FIN 3320 Exam 2
Suppose United Bank offers to lend you $10,000 for one year at a nominal annual rate
of 8.00%, but you must make interest payments at the end of each quarter and then pay
off the $10,000 principal amount at the end of the year. What is the effective annual rate
on the loan?
a 8.24%
b 8.45%
c 8.66%
d 8.88%
e 9.10%
You sold a car and accepted a note with the following cash flow stream as your
payment. The effective price you received for the car assuming an interest rate of 6.0%
is closest to:
Years: 0 1 2 3 4
CFs: 0 1k 2k 2k 2k
a 5,987
b 6,286
c 6,000
d 6,930
e 7,277
Last year Tempe Corporation's sales were $525 million. If sales grow at 7.5% per year,
how large (in millions) will they be 8 years later?
a 845.03
b 889.51
c 936.33
d 983.14
e 1,032.30
Your father paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at
the end of each of the next 5 years, then an additional lump sum payment of $10,000 at
the end of the 5th year. What is the expected rate of return on this investment?
a 6.77%
b 7.13%
c 7.50%
,d 7.88%
e 8.27%
Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 today or a
20-year annuity of $1,050,000, with the first payment coming one year from today. What
rate of return is built into the annuity?
a 3.44%
b 3.79%
c 4.17%
d 4.58%
e 5.04%
Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal
installments at the end of each of the next 4 years. How large would your payments be?
a 3,704.02
b 3,889.23
c 4,083.69
d 4,287.87
e 4,502.26
Your uncle has $375,000 and wants to retire. He expects to live for another 25 years,
and he also expects to earn 7.5% on his invested funds. How much could he withdraw
at the beginning of each of the next 25 years and end up with zero in the account?
a 34,502.10
b 28,243.21
c 29,729.70
d 31,294.42
e 32,859.14
You have a chance to buy an annuity that pays $2,500 at the end of each year for 3
years. You could earn 5.5% on your money in other investments with equal risk. What is
the most you should pay for the annuity?
a 5,493.71
b 5,782.85
c 6,087.21
d 6,407.59
e 6,744.83
What's the rate of return you would earn if you paid $950 for a perpetuity that pays $85
per year?
a 8.95%
, b 9.39%
c 9.86%
d 10.36%
e 10.88%
What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?
a 11,262.88
b 11,826.02
c 12,417.32
d 13,038.19
e 13,690.10
You have a chance to buy an annuity that pays $550 at the beginning of each year for 3
years. You could earn 5.5% on your money in other investments with equal risk. What is
the most you should pay for the annuity?
a $1,412.84
b $1,487.20
c $1,565.48
d $1,643.75
e $1,725.94
What's the present value of a perpetuity that pays $250 per year if the appropriate
interest rate is 5%?
a $4,750
b $5,000
c $5,250
d $5,513
e $5,788
What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate
interest rate is 5.5%?
a $16,576
b $17,449
c $18,367
d $19,334
e $20,352
What is the present value of the following cash flow stream at a rate of 6.25%?
Years: 0 - 4
CFs: $0 || $75 || $225 || $0 || $300
