Question 1

Your girlfriend just won the Florida lottery.She has the choice of $15,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today.What rate of return is built into the annuity?

Accepted Answer

The answer of Your girlfriend just won the Florida lottery.She...

Question 2

You have $5,000 invested in a bank that pays 3.8% annually.How long will it take for your funds to triple?

Accepted Answer

The answer of You have $5,000 invested in a bank...

Question 3

Wildwoods, Inc.earned $1.50 per share five years ago.Its earnings this year were $3.20.What was the growth rate in earnings per share (EPS) over the 5-year period?

Accepted Answer

The growth rate can be calculated using the formula for compound annual growth rate (CAGR): $$CAGR = \left( \frac{FV}{PV} \right)^{\frac{1}{n}} - 1$$ where FV is the future value ($3.20), PV is the present value ($1.50), and n is the number of periods (5 years). Plugging in the values: $$CAGR = \left( \frac{3.20}{1.50} \right)^{\frac{1}{5}} - 1 \approx 0.1636$$ or 16.36%.

Question 4

Which of the following statements is CORRECT?

Accepted Answer

An annuity is defined by equal cash flows that occur at regular intervals. Choices A, B, C, and D incorrectly describe the characteristics of annuities and their types.

Question 5

You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?

Accepted Answer

The rate of return can be calculated using the Net Present Value (NPV) formula set to zero, because the NPV of investing in the asset should equal the cost of the investment for the investor to earn the expected rate of return. The cash flows are discounted back at the rate of return to find the present value, which should equal the investment cost of $7,250. The correct rate of return is the one that makes the NPV equal to zero. Through financial calculation or using a financial calculator, the rate that fits this criterion is 6.05%.

Question 6

You have purchased a U.S.Treasury bond for $3,000.No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000.What interest rate will you earn on this bond?

Accepted Answer

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Question 7

Which of the following statements is CORRECT?

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The answer of Which of the following statements is CORRECT?
...

Question 8

Your Green Investment Tips subscription is about to expire.You plan to subscribe to the magazine for the rest of your life, and you can renew it by paying $85 annually, beginning immediately, or you can get a lifetime subscription for $850, also payable immediately.Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant, how many years must you live to make the lifetime subscription the better buy?

Accepted Answer

The answer of Your Green Investment Tips subscription is about...

Question 9

Which of the following statements is CORRECT?

Accepted Answer

ED) An annuity due is characterized by cash flows that occur at the beginning of each period, distinguishing it from an ordinary annuity where cash flows occur at the end of each period.E) An annuity involves cash flows occurring at regular intervals, though the amount can vary, defining its regularity in timing rather than the amount.

Question 10

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 11

You are hoping to buy a new boat 3 years from now, and you plan to save $4,200 per year, beginning one year from today.You will deposit your savings in an account that pays 5.2% interest.How much will you have just after you make the 3rd deposit, 3 years from now?

Accepted Answer

The answer of You are hoping to buy a new...

Question 12

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24^th month, you will have $13,000 in your account.If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

Accepted Answer

The answer of You agree to make 24 deposits of...

Question 13

Your investment account pays 8.0%, compounded annually.If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20?

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The answer of Your investment account pays 8.0%, compounded annually.If...

Question 14

Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today.You need money today to open a new restaurant, and your uncle offers to give you $120,000 for the annuity.If you sell it, what rate of return would your uncle earn on his investment?

Accepted Answer

The rate of return your uncle would earn on his investment can be found using the present value of an annuity formula, which is PV = PMT × [(1 - (1 + r)^-n) / r], where PV is the present value, PMT is the payment per period, r is the rate per period, and n is the number of periods. Since the payment is made at the beginning of the period, this is an annuity due. The formula needs to be adjusted slightly or a financial calculator or software that can handle annuity due calculations should be used. Given that the uncle is paying $120,000 for the annuity, and the payments are $15,000 per year for 12 years, we need to find the rate that satisfies this equation. Without going through the complex algebra, using a financial calculator or software designed for these calculations, inputting these values would give us the closest rate to match the present value of $120,000. The correct answer is 8.41%, which indicates that at this rate, the present value of the annuity payments equals the $120,000 offered by the uncle.

Question 15

Your sister paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $10,000 at the end of the 5th year.What is the expected rate of return on this investment?

Accepted Answer

The answer of Your sister paid $10,000 (CF at t...

Question 16

You have just purchased a U.S.Treasury bond for $747.25.No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000.What interest rate will you earn on this bond?

Accepted Answer

The answer of You have just purchased a U.S.Treasury bond...

Question 17

Brockman Corporation's earnings per share were $3.50 last year, and its growth rate during the prior 5 years was 9.0% per year.If that growth rate were maintained, how many years would it take for Brockman's EPS to triple?

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The answer of Brockman Corporation's earnings per share were $3.50...

Question 18

Your bank pays 4% interest annually.You have $2,500 invested in the bank.How long will it take for your funds to double?

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Question 19

Your investment advisor has recommended your invest in bonds that pay 6.0%, compounded annually.If you invest $10,000 today, how many years will it take for your investment to grow to $30,000?

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The answer of Your investment advisor has recommended your invest...

Question 20

Ten years ago, Kronan Corporation earned $0.50 per share.Its earnings this year were $2.20.What was the growth rate in earnings per share (EPS) over the 10-year period?

Accepted Answer

The growth rate can be calculated using the formula for compound annual growth rate (CAGR): $$CAGR = \left(\frac{Final Value}{Initial Value}\right)^{\frac{1}{Number of Periods}} - 1$$ Here, the final value is $2.20, the initial value is $0.50, and the number of periods is 10 years. Plugging these values into the formula gives: $$CAGR = \left(\frac{2.20}{0.50}\right)^{\frac{1}{10}} - 1 = 2.44^{\frac{1}{10}} - 1 \approx 0.1597$$ or 15.97%.

Quiz 4: Time Value of Money

Your girlfriend just won the Florida lottery.She has the choice of $15,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today.What rate of return is built into the annuity?

You have $5,000 invested in a bank that pays 3.8% annually.How long will it take for your funds to triple?

Wildwoods, Inc.earned $1.50 per share five years ago.Its earnings this year were $3.20.What was the growth rate in earnings per share (EPS) over the 5-year period?

Which of the following statements is CORRECT?

You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?

You have purchased a U.S.Treasury bond for $3,000.No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000.What interest rate will you earn on this bond?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

You are hoping to buy a new boat 3 years from now, and you plan to save $4,200 per year, beginning one year from today.You will deposit your savings in an account that pays 5.2% interest.How much will you have just after you make the 3rd deposit, 3 years from now?

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24th month, you will have $13,000 in your account.If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

Your investment account pays 8.0%, compounded annually.If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20?

Your sister paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $10,000 at the end of the 5th year.What is the expected rate of return on this investment?

You have just purchased a U.S.Treasury bond for $747.25.No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000.What interest rate will you earn on this bond?

Brockman Corporation's earnings per share were $3.50 last year, and its growth rate during the prior 5 years was 9.0% per year.If that growth rate were maintained, how many years would it take for Brockman's EPS to triple?

Your bank pays 4% interest annually.You have $2,500 invested in the bank.How long will it take for your funds to double?

Your investment advisor has recommended your invest in bonds that pay 6.0%, compounded annually.If you invest $10,000 today, how many years will it take for your investment to grow to $30,000?

Ten years ago, Kronan Corporation earned $0.50 per share.Its earnings this year were $2.20.What was the growth rate in earnings per share (EPS) over the 10-year period?

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24^th month, you will have $13,000 in your account.If the bank compounds interest monthly, what nominal annual interest rate will you be earning?