chapter6
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chapter6

Course Number: BUSINESS 21056, Summer 2013

College/University: California PA

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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...

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Management: Financial 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%. Register to View AnswerDiff: 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 Register to View AnswerDiff: 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 Register to View AnswerDiff: 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 Register to View AnswerDiff: 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 Register to View AnswerDiff: 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 Register to View AnswerDiff: 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. Register to View AnswerDiff: 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. A) $1,497 B) $5,281 C) $75 D) $3,622 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 9) Francis Peabody just won the $89,000,000 California State Lottery. The lottery offers the winner a choice of receiving the winnings in a lump sum or in 26 equal annual installments to be made at the beginning of each year. Assume that funds would be invested at 7.65%. Francis is trying to decide whether to take the lump sum or the annual installments. What is the amount of the lump sum that would be exactly equal to the present value of the annual installments? Round off to the nearest $1. A) $89,000,000 B) $38,163,612 C) $13,092,576 D) $41,083,128 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 10) As time increases for an amortized loan, the ________ decreases. A) interest paid per payment B) principal paid per payment C) the outstanding loan balance D) both A and C E) all of the above Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 3 Copyright 2011 Pearson Education, Inc. 11) What is the present value of an annuity of $27 received at the beginning of each year for the next six years? The first payment will be received today, and the discount rate is 10% (round to nearest $10). A) $120 B) $130 C) $100 D) $110 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 12) What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today. Use a discount rate of 9%, and round your answer to the nearest $10. A) $1,360 B) $1,480 C) $1,250 D) $1,210 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: annuity due Principles: Principle 1: Money Has a Time Value 13) What is the present value of $250 received at the beginning of each year for 21 years? Assume that the first payment is received today. Use a discount rate of 12%, and round your answer to the nearest $10. A) $1,870 B) $2,090 C) $2,117 D) $3,243 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: annuity due Principles: Principle 1: Money Has a Time Value 4 Copyright 2011 Pearson Education, Inc. 14) What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%. The first payment will be received one year from today (round to the nearest $1). A) $25 B) $40 C) $57 D) $118 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 15) What is the present value of an annuity of $100 received at the end of each year for seven years? The first payment will be received one year from today (round to nearest $10). The discount rate is 13%. A) $440 B) $43 C) $500 D) $1,040 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 16) What is the present value of $27 received at the end of each year for five years? Assume a discount rate of 9%. The first payment will be received one year from today (round to the nearest $1). A) $42 B) $114 C) $88 D) $105 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 5 Copyright 2011 Pearson Education, Inc. 17) What is the present value of $300 received at the beginning of each year for five years? Assume that the first payment is not received until the beginning of the third year (thus the last payment is received at the beginning of the seventh year). Use a 10% discount rate, and round your answer to the nearest $100. A) $1,100 B) $1,000 C) $900 D) $1,200 Register to View AnswerDiff: 3 Topic: 6.1 Annuities Keywords: annuity due Principles: Principle 1: Money Has a Time Value 18) Ingrid Birdman can earn a nominal annual rate of return of 12%, compounded semiannually. If Ingrid made 40 consecutive semiannual deposits of $500 each, with the first deposit being made today, how much will she accumulate at the end of Year 20? Round off to the nearest $1. A) $52,821 B) $57,901 C) $82,024 D) $64,132 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 19) Charlie Stone wants to retire in 30 years, and he wants to have an annuity of $1,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment at the end of the 30th year. Using an interest rate of 10%, how much must Charlie invest today in order to have his retirement annuity (round to the nearest $10)? A) $500 B) $490 C) $540 D) $570 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 6 Copyright 2011 Pearson Education, Inc. 20) It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1,000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the beginning of the 41st year? Assume that the account pays 12% interest compounded annually, and round to the nearest $1,000. A) $93,000 B) $766,000 C) $767,000 D) $850,000 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 21) If you put $510 in a savings account at the beginning of each year for 30 years, how much money will be in the account at the end of the 30th year? Assume that the account earns 5%, and round to the nearest $100. A) $33,300 B) $32,300 C) $33,900 D) None of the above Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 22) If you put $10 in a savings account at the beginning of each year for 11 years, how much money will be in the account at the end of the 11th year? Assume that the account earns 11%, and round to the nearest $100. A) $220 B) $200 C) $190 D) $180 