University of West Georgia

FINC MISC

Chapter 5

1)A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

2. In future value problems, the discount rate is adjusted
3. Compound interest
4. Which one of the following accurately defines a perpetuity?
5. You want to make an investment that will yield a lump sum of $ 55,140 in 5 years. You will invest at a nominal rate of 8 %. How much do you need to invest today to reach the above future value? Enter your answer to the nearest $.01. Do not use $ or , signs in your answer. Enter your answer as a positive number.
6. Your credit card, upon which you make monthly payments, has a quoted annual interest rate of 15.2 . What is the effective annual interest rate? Calculate your answer to the nearest .01% Do not use the % sign in your
7. An S&L provides a loan with 15 yearly repayments of $8,000 with the first payment beginning immediately. Which of the following amounts comes closest to the present value of the loan if the interest rate is 7%?
8. Find the present value of $5,325 to be received in one period if the rate is 6.5%.
9. You want to borrow $47,170 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,160, but no more. Assume monthly compounding. What is the highest rate you can afford on a 48-month APR loan?
10. What is the future value of a 5-year annuity due with annual payments of $ 1,779 , evaluated at a 9.76 percent interest rate? Enter your answer to the nearest $.01. Do not use $ or , signs in your answer. Enter your answer as a positive number.
11. You are preparing to make monthly payments of $72, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $9,312?
12. What is the present value of $1,100 per year, at a discount rate of 10 percent if the first payment is received 6 years from now and the last payment is received 30 years from now?
13. Tracy invested $1,000 five years ago and earns 4 percent interest on her investment. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as which one of the following?
14. Interest earned on both the initial principal and the interest reinvested from prior periods is called:
15. The time value of money concept can be defined as
16. How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

17. Assume that you have a lump sum $ 692 that you are investing for 3 years at a nominal rate of 14 %. What is the expected Future Value? Enter your answer to the nearest $.01. Do not use $ or , signs in your answer. Enter your answer as a positive number.
18. Your holiday ski vacation was great, but it unfortunately ran a bit over budget. All is not lost. You just received an offer in the mail to transfer your $5,000 balance from your current credit card, which charges an annual rate of 7 percent, to a new credit card charging a rate of 9.4 percent. You plan to make payments of $510 a month on this debt. How many less payments will you have to make to pay off this debt if you transfer the balance to the new card?
19. An S&L provides a loan with 15 yearly repayments of $8,000 with the first payment beginning immediately. Which of the following amounts comes closest to the present value of the loan if the interest rate is 7%?
20. Find the present value of $5,325 to be received in one period if the rate is 6.5%.
21. A court settlement awarded an accident victim four payments of $50,000 to be paid at the end of each of the next four years. Using a discount rate of 4%, calculate the present value of the annuity.
22. You want to borrow $47,170 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,160, but no more. Assume monthly compounding. What is the highest rate you can afford on a 48-month APR loan?
23. What is the future value of a 7-year annuity due with annual payments of $ 1,421 , evaluated at a 11.63 percent interest rate? Enter your answer to the nearest $.01. Do not use $ or , signs in your answer. Enter your answer as a positive number.
24. Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.
25. Which one of the following terms is used to identify a British perpetuity? Could also say was, since they have not existed for about 150 years.
26. The present value of a set of cash flows is
27. The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the greater the percentage of the payment that will be a repayment of principal.
28. You want to make an investment that will yield a lump sum of $ 49,350 in 3 years. You will invest at a nominal rate of 7 %. How much do you need to invest today to reach the above future value?
29. What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?
30. Jerry and Faith Hudson recently obtained a 30-year (360-month), $250,000 mortgage with a 9 percent nominal interest rate. What will be the remaining balance on the mortgage after five years (60 months)?
31. If $100 is placed in an account that earns a nominal 4 percent, compounded quarterly, what will it be worth in 5 years?
32. You have just taken out a 14 -year, $ 90 ,000 mortgage loan at an annual interest rate of 6.3 percent. The mortgage has monthly payments. What is the amount of each payment? Calculate your answer to the nearest $.01. Enter your answer as a postive number. Do not use the $ or , sign.
33. You have just taken out an installment loan for $100,000. Assume that the loan will be repaid in 12 equal monthly installments of

$9,456 and that the first payment will be due one month from today. How much of your fourth monthly payment will go toward the repayment of principal?