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Financial Management: Principles and Applications, 11e (Titman) Chapter 6 The Time Value of Money-Annuities and Other Topics 6.1 Annuities 1) You wish to borrow $2,000 to be repaid in 12 monthly installments of $189.12. The annual interest rate is: A) 24%. B) 8%. C) 18%. D) 12%. Answer: A Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 2) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years? A) $3,525.62 B) $5,008.76 C) $3,408.88 D) $2,465.78 Answer: B Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 3) If you invest $750 every six months at 8% compounded semi-annually, how much would you accumulate at the end of 10 years? A) $10,065 B) $10,193 C) $22,334 D) $21,731 Answer: C Diff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 1 Copyright 2011 Pearson Education, Inc. 4) A commercial bank will loan you $7,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The annual interest rate on the loan is 12% of the unpaid balance. What is the amount of the monthly payments? A) $282.43 B) $390.52 C) $369.82 D) $353.05 Answer: D Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 5) Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9% interest per year, how many loan payments must the company make? A) 15 B) 13 C) 12 D) 19 Answer: A Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 6) ________ annuities involve depositing money at the end of the period and allowing it to grow. A) Discount B) Compound C) Annuity due D) Both B and C Answer: B Diff: 2 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 7) When comparing annuity due to ordinary annuities, annuity due annuities will have higher: A) present values. B) annuity payments. C) future values. D) both A and C. E) all of the above. Answer: D Diff: 3 Topic: 6.1 Annuities Keywords: annuity due Principles: Principle 1: Money Has a Time Value 2 Copyright 2011 Pearson Education, Inc. 8) Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina's plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%. Round off to the nearest $1. ... View Full Document

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