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- Chap 003
- hw1a
- ac344afd-f20a-4b03-981d-17a52629b710
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This morning, TL Trucking invested $80,000 to help fund a company expansion project planned for 4 years from now. How much additional money will the firm have 4 years from now if it can earn 5 percent rather than 4 percent on its savings? A. $2,940.09 B. $3,651.82 C. $4,008.17 D. $4,219.68 E. $4,711.08 Future value = $80,000 (1 + .05)4 = $97,240.50 Future value = $80,000 (1 + .04)4 = $93,588.68 Difference = $97,240.50 - $93,588.68 = $3,651.82

Theo needs $40,000 as a down payment for a house 6 years from now. He earns 3.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today? A. $878.98 B. $911.13 C. $1,138.90 D. $1,348.03 E. $1,420.18 Present value = $40,000 [1/(1 + .035)6] = $32,540.03 Present value = $26,000 [1/(1 + .035)5] = $33,678.93 Difference = $33,678.93 - $32,540.03 = $1,138.90

30. The Design Team just decided to save $1,500 a month for the next 5 years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 4.5 percent interest compounded monthly. The first deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit today that would yield the same amount of savings as the monthly deposits after 5 years? A. $80,459.07 B. $80,760.79 C. $81,068.18 D. $81,333.33 E. $81,548.20

You are scheduled to receive annual payments of $4,800 for each of the next 7 years. The discount rate is 8 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year? A. $1,999 B. $2,013 C. $2,221 D. $2,227 E. $2,304

Difference = $26,990 - $24,991 = $1,999 Note: The difference = 0.08 $24,991 = $1,999 39. Theresa adds $1,000 to her savings account on the first day of each year. Marcus adds $1,000 to his savings account on the last day of each year. They both earn 6.5 percent annual interest. What is the difference in their savings account balances at the end of 35 years? A. $8,062 B. $8,113 C. $8,127 D. $8,211 E. $8,219

Difference = $132,096.95 - $124,034.69 = $8,062 Note: Difference = $124,034.69 0.065 = $8,062 50. You just received an insurance settlement offer related to an accident you had six years ago. The offer gives you a choice of one of the following three offers:

You can earn 7.5 percent on your investments. You do not care if you personally receive the funds or if they are paid to your heirs should you die within the settlement period. Which one of the following statements is correct given this information? A. Option A is the best choice as it provides the largest monthly payment. B. Option B is the best choice because it pays the largest total amount. C. Option C is the best choice because it is has the largest current value. D. Option B is the best choice because you will receive the most payments. E. You are indifferent to the three options as they are all equal in value.

Option A has a present value of $90,514.16 at 7.5 percent. Option B has a present value of $85,255.68 at 7.5 percent. Option C has a present value of $100,000. Option C is the best choice since it has the largest present value. 59. Your insurance agent is trying to sell you an annuity that costs $200,000 today. By buying this annuity, your agent promises that you will receive payments of $1,225 a month for the next 30 years. What is the rate of return on this investment? A. 5.75 percent B. 5.97 percent C. 6.20 percent D. 6.45 percent E. 6.67 percent

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