan over three years?
FV = 0, N = 36, I = 6/12, PMT = −550, => PV = 18079.0589
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 132. | Your firm needs to buy additional physical therapy equipment that costs $27,000. The equipment manufacturer will give you the equipment now if you will pay $7,000 per year for the next five years. Assume your firm can borrow at a 13 percent interest rate. You need to analyze if your firm should pay the manufacturer the $27,000 now or accept the five-year annuity offer of $7,000. Which of the following statements is correct?
Cost of Annuity: PMT = 7000, I = 13, N = 5, FV = 0, => PV = 24620.62
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 133. | Your firm needs to buy additional physical therapy equipment that costs $35,000. The equipment manufacturer will give you the equipment now if you will pay $8,000 per year for the next five years. Assume your firm can borrow at a 3 percent interest rate. You need to analyze if your firm should pay the manufacturer the $35,000 now or accept the five-year annuity offer of $8,000. Which of the following statements is correct?
Cost of Annuity: FV = 0, PMT = 8000, N = 5, I = 3, => PV = 36637.66
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 134. | You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year. You expect to contribute $4,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 8 percent per year. If you plan to retire in 35 years, how big will you expect that retirement account to be?
PMT = 6000, FV = 0, N = 35, I = 8, => FV = 1,033,900.82
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 135. | You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 25 percent of what you contribute each year. You expect to contribute $5,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 8 percent per year. If you plan to retire in 35 years, how big will you expect that retirement account to be?
PV = 0, PMT= 6250, I = 8, N = 35, => FV = 1076980.02
|
| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 136. | You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year. You expect to contribute $2,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 10 percent per year. If you plan to retire in 40 years, how big will you expect that retirement account to be?
PV = 0, PMT = 3000, I = 10, N = 40, => FV = 1327777.667
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 137. | Sally saves $500 per month in her retirement plan. She plans on making monthly contributions for 35 years. If her account earns a 12 percent annual interest rate, how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?
Step 1: PV = 0, PMT = 500, N = 35 × 12, I = 12/12, => FV = 3215479.74.
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 138. | Jane has been saving $500 in her retirement account each month for the last 20 years and plans to continue contributing $500 each month for the next 20 years. Her account has been earning an 8 percent annual interest rate and she expects to earn the same rate for the next 20 years. Her twin brother, Hal, has not saved anything for the last 20 years. Due to sibling rivalry, he wants to have as much as Jane is expected to have at the end of 20 years. If Hal expects to earn the same annual interest rate as Jane, how much must Hal save each month to achieve his goal?
Step 1: PV = 0, PMT = 500, N = 40 × 12, I = 8/12, => FV = 1745503.92.
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 139. | Jane has been saving $450 in her retirement account each month for the last 20 years and plans to continue contributing $450 each month for the next 20 years. Her account has been earning a 9 percent annual interest rate and she expects to earn the same rate for the next 20 years. Her twin brother, Hal, has not saved anything for the last 20 years. Due to sibling rivalry, he wants to have as much as Jane is expected to have at the end of 20 years. If Hal expects to earn the same annual interest rate as Jane, how much must Hal save each month to achieve his goal?
Step 1: PV = 0, PMT = 450, I = 9/12; N = 40 × 12, => FV = 2106594.12
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 140. | Jane has been saving $200 in her retirement account each month for the last 20 years and plans to continue contributing $200 each month for the next 20 years. Her account has been earning an 8 percent annual interest rate and she expects to earn the same rate for the next 20 years. Her twin brother, Hal, has not saved anything for the last 20 years. Due to sibling rivalry, he wants to have as much as Jane is expected to have at the end of 20 years. If Hal expects to earn the same annual interest rate as Jane, how much must Hal save each month to achieve his goal?
Step 1: PV = 0, PMT = 200, I = 8/12, N = 40 × 12, => FV = 698,201.5663.
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 141. | Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how soon do you pay off your mortgage?
Step 1: PV = 95000, FV = 0, N = 360, I = 6/12, => PMT = 569.57.
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 142. | Your current $115,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 7 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by prepaying?
Step 1: PV = 115000, FV = 0, N = 360, I = 7/12, => PMT = 765.10.
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 143. | Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by pre-paying?
Step 1: PV = 155000, FV = 0, N = 25 × 12, I = 6/12, => PMT = 998.67. |
| AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Learning Goal: 05-10 Calculate the number of payments on a loan. Topic: Number of time periods |
| 144. | After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $600,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $5,000 per month for 30 years. What annual interest rate (APR) do you need to earn?
