QUESTION 1: Your child's orthodontist offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?

• 12.31%
• 12.96%
• 13.64%
• 14.36%
• 15.08%

QUESTION 2: You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?

• $5,987
• $6,286
• $6,600
• $6,930
• $7,277

QUESTION 3: Chuck has $2,500 invested in a bank that pays 4% annually. How long will it take for his funds to double?

• 14.39
• 15.15
• 15.95
• 16.79
• 17.67

QUESTION 4: Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

• $205.83
• $216.67
• $228.07
• $240.08
• $252.08

QUESTION 5: Starting to invest early for retirement increases the benefits of compound interest.

• True
• False

QUESTION 6: Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.

• 7.12%
• 7.49%
• 7.87%
• 8.26%
• 8.67%

QUESTION 7: What is the present value of the following cash flow stream at a rate of 12.0%?

• $9,699
• $10,210
• $10,747
• $11,284
• $11,849

QUESTION 8: At a rate of 6.5%, what is the future value of the following cash flow stream?

• $526.01
• $553.69
• $582.83
• $613.51
• $645.80

QUESTION 9: What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?

• $1,537.69
• $1,618.62
• $1,699.55
• $1,784.53
• $1,873.76

QUESTION 10: Suppose your credit card issuer states that it charges a 15.00% nominal annual rate, but you must make monthly payments, which amounts to monthly compounding. What is the effective annual rate?

• 15.27%
• 16.08%
• 16.88%
• 17.72%
• 18.61%

QUESTION 11: 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?

• $3,704.02
• $3,889.23
• $4,083.69
• $4,287.87
• $4,502.26

QUESTION 12: Suppose you are buying your first condo for $145,000, and you will make a $15,000 down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month. What will your monthly payments be?

• $741.57
• $780.60
• $821.69
• $862.77
• $905.91

QUESTION 13: Your subscription to Investing Wisely Weekly is about to expire. You plan to subscribe to the magazine for the rest of your life, and you can renew it by paying $85 annually, beginning immediately, or you can get a lifetime subscription for $850, also payable immediately. Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant, how many years must you live to make the lifetime subscription the better buy?

• 7.70
• 8.80
• 10.35
• 12.18
• 14.33

QUESTION 14: How much would $1, growing at 3.5% per year, be worth after 75 years?

• $12.54
• $13.20
• $13.86
• $14.55
• $15.28

QUESTION 15: How much would $100, growing at 5% per year, be worth after 75 years?

• $3,689.11
• $3,883.27
• $4,077.43
• $4,281.30
• $4,495.37

QUESTION 16: You want to buy a new ski boat 2 years from now, and you plan to save $8,200 per year, beginning one year from today. You will deposit your savings in an account that pays 6.2% interest. How much will you have just after you make the 2nd deposit, 2 years from now?

• $15,260
• $16,063
• $16,908
• $17,754
• $18,642

QUESTION 17: Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

• True
• False

QUESTION 18: If the discount (or interest) rate is positive, the present value of an expected series of payments will always exceed the future value of the same series.

• True
• False

QUESTION 19: If a bank compounds savings accounts quarterly, the nominal rate will exceed the effective annual rate.

• True
• False

QUESTION 20: Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation. The firm has a bond issue outstanding with 15 years to maturity and a coupon rate of 8 percent, with interest paid semiannually. The required nominal rate on this debt has now risen to 16 percent. What is the current value of this bond?

• $1,273
• $1,000
• $7,783
• $ 550

QUESTION 21: For bonds, price sensitivity to a given change in interest rates is generally greater the longer before the bond matures.

• True
• False

QUESTION 22: A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $875. If the yield to maturity remains at its current rate, what will the price be 5 years from now?

• $839.31
• $860.83
• $882.90
• $904.97
• $927.60

QUESTION 23: Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond's price?

• 1,063.09
• 1,090.35
• 1,118.31
• 1,146.27
• 1,174.93

QUESTION 24: Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity?

• $1,077.01
• $1,104.62
• $1,132.95
• $1,162.00
• $1,191.79

QUESTION 25: Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

• $891.00
• $913.27
• $936.10
• $959.51
• $983.49