Deck 9: Time Value of Money Part Ii: Annuities

Question 1

Your employer gives you a stock bonus of $1,000 in your company at the beginning of each year.You plan to retire in 20 years.The stock has a growth rate of 15 percent per annum.What will the value of your stock be in 20 years?

A)$72,035.10
B)$86,4421.00
C)$102,443.60
D)$117,810.10
E)Cannot determine with the information provided.

Answer 1

$117,810.10

Question 2

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.John is currently 45 years of age.How much does he have to place at the beginning of each year into a retirement account earning 15 percent per year in order to have an adequate retirement nest egg at age 62? He believes that he will live to be 87 and plans to earn 12 percent during retirement.He will draw the money at the end of each year.The solution to this problem requires us to use the ,and the factors.

A)future value of an ordinary annuity;future value of an annuity due
B)present value of an ordinary annuity;future value of an annuity due
C)future value of an annuity due;present value of an ordinary annuity
D)present value of a future annuity;future value of an ordinary annuity

Answer 2

future value of an annuity due;present value of an ordinary annuity

Question 3

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.John is currently 45 years of age.How much does he have to place at the end of each year into a retirement account earning 15 percent per year in order to have an adequate retirement nest egg at age 62? He believes that he will live to be 87 and plans to earn 12 percent during retirement.He will draw the money at the beginning of each year.

A)$11,077
B)$6,758
C)$9,890
D)$7,764

Answer 3

$11,077

Question 4

Ira Roth opens up a Roth IRA and places 4,500 in his retirement account at the beginning of each year for 20 years.He believes the account will earn 8 percent interest per year,compounded quarterly.How much will he have in his retirement account in 20 years?

A)$219,228.48
B)$187,231.63
C)$228,912.40
D)$266,255.40

Question 5

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.He believes that he will live to be 87.He will draw the money at the end of each year.How much interest will he earn during his retirement years if he will average 12 percent per year on his retirement account?

A)$994,699
B)$1,060,200
C)$1,029,414
D)$972,941

Question 6

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.John is currently 45 years of age.How much does he have to place at the end of each year into a retirement account earning 15 percent per year in order to have an adequate retirement nest egg at age 62? He believes that he will live to be 87 and plans to earn 12 percent during retirement.He will draw the money at the end of each year.

A)$9,890
B)$7,764
C)$11,077
D)$6,758

Question 7

To determine the mortgage payment on a home loan with payments made at the beginning of each month,you would

A)determine the present value factor of an ordinary annuity and multiply the factor by the loan amount to determine the payment.
B)determine the present value factor of an ordinary annuity and divide the factor into the loan to determine the payment.
C)determine the present value factor of an annuity due and divide the factor into the loan to determine the payment.
D)determine the present value factor of an annuity due and multiply the factor by the loan amount to determine the payment.

Question 8

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.He believes that he will live to be 87.He will draw the money at the beginning of each year.How much money will he need when he retires in order to support his $60,000 annual life style if he will average 12 percent per year on his retirement account?

A)$527,059
B)$470,586
C)$505,302
D)$439,800

Question 9

Your employer gives you a stock bonus of $1,000 in your company at the beginning of each year.You plan to retire in 20 years.The stock has a growth rate of 15 percent per annum.How much would your employer give you in stock bonuses during the twenty years?

A)$20,000
B)$1,000
C)$15,000
D)none of the above

Question 10

How much will you have in a Roth IRA if you invest $5,000 a year for 35 years if money earns 5% and you make the investment at the end of each year?

A)$451,601.54
B)$557,173.89
C)$474,181.61
D)$590,604.33

Question 11

Lotta Dough just won the state lottery and has elected to receive $50,000 per year for 20 years in the form of an annuity due.What is the present value of this stream of payments if money can earn 8 percent annual interest?

A)$579,139
B)$500,000
C)479,035
D)$530,180

Question 12

Your employer gives you a stock bonus of $1,000 in your company at the end of each year.You plan to retire in 20 years.The stock has a growth rate of 15 percent per annum.What will the value of your gain on the stock be for the 20 years?

A)$97,810.10
B)$82,443.60
C)$52,035.00
D)none of the above

Question 13

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.John is currently 45 years of age.How much does he have to place at the beginning of each year into a retirement account earning 15 percent per year in order to have an adequate retirement nest egg at age 62? He believes that he will live to be 87 and plans to earn 12 percent during retirement.He will draw the money at the beginning of each year.

A)$9,890
B)$9,632
C)$11,077
D)$8,600

Question 14

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that in twelve years a four year college will cost at least $70,000 per year,including tuition,books,room,and board.You determine that you can earn 12 percent on a mutual fund investment during the next twelve years,and invest at the beginning of each year.How much will your total investment be for the twelve- year period?

