Ch5 Assignment

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Question #1

Juan and Rachel Burpo plan to buy a time-share in six years of $16,860. In order to have adequate funds to do so, the Burpo want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Rachel need to deposit today to achieve their goal? (Round off to the nearest dollar.)

A $12,055

B $14,243

C $11,138

D $8,885

Question #2

Nickole wants to invest in a bank CD that will pay her 7.8 percent annually. If she invests $11,500 today, when will she reach her goal of $15,000? (Round to the nearest year.)

A 4 years

B 5 years

C 7 years

D 2 years

Question #3

Your uncle is looking to double his investment of $10,000. He claims he can get earn 14 percent on his investment. How long will it take to double his investment? Use the Rule of 72 and round to the nearest year.

A 7 years

B 14 years

C 5 years

D 10 years

Question #4

Bovic Inc. is a growing company with sales of $1.25 million this year. The company expects to grow at an annual rate of 25 percent for the next three years, followed by 20 percent per year for the next two years. What will be Bovic’s sales at the end of five years? (Round to the nearest dollar.)

A $2,160,000

B $3,515,625

C $1,875,000

D $2,929,688

Question #5

You have $12,000 in cash. You can deposit it today in a mutual fund earning 7.5 percent semiannually, or you can wait, enjoy some of it, and invest $11,000 in your brother’s business in two years. Your brother is promising you a return of at least 10.1 percent on your investment. Whichever alternative you choose, you will need to cash in at the end of 10 years. Assume your brother is trustworthy and both investments carry the same risk. (If you solve this problem with algebra round intermediate calculations to 5 decimal places, in all cases, round your input answers to the nearest penny.)

Which one would yield the largest amount in 10 years?

A The mutual fund

B Your brother’s business

Question #6

What would be the future value of investing in your brother’s business?

A $25,057.82

B $27,943.17

C $23,751.51

D $16,275.14

Question #7

What would be the future value of the mutual fund investment?

A $25,057.82

B $23,751.51

C $20,144.26

D $26,433.21

Question #8

Edward Lewis has $3,000 to invest. His brother approached him with an investment opportunity that could double his money in 6 years. What annual interest rate would the investment have to yield in order for Edward’s brother to deliver on his promise? (If you solve this problem with algebra round intermediate calculations to 4 decimal places, in all cases round your final answer to 2 decimal places, e.g. 8.72%.)
Expected rate of return

A 12.25%

B 10.75%

C 15.00%

D 13.15%

Question #9

You invest $230 in a mutual fund today that pays 6.50 percent interest annually. How long will it take to double your money? (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to 0 decimal place, e.g. 545)

Number of years

A 25

B 15

C 6

D 11

Question #10

Michelle Walker wants to accumulate $13,500 by the end of 12 years. If the annual interest rate is 8.00 percent and interest compounds semiannually, how much will she have to invest today to achieve her goal? (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)
Present value of investment

A $6,544.29

B $4,918.25

C $5,266.64

D $8,344.37

Question #11

Dynoxo Textiles has a cash inflow of $1 million, which it needs for a long-term investment, at the end of one year. It plans to deposit the money in a bank CD that pays daily interest at an annual rate of 4.50 percent. What will be the value of the investment at the end of the year? (Round to the nearest dollar.)

A $1,000,103

B $1,020,475

C $1,037,500

D $1,046,025

Question #12

Your birthday is next week and instead of other presents, your parents promised to give you $2,000 in cash. Since you have a part-time job and, thus, don’t need the cash immediately, you decide to invest the money in a bank CD that pays 5.00 percent, compounded quarterly, for the next two years. How much money can you expect to earn in this period of time? (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)

Value of investment after 2 years

A $2,911.67

B $1,553.16

C $1,504.88

D $2,208.97

Question #13

Lisa plans to invest some money so that she has $3,500 at the end of three years. Determine how much should she invest today given the following choice: (Do not round intermediate calculations and round your final answer to the nearest penny.)

5.4 percent compounded annually.

A $2,989.14

B $3,085.67

C $2,997.47

D $3,022.43

Question #14

5.2 percent compounded quarterly

A $3,085.67

B $2,997.47

C $3,022.43

D $2,989.14

Question #15

4.9 percent compounded monthly.

A $3,022.43

B $3,085.67

C $2,989.14

D $2,997.47

Question #16

4.2 percent compounded daily.

A $2,997.47

B $3,022.43

C $2,989.14

D $3,085.67

Question #17

At what rate must $4,000 be compounded annually for it to increase to $40,000 in 15 years? (Do not round the intermediate calculations. Round the final answer to the nearest two decimals.)

A 16.59%

B 15%

C 36%

D 25.82%

Question #18

Michael Harper has $3,000 to invest for three years. He wants to receive $5,000 at the end of the three years. What invest rate would his investment have to earn to achieve his goal? (Round to the nearest percent.)

