CHAP 5 SIMPLE INTEREST 16. Thomas invests $100 in an account that pays 5 percent simple interest.

How much money will Thomas have at the end of five years? a. $120.00 b. $123.68 c. $124.92 d. $125.00 e. $127.63 SIMPLE VERSUS COMPOUND INTEREST 18. Beatrice invests $1,000 in an account that pays 4 percent simple interest. How much more could she have earned over a five-year period if the interest had compounded annually? a. $15.45 b. $15.97 c. $16.65 d. $17.09 e. $21.67 FUTURE VALUE 22. You own a classic automobile that is currently valued at $39,500. If the value increases percent annually, how much will the auto be worth ten years from now? a. $64,341.34 b. $44,734.42 c. $69,843.06 d. $70,738.48 e. $74,146.93 FUTURE VALUE 23. You hope to buy your dream house six years from now. Today your dream house costs $189,900. You expect housing prices to rise by an average of 4.5 percent per year over the next six years. How much will your dream house cost by the time you are ready to buy it? a. $240,284.08 b. $246,019.67 c. $246,396.67 d. $246,831.94 e. $247,299.20

by 6

PRESENT VALUE 24. Your grandmother invested one lump sum 17 years ago at 4.25 percent interest. Today, she gave you the proceeds of that investment which totaled $5,539.92. How much did your grandmother originally invest? a. $2,700.00 b. $2,730.30 c. $2,750.00 d. $2,768.40 e. $2,774.90 PRESENT VALUE 26. You would like to give your daughter $40,000 towards her college education thirteen years from now. How much money must you set aside today for this purpose if you can earn 6.3 percent on your funds? a. $17,750.00 b. $17,989.28 c. $18,077.05 d. $18,213.69 e. $18,395.00 NUMBER OF TIME PERIODS 32. On your tenth birthday, you received $100 which you invested at 4.5 percent interest, compounded annually. That investment is now worth $3,000. How old are you today? a. age 77 b. age 82 c. age 84 d. age 86 e. age 87 PRESENT VALUE AND RATE CHANGES 33. You want to have $10,000 saved ten years from now. How much less do you have to deposit today to reach this goal if you can earn 6 percent rather than 5 percent on your savings? a. $555.18 b. $609.81 c. $615.48 d. $928.73 e. $1,046.22 PRESENT VALUE AND RATE CHANGES 34. Your older sister deposited $5,000 today at 8 percent interest for five years. You would like to have just as much money at the end of the next five years as your sister. However, you can only earn 6 percent interest. How much more money must you deposit today than your sister if you are to have the same amount at the end of five years? a. $201.80 b. $367.32 c. $399.05 d. $423.81 e. $489.84

CHAP 6
ORDINARY ANNUITY AND PRESENT VALUE 24. Your parents are giving you $100 a month for four years while you are in college. At a 6 percent discount rate, what are these payments worth to you when you first start college? a. $3,797.40 b. $4,167.09 c. $4,198.79 d. $4,258.03 e. $4,279.32 ORDINARY ANNUITY AND PRESENT VALUE 26. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9 percent, how much can Todd afford to borrow to buy a car? a. $6,961.36 b. $8,499.13 c. $8,533.84 d. $8,686.82 e. $9,588.05 ORDINARY ANNUITY AND PRESENT VALUE 29. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12 percent, what is this job worth to you today? a. $180,238.81 b. $201,867.47 c. $210,618.19 d. $223,162.58 e. $224,267.10 ANNUITY DUE AND PRESENT VALUE 30. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25 percent interest compounded monthly. They deposit the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would they have had to deposit? a. $82,964.59 b. $83,189.29 c. $83,428.87 d. $83,687.23 e. $84,998.01 ANNUITY DUE AND PRESENT VALUE 31. You need some money today and the only friend you have that has any is your miserly friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six month. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5 percent interest per month. How much money are you borrowing? a. $113.94 b. $115.65 c. $119.34 d. $119.63 e. $119.96

ORDINARY ANNUITY AND FUTURE VALUE 36. What is the future value of $1,000 a year for five years at a 6 percent rate of interest? a. $4,212.36 b. $5,075.69 c. $5,637.09 d. $6,001.38 e. $6,801.91 ORDINARY ANNUITY AND FUTURE VALUE 37. What is the future value of $2,400 a year for three years at an 8 percent rate of interest? a. $6,185.03 b. $6,847.26 c. $7,134.16 d. $7,791.36 e. $8,414.67 ORDINARY ANNUITY AND FUTURE VALUE 38. Janet plans on saving $3,000 a year and expects to earn 8.5 percent. How much will Janet have at the end of twenty-five years if she earns what she expects? a. $219,317.82 b. $230,702.57 c. $236,003.38 d. $244,868.92 e. $256,063.66 ORDINARY ANNUITY PAYMENTS 40. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a 5.9 percent rate of interest. What is the amount of each payment? a. $103.22 b. $103.73 c. $130.62 d. $131.26 e. $133.04 ORDINARY ANNUITY PAYMENTS AND FUTURE VALUE 42. The Great Giant Corp. has a management contract with their newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5 percent on these funds. How much must the company set aside each year for this purpose? a. $1,775,042.93 b. $1,798,346.17 c. $1,801,033.67 d. $1,852,617.25 e. $1,938,018.22 ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE 43. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5 percent on your money during

a. b. c. d. e.

your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny? $2,001.96 $2,092.05 $2,398.17 $2,472.00 $2,481.27

UNEVEN CASH FLOWS AND PRESENT VALUE 66. You are considering two insurance settlement offers. The first offer includes annual payments of $5,000, $7,500, and $10,000 over the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 5 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer? a. $19,877.67 b. $20,203.00 c. $21,213.15 d. $23,387.50 e. $24,556.88 UNEVEN CASH FLOWS AND PRESENT VALUE 67. You are considering a job offer. The job offers an annual salary of $52,000, $55,000, and $60,000 a year for the next three years, respectively. The offer also includes a starting bonus of $2,000 payable immediately. What is this offer worth to you today at a discount rate of 6 percent? a. $148,283.56 b. $148,383.56 c. $150,283.56 d. $150,383.56 e. $152,983.56

UNEVEN CASH FLOWS AND PRESENT VALUE 68. You are considering a project with the following cash flows: Year 1 Year 2 Year 3 $1,200 $1,800 $2,900 What is the present value of these cash flows, given a 9 percent discount rate? a. $4,713.62 b. $4,855.27 c. $5,103.18 d. $5,292.25 e. $6,853.61 UNEVEN CASH FLOWS AND FUTURE VALUE 74. What is the future value of the following cash flows at the end of year 3 if the interest rate is 6 percent? The cash flows occur at the end of each year. Year 1 Year 2 Year 3 $5,180 $9,600 $2,250 a. $15,916.78 b. $18,109.08 c. $18,246.25 d. $19,341.02 e. $19,608.07 UNEVEN CASH FLOWS AND FUTURE VALUE 75. What is the future value of the following cash flows at the end of year 3 if the interest rate is 9 percent? The cash flows occur at the end of each year.

a. b. c. d. e.

Year 1 $9,820 $15,213.80 $15,619.70 $15,916.78 $16,177.14 $17,633.08

Year 2 $0

Year 3 $4,510