A)$53,811
B)$139,227
C)$60,269
D)$124,310

Question 15

Lotta Dough just won the state lottery and has elected to receive $50,000 per year for 20 years in the form of an annuity due.What is the present value of this stream of payments if money can earn 10 percent annual interest?

A)$864,642
B)$468,246
C)$246,468
D)$500,000

Question 16

How much will you have in a Roth IRA if you invest $5,000 a year for 35 years if money earns 5% and you make the investment at the beginning of each year?

A)$474,181.61
B)$590,604.33
C)$557,173.89
D)$451,601.54

Question 17

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.John is currently 45 years of age.How much does he have to place at the beginning of each year into a retirement account earning 15 percent per year in order to have an adequate retirement nest egg at age 62? He believes that he will live to be 87 and plans to earn 12 percent during retirement.He will draw the money at the end of each year.

A)$6,468
B)$11,077
C)$9,632
D)$8,600

Question 18

An entrepreneur would like to buy a piece of equipment for his business.The equipment cost $75,000 and will increase cash flow by $12,000 each year for 15 years.What is his IRR?

A)10.92%
B)12.25%
C)8)00%
D)13.65%

Question 19

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.He believes that he will live to be 87.He will draw the money at the beginning of each year.How much interest will he earn during his retirement years if he will average 12 percent per year on his retirement account?

A)$972,941
B)$1,029,414
C)$1,060,200
D)$994,699

Question 20

How much will you have in a Roth IRA if you invest $5,000 a year for 35 years if money earns 6% and you make the investment at the end of each year?

A)$590,604.33
B)$474,181.61
C)$451,601.54
D)$557,173.89

Question 21

Your employer gives you a stock bonus of $1,000 in your company at the beginning of each year.You plan to retire in 20 years.The stock has a growth rate of 15 percent per annum.What will the value of your stock be in 20 years? This problem would be solved by using the formula for the:

A)present value of an ordinary annuity.
B)future value of an annuity due.
C)present value of a lump sum.
D)future value of an ordinary annuity.
E)future value of a lump sum.

Question 22

You want to send your grandchild to a prestigious university.You heard that a college education will cost $500,000 in 18 years.If you invest $10,000 at the end of each year,what IRR will you need in order to reach your goal of $500,000?

A)9)07%
B)13.35%
C)12.25%
D)10.92%

Question 23

Ira Roth opens up a Roth IRA and places 5,000 in his retirement account at the beginning of each year for 25 years.He believes the account will earn 9 percent interest per year,compounded monthly.How much will he have in his retirement account in 25 years?

A)$490,000.58
B)$355,900.96
C)$490,165.32
D)$390,000.58

Question 24

You have a company that needs a new computer system that will cost $25,000.You put down $5,000 and finance the remainder at 12 percent,compounded monthly for 2 years.The bank will automatically deduct the payment from your account at the beginning of each month.What is your monthly equipment payment?

A)$2,677
B)$2,230
C)$1,176.83
D)$941.47

Question 25

How much will you have in a Roth IRA if you invest $5,000 a year for 35 years if money earns 6% and you make the investment at the beginning of each year?

A)$474,181.61
B)$451,601.54
C)$590,604.33
D)$557,173.89

Question 26

Calculate the total amount of interest paid on a $100,000 mortgage.The mortgage is for 15 years and the interest rate is 6.375.

A)$55,565
B)$54,742
C)$62,101
D)$56,085

Question 27

You want to send your grandchild to a very prestigious university.You heard that a college education will cost $800,000 in 18 years.If you invest $10,000 at the end of each year,what IRR will you need in order to reach your goal of $800,000?

A)12.46%
B)15.52%
C)13.65%
D)18.00%

Question 28

Calculate the total payments on a $200,000 mortgage if payment is made at the end of each month and the annual interest rate is 4.25 percent for 15 years.

A)$287,456.36
B)$2,469,985.20
C)$199,980
D)$270,820.80

Question 29

A $1,500,000 building generates monthly rents of $20,000 for 10 years.The owners are paying 7% interest on the mortgage.What is the present value of the rental payments?

A)$150,304.64
B)$305,623.24
C)$1,732,575
D)$1,722,527

Question 30

Lotta Dough just won the state lottery and has elected to receive $50,000 per year for 20 years in the form of an annuity due.What is the present value of this stream of payments if money can earn 7 percent annual interest?

A)$500,000
B)$977,665
C)$779,664
D)$566,780

Question 31

Your employer gives you a stock bonus of $1,000 in your company at the end of each year.You plan to retire in 20 years.The stock has a growth rate of 15 percent per annum.What will the value of your stock be in 20 years? This problem would be solved by using the formula for the

A)present value of a lump sum.
B)future value of a lump sum.
C)present value of an ordinary annuity.
D)future value of an ordinary annuity.
E)future value of an annuity due.