PV = 600,000, N = 360, FV = 0, PMT = −5000, => I = 0.7831, APR = 0.7831 × 12 = 9.40
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| AACSB: Analytical Thinking Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 145. | After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $500,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $4,000 per month for 30 years. What annual interest rate (APR) do you need to earn?
PV = 500000, N = 360, FV = 0, PMT = −4000, => I = 0.7446, APR = 0.74 × 12 = 8.94 percent
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-08 Compute the interest rate of annuity payments. Topic: Interest rates |
| 146. | Which of the following will increase the future value of an annuity?
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-02 Compute the future value of frequent, level cash flows. Topic: Future value – annuity |
| 147. | Which of the following will increase the present value of an annuity?
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Basic Learning Goal: 05-04 Compute the present value of an annuity. Topic: Present value – annuity |
| 148. | If the present value of an ordinary, 10-year annuity is $25,000 and interest rates are 7 percent, what is the present value of the same annuity due?
END MODE
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Present value – annuity |
| 149. | If the future value of an ordinary, 5-year annuity is $100,000 and interest rates are 5 percent, what is the future value of the same annuity due?
END MODE
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| AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply Difficulty: 1 Basic Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Future value – annuity |
| 150. | If you start making $90 monthly contributions today and continue them for ten years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?
N = 10 × 12 = 120, I = 6/12 = 0.50, PV = 0, PMT = 90, CPT FV = 14794.14
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-06 Adjust values for beginning-of-period annuity payments. Topic: Future value – annuity |
| 151. | Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $550 in ten weeks. What is the compound annual rate implied by this 10 percent rate charged for only ten weeks?
[(1 + 0.10)^5.2] − 1 = 64.15 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 2 Intermediate Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Compound frequency |
| 152. | A car company is offering a choice of deals. You can receive $4,000 cash back on the purchase, or a 0 percent APR, 4-year loan. The price of the car is $40,000 and you could obtain a 4-year loan from your credit union, at 6 percent APR. Which deal is cheaper?
Car Company: PV = 40000, I = 0, FV = 0, N = 4 × 12 = 48, PMT = −833.33
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
| 153. | Paige has decided that she wants to build enough retirement wealth that, if invested at 5 percent per year, will provide her with $2,500 monthly income for 20 years. To date, she has saved nothing, but she still has 40 years until she retires. How much money does she need to contribute per month to reach her goal?
Step 1: FV = 0, I = 5/12 = 0.4167, PMT = 2500, N = 20 × 12 = 240, CPT PV = −378,813.2827.
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Present value – annuity |
| 154. | Bethany purchased a $35,000 car three years ago using a 6 percent, 5-year loan. She has decided that she would sell the car now, if she could get a price that would pay off the balance of her loan. What is the minimum price Bethany would need to receive for her car?
FV = 0, I = 6/12 = 0.50, N = 5 × 12 = 60, PV = 35000, CPT PMT = −676.6481
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| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Amortization |
| 155. | A mortgage broker is offering a 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 2.5 percent APR interest rate. After the second year, the mortgage interest charged increases to 4.25 percent APR. What is the effective interest rate in the first two years? What is the effective interest rate after the second year?
(1 + 0.025/12)^12 − 1 = 0.0253 = 2.53 percent.
|
| AACSB: Analytical Thinking Blooms: Analyze Blooms: Apply Difficulty: 3 Advanced Learning Goal: 05-07 Explain the impact of compound frequency and the difference between the annual percentage rate and the effective annual rate. Topic: Loan interest and rates |
| 156. | A furniture company is offering a choice of deals. You can receive $500 cash back on the purchase, or a 3 percent APR, 2-year loan. The price of the dining room set is $5,000 and you could obtain a 2-year loan from your credit union at 4 percent APR. What is the cost per month of each deal?
Step 1: Cash back: PV = 4500, N = 2 × 12=24, I = 3/12 = 0.25, FV = 0, => PMT = 193.4155.
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| AACSB: Analytical Thinking Blooms: Apply Blooms: Evaluate Difficulty: 3 Advanced Learning Goal: 05-04 Compute the present value of an annuity. Learning Goal: 05-09 Compute payments and amortization schedules for car and mortgage loans. Topic: Loan payments |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
