Question 1

If you have an opportunity cost of 10%,how much must you invest each year to have $4,000 accumulated in 10 years?

Accepted Answer

The answer of If you have an opportunity cost of...

Question 2

You have a credit card with a balance of $18,000.The annual interest rate on the card is 18% compounded monthly,and the minimum payment is $400 per month.If you pay only the minimum payment each month and do not make any new charges on the card,how many years will it take for you to pay off the $18,000 balance?

Accepted Answer

The answer of You have a credit card with a...

Question 3

Holding all other variables constant,payment per period for an annuity due will be higher than an ordinary annuity.

Accepted Answer

In an annuity due, payments are made at the beginning of each period, which means each payment has more time to earn interest compared to an ordinary annuity where payments are made at the end of each period. Therefore, to achieve the same future value, the payment per period for an annuity due will be lower than for an ordinary annuity, assuming the interest rate and total number of payments remain constant.

Question 4

You are saving money to buy a house.You will need $7,473.50 to make the down payment.If you can deposit $500 per month in a savings account which pays 1% per month,how long will it take you to save the $7,473.50?

Accepted Answer

The answer of You are saving money to buy a...

Question 5

The present value of an annuity increases as the discount rate increases.

Accepted Answer

The present value of an annuity decreases as the discount rate increases. This is because a higher discount rate means that future cash flows are worth less in today's dollars.

Question 6

You have borrowed $70,000 to buy a speed boat.You plan to make monthly payments over a 15-year period.The bank has offered you a 9% interest rate,compounded monthly.Create an amortization schedule for the first two months of the loan.

Accepted Answer

The answer of You have borrowed $70,000 to buy a...

Question 7

a. )If Sparco,Inc.deposits $150 at the end of each year for the next eight years in an account that pays 5% interest,how much money will Sparco have at the end of eight years?
b. )Suppose Sparco decides that they need to have $5,300 at the end of the eight years.How much will they have to deposit at the end of each year?

Accepted Answer

The answer of a. )If Sparco,Inc.deposits $150 at the end...

Question 8

A loan amortization schedule provides a breakdown of loan payments into principal and interest payments.

Accepted Answer

A loan amortization schedule breaks down each loan payment into the portion that goes towards paying off the loan principal and the portion that goes towards paying interest.

Question 9

One characteristic of an annuity is that an equal sum of money is deposited or withdrawn each period.

Accepted Answer

An annuity is a financial product that involves a series of payments or receipts of a fixed amount over a specified period of time. These payments can be made at regular intervals, such as monthly or yearly, and the amount remains the same throughout the annuity's term.

Question 10

What is a series of equal payments for an infinite period of time called?
A)A perpetuity
B)An axiom
C)A cash cow
D)An annuity

Accepted Answer

A perpetuity is a series of equal payments that continues for an infinite period of time. An annuity, on the other hand, has a finite period of time for which payments are made. A cash cow refers to a business that generates a lot of cash flow, and an axiom is a self-evident truth or principle.

Question 11

A compound annuity involves depositing or investing a single sum of money and allowing it to grow for a certain number of years.

Accepted Answer

A compound annuity involves making a series of regular deposits or investments over time, not just a single sum, and allowing them to grow with compound interest.

Question 12

What is a series of equal payments to be received at the beginning of each period,for a finite period of time,called?
A)A perpetuity
B)An annuity due
C)A cash cow
D)A deferred annuity

Accepted Answer

An annuity due is a series of equal payments to be received at the beginning of each period, for a finite period of time. This is different from a regular annuity, where the payments are received at the end of each period.

Question 13

You have just purchased a share of preferred stock for $50.00.The preferred stock pays an annual dividend of $5.50 per share forever.What is the rate of return on your investment?
A).055
B).010
C).110
D).220

Accepted Answer

The rate of return on investment is calculated using the formula:

Rate of return = Annual dividend / Cost of investment

In this case, the annual dividend is $5.50 and the cost of investment is $50. Therefore, the rate of return is:

Rate of return = $5.50 / $50 = 0.11 or 11%

Therefore, the best choice is C).110.

Question 14

You have just received an endowment of $32,976.You plan to put the entire amount in an account earning 8 percent compounded annually and to withdraw $4000 at the end of each year.How many years can you continue to make the withdrawals?

Accepted Answer

The answer of You have just received an endowment of...

Question 15

We can use the present value of an annuity formula to calculate constant annual loan payments.

Accepted Answer

The present value of an annuity formula can be used to calculate constant annual loan payments, as it helps to determine the equivalent lump sum amount that would be needed to pay off the loan over a period of time.

Question 16

When repaying an amortized loan,the interest payments increase over time.

Accepted Answer

When repaying an amortized loan, the interest payments decrease over time as the principal balance is paid down. The majority of the interest is paid in the early payments, while the majority of the principal is paid in later payments.

Question 17

You have just purchased a car from Friendly Sam.The selling price of the car is $6,500.If you pay $500 down,then your monthly payments are $317.22.The annual interest rate is 24%.How many payments must you make?

Accepted Answer

The answer of You have just purchased a car from...

Question 18

An amortized loan is a loan paid in unequal installments.

Accepted Answer

An amortized loan is a loan paid in equal installments consisting of both principal and interest.

Question 19

The present value of a perpetuity decreases when the ________ decreases.
A)number of investment periods
B)annual discount rate
C)perpetuity payment
D)both B and C

Accepted Answer

The answer of The present value of a perpetuity decreases...

Question 20

To repay a $2,000 loan from your bank,you promise to make equal payments every six months for the next five years totaling $3,116.20.What annual rate of interest will you be paying?

Accepted Answer

The answer of To repay a $2,000 loan from your...

Quiz 6: The Time Value of Money-Annuities and Other Topics