BU340 Lesson 4 & 5 Exam SCORE 95 PERCENT

Question 1 2.5 / 2.5 points
You have saved $47,000 for college and wish to use $15,000 per year. If you use the money as an ordinary annuity and earn 6.15% on your investment, how many years will your annuity last? Use a calculator to determine your answer.

Question 2 2.5 / 2.5 points
An annuity is a series of:

Question 3 2.5 / 2.5 points
If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay the total amount of principal and interest due of $215,892.50 at the end of 10 years, what type of loan did you have?

Question 4 2.5 / 2.5 points
The main variables of the TVM equation are:

Question 5 2.5 / 2.5 points
You just won the Publisher's Clearing House Sweepstakes and the right to 20 after-tax ordinary annuity cash flows of $163,291.18. Assuming a discount rate of 7.50%, what is the present value of your lottery winnings? Use a calculator to determine your answer.

Question 6 2.5 / 2.5 points
You have just won the Reader's Digest lottery of $5,000 per year for 20 years, with the first payment today followed by 19 more start-of-the-year cash flows. At an interest rate of 5%, what is the present value of your winnings?

Question 7 2.5 / 2.5 points
What is the future value in Year 12 of an ordinary annuity cash flow of $6,000 per year at an interest rate of 4% per year?

Question 8 2.5 / 2.5 points
What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%, and the cash flows of $50 last for 20 years?

Question 9 2.5 / 2.5 points
Which is greater, the present value of a $1,000 five-year ordinary annuity discounted at 10%, or the present value of a $1,000 five-year annuity due discounted at 10%?

Question 10 2.5 / 2.5 points
What is the future value in Year 25 of an ordinary annuity cash flow of $2,000 per year at an interest rate of 10% per year?

Question 11 2.5 / 2.5 points
Given the following cash flows, what is the future value at Year 6 when compounded at an interest rate of 8%?
Year 0 2 4 6
Cash Flow $5,000 $7,000 $9,000 $11,000

Question 12 2.5 / 2.5 points
If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay with 10 equal annual end-of-the-year payments of $14,902.95, then you have just repaid what type of loan?

Question 13 2.5 / 2.5 points
Randy W. recently won the Western States Lottery of $6,500,000. The lottery pays either a total of twenty $325,000 payments per year with the first payment today (i.e., an annuity due), or $3,500,000 today. At what interest rate would Randy be financially indifferent between these two payout choices?

Question 14 2.5 / 2.5 points
What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?

Question 15 0 / 2.5 points
If you borrow $50,000 at an annual interest rate of 12% for six years, what is the annual payment (prior to maturity) on an interest-only type of loan?


Question 16 2.5 / 2.5 points
If for the next 40 years you place $3,000 in equal year-end deposits into an account earning 8% per year, how much money will be in the account at the end of that time period?

Question 17 2.5 / 2.5 points
If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay the interest of $8,000 at the end of each year prior to maturity and the final payment of $108,000 at the end of 10 years, then you have just repaid what type of loan?

Question 18 0 / 2.5 points
Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. How large is the payment at the end of Year 10 if the crane is financed at a rate of 8.50% as a discount loan?

Question 19 2.5 / 2.5 points
Present value calculations do which of the following?

Question 20 2.5 / 2.5 points
A/An __________ is a series of cash flows at regular intervals across time.


Online Exam 5
Question 21 2.5 / 2.5 points
Assume that Don is 45 years old and has 20 years for saving until he retires. He expects an APR of 8.5% on his investments. How much does he need to save if he puts money away annually in equal end-of-the-year amounts to achieve a future value of $1 million in 20 years' time?

Question 22 2.5 / 2.5 points
The phrase "price to rent money" is sometimes used to refer to:

Question 23 2.5 / 2.5 points
Suppose you invest $1,000 today, compounded quarterly, with the annual interest rate of 5%. What is your investment worth in one year?

Question 24 2.5 / 2.5 points
James is a rational investor wishing to maximize his return over a 20-year period. The current yield curve is inverted with one-year rates at 5% and 20-year rates at 3.5%. James will invest in the lower-rate 20-year bonds if:

Question 25 2.5 / 2.5 points
Suppose you deposit money in a certificate of deposit (CD) at a bank. Which of the following statements is true?

Question 26 2.5 / 2.5 points
Assume you just bought a new home and now have a mortgage on the home. The amount of the principal is $150,000, the loan is at 5% APR, and the monthly payments are spread out over 30 years. What is the loan payment? Use a calculator to determine your answer.

Question 27 2.5 / 2.5 points
The two major components of the interest rate that cause rates to vary across different investment opportunities or loans are:


Question 28 2.5 / 2.5 points
You put down 20% on a home with a purchase price of $300,000. The down payment is thus $60,000, leaving a balance owed of $240,000. The bank will loan you the remaining balance at 4.28% APR. You will make annual payments with a 20-year payment schedule. What is the annual annuity payment under this schedule?

Question 29 2.5 / 2.5 points
Nominal interest rates are the sum of two major components. These components are:

Question 30 2.5 / 2.5 points
When interest rates are stated or given for loan repayments, it is assumed that they are __________ unless specifically stated otherwise.

Question 31 2.5 / 2.5 points
The __________ compensates the investor for the additional risk that the loan will not be repaid in full.

Question 32 2.5 / 2.5 points
If you take out a loan from a bank, you will be charged:


Question 33 2.5 / 2.5 points
Which of the following statements is true if you increase your monthly payment above the required loan payment?

Question 34 2.5 / 2.5 points
We can write the true relationship between the nominal interest rate and the real rate and expected inflation as which of the following?

Question 35 2.5 / 2.5 points
Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank. Your reward for postponing consumption implies that at the end of the year:

Question 36 2.5 / 2.5 points
The typical payments on a consumer loan are made at:

Question 37 2.5 / 2.5 points
What is the EAR if the APR is 10.52% and compounding is daily?


Question 38 2.5 / 2.5 points
Suppose you invest $2,000 today, compounded monthly, with an annual interest rate of 7.5%. What is your investment worth in one year?

Question 39 2.5 / 2.5 points
Suppose you postpone consumption so that by investing at 8% you will have an extra $800 to spend in one year. Suppose that inflation is 4% during this time. What is the approximate real increase in your purchasing power?

Question 40 2.5 / 2.5 points
Which of the following statements is true?


On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the EAR rate.

On many calculators the TVM key for interest is Y/I; this is Interest per Year, or the APR rate.

On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the APR rate.

On many calculators the TVM key for a period is I/Y.