1 Business Finance 620 CH04 Practice Problems ____ 1. You decide to fund a retirement account by making a series of thirty deposits over the next thirty years. Your first deposit of $1,500 is due one year from today. Each year thereafter, you plan to increase your deposit by 5%. If the account earns 7.5% APR, compounded annually, how much will you have at the end of thirty years? A. $141,691 B. $30,381 C. $265,981 D. $205,674 ____ 2. You deposited $2,750 in an investment account paying 9.0% APR, compounded once every four months. If you make no further deposits or withdrawals for the next five years, how much interest will you earn during Year 2? A. $279 B. $255 C. $248 D. $296 ____ 3. What is the present value of $1,900 deposited today in a four-year bank CD paying 5.0% APR, compounded monthly? A. $1,995 B. $2,309 C. $1,900 D. $1,563 ____ 4. What is the present value of the following set of cash flows at of 7.00%, compounded annually: > $1,000 today, > $2,000 one year from today, > $4,000 three years from today, and > $6,000 five years from today? A. $16,920 B. $8,944 C. $10,412 D. $13,207 ____ 5. Consider the following stream of cash flows: > $500 paid today > $950 paid two years from today > $775 paid three years from today At 6.0% APR, compounded once every two months, what is the stream’s present value? A. $2,023 B. $1,991 C. $2,225 D. $1,968 Business Finance 620 CH04 Practice Problems 2 ____ 6. You purchase a Grove City townhouse for $250,000, put $20,000 down and finance the balance over twenty years at 6.65% APR, compounded monthly. If you make all the mortgage payments on time, how much interest will you pay over the life of the loan? A. $186,446 B. $215,659 C. $230,000 D. $172,932 ____ 7. Buckeye Bank offers a 60-month car loan with a 7.85% APR, compounded monthly. What is the loan’s EAR? A. 7.63% B. 7.85% C. 8.94% D. 8.14% ____ 8. The first $17,000 annual payment in a nine-year annuity is thirteen years from today. How much do you need to set aside each year to fund the annuity if your first deposit is today? Assume your accumulation account already has a $5,800 balance, and the relevant interest rate is 7.75% APR, compounded once a year; the rate is applicable to both the accumulation account and the annuity. A. $4,402 B. $5,079 C. $5,468 D. $4,744 ____ 9. The first payment in a ten-year annuity, $27,500, is due four years from today. The annuity earns 7.75% APR, compounded once a month. If annual payments increase by 3.5% per year after the first payment, how much will the annuity be worth right after the final payment? A. $526,697 B. $457,948 C. $606,930 D. $211,511 ____ 10. According to a local bank advertisement, the effective annual rate of interest on a three-year CD is 5.45%. If interest is compounded quarterly, what is the CD’s APR? A. 5.78% B. 4.26% C. 5.34% D. 6.17% ____ 11. You deposit $25,000 today in a savings account earning a nominal annual rate of 8%. If annual inflation is 3% during the next 45 years, and you make no further deposits or withdrawals during this period, by how much will the account’s nominal balance 45 years from today exceed its real balance? A. $211,025 B. $586,986 C. $176,654 D. $798,011 Business Finance 620 CH04 Practice Problems 3 ____ 12. You purchase a four-bedroom Clintonville home for $248,000, put 20% down and finance the balance over 25 years at 7.50% APR, compounded monthly. What is your monthly mortgage payment? A. $1,375 B. $1,466 C. $1,586 D. $1,833 ____ 13. REFER TO THE INFORMATION IN QUESTION 12: Suppose you decide to sell the property after making 85 payments. How much do you owe the lender (what is the loan’s “payoff amount”)? A. $315,224 B. $217,735 C. $159,438 D. $173,134 ____ 14. You have an opportunity to purchase a corporate bond that will pay you $1,000 twenty years from today. No interest will be paid on the bond during the twenty-year period. If you believe you can earn 6% annually on this bond (6% APR, compounded annually), how much should you be willing to pay for the bond today? A. $943 B. $312 C. $1,200 D. $1,000 ____ 15. You deposit $650 in a guaranteed savings account today, and two years from today, you deposit another $800. If you make no further deposits or withdrawals for the next four years, what will be the balance in the account three years and seven months from today? The account earns 5.28% APR, compounded monthly. A. $1,655 B. $1,723 C. $1,566 D. $1,698 Bill ExamView Pro - BFIN 620 CH04 Practice Problems NEW.tst