Ch 05 - Adaptive Test Prep - Interest Rates part 2

You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning one year from today. You plan to deposit the funds in a mutual fund that you think will return 8.5% per year. Under these conditions, how much would you have just after you make the 5th deposit, 5 years from now?

• $18,369

• $19,287

• $20,251

• $21,264

• $22,327

Suppose you have $1,500 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures?

• $1,781.53

• $1,670.61

• $1,964.14

• $2,062.34

• $2,165.46

• 5.20

• 10.00

• 12.50

• 16.33

• 18.40

• $989.66

• $1,047.50

• $1,111.25

• $1,398.43

• $1,563.97

What's the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%?

• $4,750

• $5,000

• $5,250

• $5,513

• $5,788

What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?

• $77.19

• $81.25

• $85.31

• $89.58

• $94.06

Consider a $200,000 30-year mortgage with monthly payments. If the interest is 7.5% with monthly compounding, what portion of the mortgage payments during the first year will go toward interest?

• 89%

• 100%

• 75%

• 65%

• 95%

What is the present value of the following cash flow stream at a rate of 6.25%?

• $411.57

• $433.23

• $456.03

• $480.03

• $505.30

You want to quit your job and return to school for an MBA degree 3 years from now, and you plan to save $7,000 per year, beginning immediately. You will make 3 deposits in an account that pays 5.2% interest. Under these assumptions, how much will you have 3 years from today?

• $20,993

• $22,098

• $23,261

• $24,424

• $25,645

Choose the CORRECT statement from the list.

• Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

• Time lines are not useful for visualizing complex problems prior to doing actual calculations.

• A time line is not meaningful unless all cash flows occur annually.

• Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

• Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.