A 16%

B 13%

C 19%

D 21%

Question #19

Dorothy Taylor needs to decide whether to accept a bonus of $1,710 today or wait two years and receive $2,000 then. She can invest at 6 percent. What should she do?

A Yes, she should accept the bonus today

B No, she should not accept the bonus today

Question #20

If you want to have $150,000 in 2 years, how much do you need to put in a savings account today that pays 5% compounded annually? (Do not round your intermediate calculations and final answer.)

A $135,870.89

B $102,750

C $136,054

D $107,364

Question #21

Celesta Frank wants to go on a cruise in three years. She could earn 8.2 percent compounded monthly in an account if she deposits the money today. She needs to have $10,000 in three years. How much will she have to deposit today? (Round to the nearest dollar.)

A $7,826

B $6,432

C $8,148

D $7,763

Question #22

You need to have $15,000 in five years to pay off a home equity loan. You can invest in an account that pays 5.75 percent compounded quarterly. How much will you have to invest today to attain your target in five years? (Round to the nearest dollar.)

A $12,250

B $4,903

C $11,275

D $13,184

Question #23

Robert Kelly wants to start a business in 10 years. He hopes to have $100,000 at that time to invest in the business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 9.50 percent annually. How much will he have to invest today to achieve his target? (Round to the nearest dollar.)

A $54,233

B $63,837

C $40,351

D $91,324

Question #24

When the discount rate:

A increases, the present value of any future cash flow increases.

B increases, the present value of any future cash flow does not change.

C decreases, the present value of the future cash flow does not change.

D decreases, the present value of any future cash flow increases.

Question #25

Which of the following statements is true?

A The shorter the time period that funds are invested, the greater the future value.

B The longer the time period that funds are invested, the greater the future value.

C The lower the discount rate that funds are invested at, the greater the future value.

D The higher the interest rate, the slower the value of an investment will grow.

Question #26

Find the future value of an investment of $2,600 made today for the following rates and periods: (If you solve this problem with algebra round intermediate calculations to 4 decimal places, in all cases round your answers to the nearest penny.)

8 percent compounded continuously for 2 years.

A $5,441.37

B $3,051.13

C $3,509.49

D $4,091.86

Question #27

10 percent compounded daily for 3 years.

A $5,441.37

B $3,509.49

C $4,091.86

D $3,051.13

Question #28

8.9 percent compounded monthly for 10 years.

A $5,441.37

B $3,509.49

C $4,091.86

D $6,310.58

Question #29

7.63 percent compounded quarterly for 6 years.

A $3,051.13

B $5,441.37

C $4,091.86

D $3,509.49

Question #30

6.25 percent compounded semiannually for 12 years.

A $4,091.86

B $3,509.49

C $6,310.58

D $5,441.37

Question #31

You are in desperate need of cash and turn to your uncle, who has offered to lend you some money. You decide to borrow $1,320 and agree to pay back $1,520 in two years.

Alternatively, you could borrow from your bank that is charging 6.50 percent interest annually. Should you borrow from your uncle or the bank?

A borrow from your uncle

B borrow from the bank

C both are equivalent since they have the same borrowing cost

Question #32

You are in desperate need of cash and turn to your uncle, who has offered to lend you some money. You decide to borrow $1,320 and agree to pay back $1,520 in two years.

What annual interest rate is your uncle charging you? (If you solve this problem with algebra round intermediate calculations to 4 decimal places, in all cases round your final answer to two decimal places, e.g. 8.72%.)

A 5.65%

B 8.75%

C 7.31%

D 10.15%

Question #33

Congress and the president have decided to increase the federal tax rate in an effort to reduce the budget deficit. Suppose that Margaret Moore will pay 35 percent of her bonus to the federal government for taxes if she accepts the bonus of $1,858 today and 40 percent if she receives her bonus of $2,117 in 2 years. She can invest at 6 percent. Will the increase in tax rates affect her decision?

A No, it will not affect her decision

B Yes, it will affect her decision

Question #34

If Johnson put $800,000 in a savings account today, how much will it grow to in 3 years if the bank pays 4% annual interest compounded continuously? (Do not round intermediate calculations. Round the final answer to the nearest two decimal places.)

A $859,369.45

B $858,898.63

C $901,997

D $900,997.36

Question #35

Which of the following statements is true about the future value of an investment?

A The future value of an investment will be larger if the investment earns 5% instead of 10%.

B The future value of an investment does not depend on the rate of return that the investment earns.

C The future value of a cash flow does not depend on the length of time the funds are invested.

D The future value of an investment will be larger if the investment is for 12 years instead of 6 years.

Question #36

You are interested in investing $15,000, a gift from your grandparents, for the next four years in a mutual fund that will earn an annual return of 8 percent. What will your investment be worth at the end of four years? (Round to the nearest dollar.)

A $18,816

B $20,407

C $18,089

D $20,221

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