Quant 1.12 05.01

An individual wants to be able to spend €80,000 per year for an anticipated 25 years in retirement. To fund this retirement account, he will make annual deposits of €6,608 at the end of each of his working years. He can earn 6% compounded annually on all investments. The minimum number of deposits that are needed to reach his retirement goal is closest to:

• A. 51 .
• B. 40 .
• C. 28 .

None

• A. €201,747 .
• B. €203,191 .
• C. €227,573 .

Q. An investment pays €300 annually for five years, with the first payment occurring today. The present value (PV) of the investment discounted at a 4% annual rate is closest to:

• A. €1,336 .
• B. €1,389 .
• C. €1,625 .

The liquidity premium can best be described as compensation to investors for the:

• A. risk of loss relative to an investment’s fair value if the investment needs to be converted to cash quickly.
• B. increased sensitivity of the market value of debt to a change in market interest rates as maturity is extended.
• C. possibility that the borrower will fail to make a promised payment at the contracted time and in the contracted amount.

Q. For a lump sum investment of ¥250,000 invested at a stated annual rate of 3% compounded daily, the number of months needed to grow the sum to ¥1,000,000 is closest to:

• A. 555 .
• B. 563 .
• C. 576 .

Q. At a 5% interest rate per year compounded annually, the present value (PV) of a 10-year ordinary annuity with annual payments of $2,000 is $15,443.47. The PV of a 10-year annuity due with the same interest rate and payments is closest to:

• A. $14,708 .
• B. $16,216 .
• C. $17,443 .

Q. A sports car, purchased for £200,000, is financed for five years at an annual rate of 6% compounded monthly. If the first payment is due in one month, the monthly payment is closest to:

• A. £3,847 .
• B. £3,867 .
• C. £3,957 .

A financial contract offers to pay €1,200 per month for five years with the first payment made immediately. Assuming an annual discount rate of 6.5%, compounded monthly the present value of the contract is closest to:

• A. €63,731 .
• B. €61,330 .
• C. €61,663 .