1. If you deposit $25,000 today into an account that pays interest at 7%, compounded annually, how much will be in your account at the end of 4 years?

$26,750.00

$32,769.90

$32,000.00

$32,898.29

2. CJ invests $15,000 today in a fund that earns an 8% annual interest rate, with interest compounded semiannually. What will be the balance in the fund at the end of 3 years?

$13,888.89

$19,001.55

$18,895.68

$18,979.79

3. What will a deposit of $4,500 at a 6% annual interest rate, with interest compounded monthly, be worth at the end of 10 years?

$8,187.29

$8,058.81

$7,972.02

$45,000.00

4. Tony needs to have $25,000 four years from today to purchase a new boat. What amount must he invest today to reach this goal if his investment earns a 12% annual interest rate, with interest compounded quarterly?

$15,887.95

$15,579.17

$39,337.98

$13,000.00

5. Candace invests $30,000 today. She needs to have $150,000 in 21 years. What minimum annual interest rate must she earn to reach her goal? (assume that interest is compounded annually)

5.00%

6.32%

7.97%

19.05%

6. Beau invests $10,000 today in a fund that earns 5% interest, compounded annually. How many years will it take for the fund to grow to a balance of $17,100?

11 years

14 years

7.1 years

16.3 years

7. Sally will invest $8,000 per year in a fund that will earn 9% interest, compounded annually. If the first payment occurs one year from today, what will be the balance in the fund 20 years from now?

$446,116.24

$160,000.00

$411,857.68

$409,280.96

8. Doug’s 25th birthday is today. To “celebrate,” he will begin investing $100 per month, for the next 40 years, into his retirement plan. The first payment begins today, and the account will earn interest at an annual rate of 12%, compounded monthly. How much will Doug have in his retirement account on his 65th birthday?

$1,176,477.25

$1,188,242.02

$278,400.00

$4,888.64

9. Baby Claire was born today. Her parents estimate that $100,000 will be needed to pay for her college education, which will begin on her 18th birthday. How much must be invested annually to reach this goal, assuming that the first investment will occur on Claire’s first birthday, and that the account will earn an interest rate of 8% (compounded annually)?

$1,239.12

$2,472.42

$2,670.21

$5,555.55

10. John wants to buy a new motorcycle. Unfriendly Finance Co. has agreed to loan him $8,000 for a two-year term at an annual interest rate of 24% (compounded monthly). John would be required to make monthly payments, with the first payment due one month from now. What is the amount of John’s monthly payment?

$422.97

$414.68

$333.33

$257.81

11. You want to purchase a home, and you know that the maximum monthly payment that you can afford is $900. The loan term will be 30 years, with payments made monthly, beginning one month from now. If the annual interest rate is 6% (compounded monthly), what is the maximum amount that you could borrow today?

$324,000.00

$150,863.02

$150,112.45

$148,660.18

12. The Town of Colfax will need $500,000 six years from today to make street repairs. They will make six annual contributions of $75,000 each into a designated account to fund these repairs, with the first contribution to be made one year from today. What is the minimum rate of interest that must be earned in order to reach this goal?

4.20%

3.02%

7.31%

10.00%

13. Mary wants to visit Hawaii, and needs to accumulate $6,000 for her dream trip. To pay for her trip, she will begin (starting today) making annual payments of $1,325.78 into a savings account that will earn an annual return of 5% (interest compounded annually). How many years (minimum) will it take for Mary to have enough money in the account to pay for her trip?

3.79 years

4.00 years

4.18 years

4.53 years

14. Nancy has always wanted a BMW 750i, but she wants to be able to pay cash for it. She wants to be able to purchase the car 10 years from today, and she estimates that she will need $100,000 to make the purchase. Nancy will make 10 annual payments, beginning today, into an account that will pay a 6.5% interest rate (compounded annually). What is the amount that Nancy must invest each year to be able to purchase the car 10 years from today?

$10,595.11

$8,861.29

$7,410.47

$6,958.19

15. You win the Mightyball lottery, which promises a “$1 million” payout – yippee! But, there’s a catch – your winnings will be paid as an annuity at a rate of $50,000 per year for 20 years, with the first payment beginning immediately. Alternatively, you may elect to receive an immediate lump-sum payout of $650,000. If the appropriate interest rate is 4.75% (compounded annually), which alternative should you select, and why?

The annuity alternative, because its PV of $1,000,000 is greater than the $650,000 PV of the lump-sum alternative.

The lump-sum alternative, because its PV of $650,000 is greater than the $636,533 PV of the annuity alternative.

The annuity alternative, because its PV of $666,768.79 is greater than the $650,000 PV of the lump-sum alternative.

It doesn’t matter – you would be indifferent between the two alternatives.

16. You go to Gary’s Used Cars in search of a new (to you) car. Since you don’t have a lot of money, you tell Gary that you must limit your monthly payment to $100. Gary shows you a nice, clean 1985 Yugo, which he offers to sell you for $3,000 cash (assume that $3,000 is the fair market value of the car). Or, if you would like to finance the purchase, you may choose to make 60 monthly payments of $100 each, with the first payment beginning one month from today. If you decide to finance the car, what nominal annual rate of interest (rounded to the nearest tenth of a percent) would you be paying on this loan?

16.5%

28.7%

31.6%

33.0%

17. Your rich aunt (who really liked you) passes away at the age of 93. Fortunately for you, she leaves you an investment in preferred stock that will pay a $7,000 annual dividend forever, with the first dividend payment occurring one year from today. Since you don’t want to wait for your money, you decide to sell the investment. If the annual interest rate is 5.2%, what is the value today of this investment?

$134,615.38

$70,000.00

$7,000.00

The value of this investment cannot be calculated with the information provided.

18. You would like to invest in a bond that pays you an annual interest payment of $400 for 15 years, with the first payment beginning one year from today. In addition, you will also receive a one-time payment of $5,000 when the bond matures, 15 years from today. If you want to earn a 9% return (compounded annually) on your investment, what amount should you pay for this bond?

$11,000.00

$5,000.00

$4,954.13

$4,596.97

19. You receive a job offer that includes the following “signing bonus.” In addition to your regular salary, your potential employer offers to pay you an additional $1,000 at the end of your first year, $2,000 at the end of your second year, and $5,000 per year at the end of your third, fourth, and fifth year. Assume that you plan to stay with this employer for at least five years. If the discount rate is 7.5%, compounded annually, what is the value of this signing bonus?

$6,685.70

$13,912.49

$17,957.66

$18,000.00

20. You borrow $20,000 today at an annual interest rate of 8%. You will repay the loan through three annual payments of $7,760.67, with the first payment to be made one year from today. When you make the SECOND payment, two years from today, what amount of the $7,760.67 payment will represent interest?

$6,160.67

$1,600.00

$1,107.15

$574.86