QUIZ # 1
SUMMER AY 2010-2011
MULTIPLE CHOICE:
5. Assuming two investments have equal lives, a high discount rate tends to favor:
A. the investment with large cash flow early.
B. the investment with large cash flow late.
C. the investment with even cash flow.
D. neither investment since they have equal lives.
7. When comparing annuity due to ordinary annuities, annuity due will have higher:
A. present values.
B. annuity payments.
C. future values.
D. both A and C.
E. all of the above.
12. At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?
A. 6% B. 5% C. 7% D. 8%
13. You wish to borrow $2,000 to be repaid in 12 monthly installments of $189.12. The annual
interest rate is:
A. 24%. B. 8%. C. 18%. D. 12%.
14. If you have $20,000 in an account earning 8% annually, what constant amount could you
withdraw each year for five years?
A. $3,525.62 B. $5,008.76 C. $3,408.88 D. $2,465.78
15. If you invest $750 every six months at 8% per year compounded semi-annually, how much
would you accumulate at the end of 10 years?
A. $10,065 B. $10,193 C. $22,334 D. $21,731
16. 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
17. If you place $50 in a savings account with an interest rate of 7% per year compounded
weekly, what will the investment be worth at the end of five years (round to the nearest
dollar)?
A. $72 B. $70 C. $71 D. $57
18. What is the present value of $300 received at the beginning of each year for five years?
Assume that the first payment is not received until the beginning of the third year (thus the
last payment is received at the beginning of the seventh year). Use a 10% discount rate,
and round your answer to the nearest $100.
A. $1,100 B. $1,000 C. $900 D. $1,200
19. You are going to pay $800 into an account at the beginning of each of 20 years. The
account will then be left to compound for an additional 20 years. At the end of the 41st
year you will begin receiving a perpetuity from the account. If the account pays 14%, how
much will you receive each year from the perpetuity (round to nearest $1,000)?
A. $140,000 B. $150,000 C. $160,000 D. $170,000
20. What is the present value of an investment that pays $400 at the end of three years and
$700 at the end of 10 years if the discount rate is 5%?
A. $1,100.00 B. $675.30 C. $775.40 D. $424.60