An account was established 9 years ago with an initial deposit.

Today the account is credited with annual interest of $369. The interest rate is 4.1% compounded annually. No other deposits or withdrawals have been made. How much is the end-of-day balance?

a. $11,344 b. $12,478 c. $10,313 d. $13,726 e. $9,375

Here are two future expenses that you want to save for today: $3,500 payable in 2 years, and $8,000 payable in 10 years. You make an investment today that perfectly finances the future expenses if the investment earns a target 17.7% average annual rate of return (compounded annually). The investment indeed grows sufficiently to finance your first expense. Unfortunately, for the entire investment horizon your actual annual rate of return falls short of the target by 170 basis points per year. When it is time to pay the second expense, how much money do you lack?

a. $1,412 b. $1,553 c. $1,284 d. $1,880 e. $1,709 A venture capitalists provides a company equity financing of $17.0 million. After 3 years the company repurchases the equity for $32.3 million. There are no other cash flows between the two. Find the average annual geometric rate of return, and also find the cumulative rate of return.

a. the average annual geometric ror is 23.8% and the cumulative ror is 78.0% b. the average annual geometric ror is 23.8% and the cumulative ror is 89.7% c. the average annual geometric ror is 18.0% and the cumulative ror is 89.7% d. the average annual geometric ror is 20.7% and the cumulative ror is 89.7% e. the average annual geometric ror is 20.7% and the cumulative ror is 78.0% You wish to purchase in 7 years an item that today costs $2,100 . The cost is expected to inflate at an annual rate of 3.0%. You make a deposit today that perfectly finances the future purchase. The observed interest rate that your savings earns is 9.7%. Describe the relation between your deposit, inflation, and the discount rate.

a. the deposit equals the real cost of $2100 discounted at the nominal rate 9.7% b. the deposit equals the nominal cost of $2583 discounted at the real rate 6.5% c. the real interest rate is 6.5% d. Two choices, A and B, are correct e. The three A-B-C choices are all correct

Today your account was credited with its annual interest of $2,020 . The account was established some time ago with a $15,950 initial deposit. No other deposits or withdrawals have been made. The account earns 5.0% annual interest. How many years ago was the account established?

a. 19 b. 20

c. 18 d. 16 e. 17

In exactly 9 months a bill of $8,980 is due. Today you deposit money such that if the account earns a target rate of return of 1.32% per month, the bill is perfectly financed. Unfortunately, your account earns 25 basis points less than your target. When the bill is due, how much money do you lack?

a. $180 b. $239 c. $197 d. $217 e. $263

In exactly 9 years a bill of $17,880 is due. Today you deposit money such that if the account earns a target rate of return of 8.90% per annum, compounded monthly, the bill is perfectly financed. No other deposits or withdrawals have been made. Your account actually accumulates $18,881 . What was the actual average annual percentage rate?

a. 12.66% b. 8.65% c. 11.51% d. 10.46%

e. 9.51%

Suppliers X and Z are competing to sell your company supplies. The full price of supplies from supplier X is $2,700 and they offer these payment plans: 6.5% discount if you pay within 30 days, otherwise pay full price within 305 days. The full price with supplier Z is $2,520 and they offer these payment plans: 4.0% discount if you pay within 30 days, otherwise pay full price within 205 days. Your company financing rate is 9.7% compounded daily. Find the supplier and payment plan that represent the lowest present value of cost.

a. If you buy from supplier X the lowest present value of cost occurs when you pay the discounted price on day 30 b. If you buy from supplier Z the lowest present value of cost occurs when you pay the full price on day 205 c. The lowest possible present value of cost occurs when you pay the full price from supplier Z d. Two choices, B and C, are correct e. None of the A-B-C choices are correct

By how many basis points does 5.5% differ from 9.4% ?

a. 340 b. 290 c. 390 d. 450 e. 260

An account is today credited with its monthly interest thereby bringing the account balance to $12,030 . The interest rate is 6.10% compounded monthly. You plan to make monthly withdrawals of $100 each. The first withdrawal is in exactly one month and the last in exactly 12 years. Find the account balance immediately after the last withdrawal.

a. $4,612 b. $5,073 c. $4,193 d. $3,812 e. $5,581

An account is today credited with its annual interest thereby bringing the account balance to $4,920 . The interest rate is 5.50% compounded annually. You plan to make annual withdrawals of $600 each. The first withdrawal is in exactly one year and the last in exactly 9 years. Find the account balance immediately after the last withdrawal.

a. $1,333 b. $1,212 c. $911 d. $1,002 e. $1,102

Today you inherit an account with a balance of $9,800 . For a while you don't do anything with the account but it continues to accrue interest. Exactly 15 months from today you start an ambitious savings plan and deposit $205 into the account. You plan to deposit that much each month. Exactly 38 months from today you reconsider your plan, make your last deposit, and make no additional deposits. You nonetheless leave the account alone and it continues to accrue

interest at a rate of 6.6% compounded monthly. You finally close the account exactly 7 years from today. How much is the total accumulation?

a. $22,284 b. $24,513 c. $32,627 d. $26,964 e. $29,661

Suppose two alternative investments promise cash flow streams that possess equal lives. Further, suppose the simple sum of the cash flows for each investment is the same amount. Given a positive interest rate, which investment has the smallest present value?

a. there is no reliable relationship between the distribution of cash flows and present value. b. an investment which generates most cash flows at the beginning of its life. c. an investment which generates most cash flows at the end of its life. d. an investment that is being discounted by a small discount rate. e. an investment which generates equal cash flows each period.