Question 32

Banks calculate the monthly payment on a loan as

A)as an annuity due with payment made one month in advance.
B)as an ordinary annuity with payment made one month is advance.
C)as an annuity due with payment made at end of month.
D)as an ordinary annuity with payment made at end of month.

Question 33

The city of Metropolis borrows $88,000,000 so that it can build a football stadium.It plans to set up a sinking fund that will repay the loan 10 years later.Assume a 6% interest rate per year.What will Metropolis have to place in the fund in the beginning of each year in order to pay back the$88,000,000?

A)$6,298,472
B)$6,676,380
C)$534,309
D)$536,980

Question 34

Calculate the total payments on a $200,000 mortgage if payment is made at the beginning of each month and the annual interest rate is 5.5 percent for 30 years.

A)$300,160
B)$3,960,000
C)$548,987
D)$408,808

Question 35

Your employer gives you a stock bonus of $1,000 in your company at the end of each year.You plan to retire in 20 years.The stock has a growth rate of 15 percent per annum.What will the value of your stock be in 20 years?

A)$86,4421.00
B)$117,810.10
C)$72,035.10
D)$102,443.60
E)Cannot determine with the information provided.

Question 36

Calculate the total payments on a $100,000 mortgage.The mortgage is for 15 years and the interest rate is 6.375.

A)$155,565
B)$156,085
C)$154,742
D)$162,101

Question 37

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that in twelve years a four year college will cost at least $70,000 per year (total $280,000)including tuition,books,room,and board.If you can earn 12 percent on a mutual fund investment during the next twelve years,how much will you have to invest at the beginning of each year to have enough to send your child to college for four years?

A)$10,359.20
B)$11,602.30
C)$4,484.33
D)$5,022.45

Question 38

Ira Roth opens up a Roth IRA and places 4,000 in his retirement account at the beginning of each year for 15 years.He believes the account will earn 6 percent interest per year,compounded monthly.How much will he have in his retirement account in 15 years?

A)$100,115.22
B)$158,029
C)$58,145
D)$108,081

Question 39

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that in twelve years a four year college will cost at least $70,000 per year (total $280,000)including tuition,books,room,and board.If you can earn 12 percent on a mutual fund investment during the next twelve years,how much will you have to invest at the end of each year to have enough to send your child to college for four years?

A)$14,755
B)$5,022
C)$11,602
D)$34,503

Question 40

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that in twelve years a four year college will cost at least $70,000 per year,including tuition,books,room and board.You determine that you can earn 12 percent on a mutual fund investment during the next twelve years,and invest at the end of each year.How much will your total investment be for the twelve- year period?

A)$139,227
B)$60,264
C)$177,060
D)$414,036

Question 41

Calculate the monthly mortgage payment made in the beginning of each month on a $100,000 mortgage.The mortgage is for 15 years and the interest rate is 6.375.

A)$867.14
B)$10,806.73
C)$864.25
D)$859.68

Question 42

Your employer gives you a stock bonus of $1,000 in your company at the beginning of each year.You plan to retire in 20 years.The stock has a growth rate of 15 percent per annum.What will the value of your gain on the stock be for the 20 years?

A)$52,035.00
B)$97,810.10
C)$82,443.60
D)none of the above

Question 43

John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.He believes that he will live to be 87.He will draw the money at the end of each year.How much money will he need when he retires in order to support his $60,000 annual life style if he will average 12 percent per year on his retirement account?

A)$505,302
B)$470,588
C)$527,059
D)$439,800

Question 44

Lotta Dough just won the state lottery and has elected to receive $50,000 per year for 20 years in the form of an annuity due.What is the present value of this stream of payments if money can earn 6 percent annual interest?

A)$900,706
B)$500,000
C)$607,004
D)$607,905

Question 45

Calculate the monthly payment on a $200,000 mortgage if payment is made at the beginning of each month and the annual interest rate is 4.25 percent for 15 years.

A)$1,504.56
B)$1,111
C)$1,400.25
D)$13,714.22

Question 46

Calculate the monthly payment on a $200,000 mortgage if payment is made at the beginning of each month and the annual interest rate is 5.5 percent for 30 years.

A)$1,135.58
B)$1,100.00
C)$1,300.25
D)$11,000.00

Question 47

An entrepreneur would like to buy a piece of equipment for his business.The equipment cost $50,000 and will increase cash flow by $20,000 each year for 5 years.What is his IRR?

A)25.55%
B)40.00%
C)2)50%
D)28.65%