A) $6,862 B) $5,136 C) $8,752 D) $6,936
2) You intend to buy a vacation home in seven years and plan to have saved $50,000 for a down payment. How much money would you have to place today into an investment that earns 8% per year to have enough for your desired down payment? 2) _______
A) $29,175 B) $25,000 C) $37,065 D) $29,100
3) You gave your little sister two rabbits for Easter three years ago and now she has 84 of the cute little bunnies. What is the average annual rate of increase in the number of rabbits your sister owns? Note: Your parents are not very pleased with you right now.
D) The TVM equations are designed for currency amounts and cannot be used for non-financial calculations such as this one.
4) You need $32,000 at the end of 6 years. If you can earn 0.625% per month, how much would you need to invest today to meet your objective? 4) _______
A) $20,433 B) $18,319 C) $17,600 D) $20,735
5) In two years Rocky plans to enroll at Whatsamatta U., a prestigious university in Frostbite Falls, MN. If the current tuition is $23,500 per year and is expected to increase at a rate of 6% per year, how much will Rocky pay in tuition his first year of school? (His first tuition payment is exactly two years from today.) In his fourth year? (His last tuition payment is exactly 5 years from today) (Rounded to the nearest dollar.) 5) _______
A) $26,405 and $31,448 B) $23,500 and $31,448 C) $23,500 and $29,668 D) $26,405 and $29,668
6) You have just won the Reader’s Digest lottery of $5,000 per year for twenty years, with the first payment today followed by nineteen more start-of-the-year cash flows. At an interest rate of 5%, what is the present value of your winnings? 6) _______
A) $62,311.05 B) $100,000.00 C) $65,426.60 D) $47,641.18
7) Your parents have an investment portfolio of $400,000, and they wish to take out cash flows of $50,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 4.50%? Use Excel or financial calculator to determine your answer. 7) _______
A) 9.10 years B) 8.00 years C) 9.60 years D) 10.14 years
8) You are saving money for a down payment on a new house. You intend to place $5,000 at the end of each year for three years into an account earning 6% per year. At the end of the fourth year, you will place $10,000 into this account. How much money will be in the account at the end of the fourth year? 8) _______
A) $25,918.00 B) $26,518.17 C) $25,000.00 D) $26,873.08
9) You are paid to teach classes for the university and wonder how much money the university makes from your graduate-level classes. Based on historical data, you determine that your summer classes for the next seven years will generate an average annual revenue of $93,850. If you discount these cash flows at an annual rate of 8.30%, what is the present value of the expected cash flows?
A) $483,644.36 B) $656,950.00 C) $845,133.52 D) $523,786.85
10) Suppose you invest $3,500 today, compounded semiannually, with an annual interest rate of 8.50%. What amount of interest will you earn in one year? 10) ______
A) $307.12 B) $313.82 C) $303.82 D) $309.13
11) Delagold Corporation is issuing a zero-coupon bond that will have a maturity of fifty years. The bond’s par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention? 11) ______
A) $250.19 B) $750.00 C) $1,000.00 D) $25.19
12) Curtis Equipment Inc., $1,000 par value, 15% annual coupon bonds, have 6 years remaining to maturity and are currently selling for $938.45. What is the firm’s yield to maturity for these bonds? 12) ______
A) 15.00% B) 15.47% C) 16.66% D) 16.70%
13) Endicott Enterprises Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 8%, what is the firm’s current price per bond? 13) ______
A) $1,675.47 B) $579.84 C) $1,678.70 D) $578.82
14) The Belgium Bike Company just paid an annual dividend of $1.12. If you expect a constant growth rate of 4% and have a required rate of return of 13%, what is the current stock price according to the constant growth dividend model? 14) ______
D) There is not enough information to answer this question.
15) In a stream of past dividends, the initial dividend is $0.75 and the most recent dividend is $1.25. The number of years between these two dividends (n) is 8 years. What is the average growth rate during this eight-year period? Use a calculator to determine your answer. 15) ______
A) 6.69% B) 6.62% C) 6.59% D) 6.72%