You might invest in a security that will return after-tax cash flow to you of $1,000 per year for 7 years (first cash flow one year from now), after which the security likely can be sold immediately for $3,800 . You make an offer to buy the security so that you'll get a 9.70% rate of return (compounded annually). Find the offer price.

a. $5,187 b. $6,905 c. $5,706 d. $4,716 e. $6,277

You might invest in an asset that will return after-tax cash flow to you of $1,300 per month for 20 months (first cash flow one month from now), and after receiving the last cash flow you'll immediately receive after-tax net proceeds from liquidation equal to $48,400 . You make an offer to buy the asset so that you'll get your "target" annual rate of return of 15.50% (compounded monthly). The seller makes a counteroffer that is $4,800 higher than your offer. Find your annual rate of return if you buy at the counteroffer price and receive the expected cash flows.

a. 10.8% b. 7.4% c. 8.9% d. 9.8% e. 8.1%

Today you open an account with a $12,000 deposit that earns 8.90% compounded annually. You've set a target for the account so that in exactly 8 years its balance will be $18,300 . To reach the target you'll adjust the balance annually; each year's adjustment will be exactly the same amount and the first adjustment occurs exactly one year from now. After the last annual adjustment in exactly 8 years, and crediting of that year's interest, the account balance exactly equals the target. Describe the annual adjustment that you make each year.

a. Each year you make a deposit of $495 .

b. Each year you make a deposit of $654 . c. Each year you make a withdrawal of $569 . d. Each year you make a deposit of $569 . e. Each year you make a withdrawal of $495 .

Which statement describes the "rule of 72"?

a. The number of months required for a deposit to double equals the decimal interest rate divided by 72. b. The approximate number of years required for a deposit to double equals 72 divided by the percentage interest rate. c. The simple sum of cash flows required for an investment to earn a positive rate of return equals the investment cost divided by 72. d. The number of months required for a deposit to double equals the decimal interest rate times 72. e. The simple sum of cash flows required for an investment to earn a positive rate of return equals the investment cost times 72.

You wish to establish an endowment fund that will provide student financial aid awards every month, perpetually. To finance the scholarships you will make a series of equal deposits into a savings account. The deposits will be made monthly equal to $2,900 each, with the first one today and the final one in 4 years. The first award is to be granted one month after the last deposit. The savings rate is 6.20% compounded monthly. How much is each award?

a. $1,008 b. $1,220

c. $1,109 d. $833 e. $916

The Company borrowed $138,000 at 8.90% to be repaid monthly over 20 years. They just remitted payment number 85. How much interest-to date has been paid?

a. $66,218 b. $80,124 c. $60,198 d. $72,840 e. $54,726 You have just bought a house by borrowing $300,000 at a 10.40% annual interest rate (compounded monthly) repayable with fixed payments over 35 years. When finally in the far-off future you make your last payment, how much of that last payment will be principal?

a. $2,648.28 b. $2,407.53 c. $1,989.69 d. $2,188.66 e. $2,913.11

Consider the following cash flows for two mutually exclusive investments: at time 0: CFA = ($710) and CFB = ($890) at time 1: CFA = $504 and CFB = $112 at time 2: CFA = $298 and CFB = $355 at time 3: CFA = $118 and CFB = $1,168 Which statement is true?

a. if the financing rate is 22.3% then project B is the better of the two b. if the financing rate is 9.2% then project A is the better of the two c. if the financing rate is 32.56% then projects A and B create the same amount of wealth d. if the financing rate is 26.4% then project A is the better of the two e. if the financing rate is 18.3% then project A is the better of the two

The bank issued a $171,000 20-year mortgage (monthly payments) with an annual interest rate of 8.90%. They just received payment number 116 and have decided to sell the loan. The buyer of the loan expects to receive an annual rate of return equal to 6.90%. For the original bank that issued the loan, what was the internal rate of return?

a. 8.53% b. 9.38% c. 11.35% d. 10.32% e. 7.75%

What factors are relevant for a household choosing between borrowing with a 15-year versus a 30-year loan (assume that fees, interest rates, and all else are equal).

a. Total lifetime interest definitely is less with a 15-year loan so therefore it is a better choice. b. When the household expects short-run liquidity problems as their careers commence but for the long-run they expect high income growth then borrowing with a 30-year loan may be advantageous. c. When the household expects that in the short-run their uses for money will have high utility but that in the long-run their uses for money will have lower utility then borrowing with a 15-year loan may be advantageous. d. Two choices, A and B, are correct e. None of the A-B-C choices are correct

Your company is analyzing purchase of a machine costing $3,300 today. The investment promises to add $9,000 to sales one year from today, $10,000 two years from today, and $13,000 three years from today. Incremental cash costs should consume 80% of the incremental sales. The tax rate is 35% and the company's financing rate is 12.2%. The investment cost is depreciated to zero over a 3-year straight-line schedule. Find the project's net present value and internal rate of return.

a. NPV and IRR equal $893 and 26.6% b. NPV and IRR equal $1,027 and 26.6% c. NPV and IRR equal $1,027 and 30.6% d. NPV and IRR equal $1,182 and 26.6% e. NPV and IRR equal $893 and 30.6%

You took out a 30-year mortgage (monthly payments) for $125,000 at 8.90% and payment number 29 is due today. You are deciding whether you should refinance the outstanding principal by borrowing at today's lower rate of 6.60% an amount that pays off the old loan. The new loan is for 30 years as of today. The total fees for getting the new loan equal 4.6% of the original loan's outstanding principal. The first payment for the new loan would be due one month from today. Suppose you pay the fees today with funds from your savings account. What

is the net present value of the refinancing venture if your "personal discount rate" is 12%?

a. $20,667 b. $17,080 c. $15,527 d. $18,788 e. $14,116