Question 1

Today,you are purchasing a 20-year,6 percent annuity at a cost of $120,000.The annuity will pay annual payments starting 1 year from today.What is the amount of each payment?

Accepted Answer

The annuity payment can be calculated using the formula for the present value of an annuity: $ PVA = PMT \times \left(\frac{1 - (1 + r)^{-n}}{r}\right) $. Solving for PMT gives the annual payment amount.

Question 2

Sticks and Stuff Furniture is offering a bedroom suite for $3,000.The credit terms are 60 months at $50 per month.What is the interest rate on this offer?

Accepted Answer

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Question 3

Jake owes $3,400 on his credit card.He is not charging any additional purchases because he wants to get this debt paid in full.The card has an APR of 13.9 percent.How much longer will it take him to pay off this balance if he makes monthly payments of $50 rather than $60?

Accepted Answer

Difference = 134.55 - 92.76 = 41.79 months

Question 4

You have just won the lottery! You can either receive $5,000 a year for 15 years or $50,000 as a lump sum payment today.What is the interest rate on the annuity option?

Accepted Answer

The interest rate on the annuity option is 5.56 percent. This is because the present value of the annuity is equal to the present value of the lump sum payment, which is $50,000. The present value of the annuity is calculated as follows:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present value of the annuityPMT is the annual paymentr is the interest raten is the number of yearsIn this case, PMT = $5,000, r = 5.56%, and n = 15. Plugging these values into the formula, we get:PV = $5,000 * [1 - (1 + 0.0556)^-15] / 0.0556PV = $50,000Therefore, the interest rate on the annuity option is 5.56%.

Question 5

You want to purchase a new condominium that costs $329,000.Your plan is to pay 20 percent down in cash and finance the balance over 25 years at 6.25 percent.What will be your monthly mortgage payment?

Accepted Answer

Amount financed = 0.80 × $329,000 = $263,200

Question 6

The manager of Gloria's Boutique has approved Carla's application for credit.The maximum payment that has been approved is $65 a month for 24 months.The APR is 15.7 percent.What is the maximum initial purchase that Carla can make given this credit approval?

Accepted Answer

We can use the formula for calculating the maximum initial purchase amount with a fixed monthly payment and APR:

Max initial purchase = Monthly payment x ((1 - (1 + APR/12)^(-number of months))) / (APR/12)

Plugging in the given values, we get:

Max initial purchase = $65 x ((1 - (1 + 0.157/12)^(-24))) / (0.157/12) ≈ $1,331.42

Therefore, the best choice is C, as it is the closest option to our calculated value. The other options are either too low or too high.

Question 7

How much money does Suzie need to have in her retirement savings account today if she wishes to withdraw $25,000 a year for 30 years? She expects to earn an average rate of return of 13 percent.

Accepted Answer

The answer of How much money does Suzie need to...

Question 8

You recently sold an antique car you owned and valued greatly.However,you needed money and agreed to sell the car at a price of $58,000,to be paid in monthly payments of $1,500 each for 48 months.What interest rate did you charge for financing the sale?

Accepted Answer

The answer of You recently sold an antique car you...

Question 9

Cromwell Enterprises is acquiring Athens,Inc.for $899,000.Athens has agreed to accept annual payments of $210,000 at an interest rate of 8.5 percent.How many years will it take Cromwell Enterprises to pay for this purchase?

Accepted Answer

The number of years can be calculated using the formula for the present value of an annuity: PV = PMT × [(1 - (1 + r)^-n) / r]. Solving for n gives approximately 5.55 years.

Question 10

Webster Mining is considering the purchase of a new sorting machine.The quote consists of a quarterly payment of $29,600 for seven years at 8 percent interest.What is the purchase price of the equipment?

Accepted Answer

In order to find the purchase price of the equipment, we need to calculate the present value of the payments using the formula:

PV = PMT x ((1 - (1 / (1+r)^n)) / r)

Where PV is the present value, PMT is the quarterly payment, r is the interest rate per quarter, and n is the total number of quarters.

Substituting the given values, we get:

PV = 29,600 x ((1 - (1 / (1+0.08/4)^28)) / (0.08/4))
PV = 29,600 x ((1 - (1 / 1.656393)) / 0.02)
PV = 29,600 x (0.397648 / 0.02)
PV = $629,925.66

Therefore, the purchase price of the equipment is $629,925.66. Option B is the correct answer.

Question 11

Karl can afford car payments of $235 a month for 48 months.The bank will lend him money to buy a car at 7.75 percent interest.How much money can he afford to borrow?

Accepted Answer

The correct answer is A because $9,672.48 is the amount of money that Karl can afford to borrow. This is calculated by using the formula A = P * (1 + r/n)^(nt), where A is the amount of money that Karl can afford to borrow, P is the amount of money that Karl can afford to pay each month, r is the interest rate, n is the number of times per year that the interest is compounded, and t is the number of years. In this case, P = $235, r = 7.75%, n = 12, and t = 4. Plugging these values into the formula, we get A = $9,672.48.

Question 12

Your grandfather started his own business 52 years ago.He opened a savings account at the end of his third month of business and contributed $x.Every three months since then,he faithfully saved another $x.His savings account has earned an average rate of 4.5 percent annually.Today,his account is valued at $364,209.11.How much did your grandfather save every three months?

Accepted Answer

The answer of Your grandfather started his own business 52...

Question 13

Hughes Motors will sell you a $15,000 car for $380 a month for 48 months.What is the interest rate?

Accepted Answer

The answer of Hughes Motors will sell you a $15,000...

Question 14

Kurt wants to have $25,000 in an investment account four years from now.The account will pay 0.2 percent interest per month.If he saves money every month,starting one month from now,how much will he have to save each month to reach his goal?

Accepted Answer

The correct answer is A because $496.75 is the amount that Kurt needs to save each month to reach his goal of having $25,000 in an investment account four years from now. The account will pay 0.2 percent interest per month.

Question 15

Katie's Dinor spent $84,000 to refurbish its current facility.The firm borrowed 80 percent of the refurbishment cost at 9.2 percent interest for five years.What is the amount of each monthly payment?

Accepted Answer

Amount borrowed = 0.80 × $84,000 = $67,200

Question 16

The Insolvent Insurance Co.will pay you $2,500 a year for 10 years in exchange for $30,000 today.What interest rate will you earn on this annuity?

Accepted Answer

The correct answer is B because the interest rate will be 3.18 percent.

Question 17

Today is your 21st birthday and you just decided to start saving money so you can retire early.Thus,you are going to save $500 a month starting one month from now.You plan to retire as soon as you can accumulate $1 million.If you can earn an average of 8 percent on your savings,how old will you be when you retire?

Accepted Answer

Retirement age = 21 + 33.39 = 54.39 years

Question 18

Overnight Trucking recently purchased a new truck costing $150,800.The firm financed this purchase at 8.6 percent interest with monthly payments of $2,100.How many years will it take the firm to pay off this debt?

Accepted Answer

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Question 19

You just received a loan offer from Friendly Loans.The company is offering you $5,000 at 14.3 percent interest.The monthly payment is only $100.If you accept this offer,how long will it take you to pay off the loan?

Accepted Answer

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Question 20

Turntable Industrial,Inc.owes your firm $138,600.This amount is seriously delinquent so your firm has offered to arrange a payment plan in the hopes that it might at least collect a portion of this receivable.Your firm's offer consists of weekly payments for one year at an interest rate of 3 percent.What is the amount of each payment?

Accepted Answer

The answer of Turntable Industrial,Inc.owes your firm $138,600.This amount is...

Quiz 5: Discounted Cash Flow Valuation