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 7 Copyright 2011 Pearson Education, Inc. 23) If you put $310 in a savings account at the beginning of each year for 10 years, how much money will be in the account at the end of the 10th year? Assume that the account earns 5.5%, and round to the nearest $100. A) $3,800 B) $3,900 C) $4,000 D) $4,200 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 24) How much money must you pay into an account at the beginning of each of 30 years in order to have $10,000 at the end of the 30th year? Assume that the account pays 11% per annum, and round to the nearest $1. A) $39 B) $46 C) $50 D) None of the above Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 25) How much money must you pay into an account at the beginning of each of 20 years in order to have $10,000 at the end of the 20th year? Assume that the account pays 12% per annum, and round to the nearest $1. A) $1,195 B) $111 C) $124 D) $139 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 8 Copyright 2011 Pearson Education, Inc. 26) How much money must you pay into an account at the beginning of each of five years in order to have $5,000 at the end of the fifth year? Assume that the account pays 12% per year, and round to the nearest $10. A) $700 B) $1,390 C) $1,550 D) $790 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 27) How much money must you pay into an account at the beginning of each of 11 years in order to have $5,000 at the end of the 11th year? Assume that the account pays 8% per year, and round to the nearest $1. A) $700 B) $257 C) $300 D) $278 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value Use the following information in solving the following question(s). You are going to pay $100 into an account at the beginning of each of the next 40 years. At the beginning of the 41st year, you buy a 30-year annuity whose first payment comes at the end of the 41st year (the account pays 12%). 28) How much money will be in the account at the end of year 40 (round to the nearest $1,000)? A) $77,000 B) $86,000 C) $69,000 D) $93,000 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 9 Copyright 2011 Pearson Education, Inc. 29) How much will you receive at the end of the 41st year (i.e., the first annuity payment)? Round to the nearest $100. A) $93,000 B) $7,800 C) $11,400 D) $10,700 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 30) A retirement plan guarantees to pay you or your estate a fixed amount for 20 years. At the time of retirement, you will have $31,360 to your credit in the plan. The plan anticipates earning 8% interest annually over the period you receive benefits. How much will your annual benefits be, assuming the first payment occurs one year from your retirement date? A) $682 B) $6,272 C) $2,000 D) $3,194 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 31) SellUCars, Inc. offers you a car loan at an annual interest rate of 8% compounded quarterly. What is the annual percentage yield of the loan? A) 8.00% B) 8.24% C) 8.32% D) 8.44% Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: effective annual rate Principles: Principle 1: Money Has a Time Value 10 Copyright 2011 Pearson Education, Inc. 32) George and Barbara will be retiring in four years and would like to buy a lake house. They estimate that they will need $150,000 at the end of four years to buy this house. They want to make four equal annual payments into an account at the end of each year. If they can earn 16% on their money, compounded annually, over the next four years, how much must they invest at the end of each year for the next four years to have accumulated $150,000 by retirement? A) $25,523 B) $29,606 C) $46,212 D) $43,500 E) $37,500 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 33) You have been accepted to study gourmet cooking at Le Cordon Bleu Culinary Institute in Paris, France. You will need $15,000 every six months (beginning six months from now) for the next three years to cover tuition and living expenses. Mom and Dad have agreed to pay for your education. They want to make one deposit now in a bank account earning 6% interest, compounded semiannually, so that you can withdraw $15,000 every six months for the next three years. How much must they deposit now? A) $97,026 B) $73,760 C) $90,000 D) $81,258 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 34) Horace and Myrtle want to buy a house. Their banker offered them a fully amortizing $95,000 loan at a 12% annual rate for 20 years. What will their monthly payment be if they make equal monthly installments over the next 20 years? A) $1,046 B) $749 C) $1,722 D) $1,346 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 11 Copyright 2011 Pearson Education, Inc. 35) Harold Hawkins bought a home for $320,000. He made a down payment of $45,000; the balance will be paid off over 30 years at a 6.775% rate of interest. How much will Harold's monthly payments be? Round off to the nearest $1. A) $1,450 B) $1,788 C) $3,200 D) $1,682 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 36) You buy a race horse, which has a winning streak for four years, bringing in $500,000 per year, and then it dies of a heart attack. If you paid $1,518,675 for the horse four years ago, what was your annual return over this four-year period? A) 8% B) 33% C) 18% D) 12% Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: internal rate of return Principles: Principle 1: Money Has a Time Value 37) You are considering a home loan with monthly payments at an annual percentage yield of 5.116%. What is the quoted rate of interest on the loan? A) 4.5% B) 4.75% C) 5% D) 6% Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: effective annual rate Principles: Principle 1: Money Has a Time Value 12 Copyright 2011 Pearson Education, Inc. 38) You deposited $2,000 in a bank account paying 6% on January 1, 2004, and then you made $2,000 deposits on January 1 in 2005 and 2006. Which of the following expressions will calculate your bank balance just after the last payment was deposited? A) FV = $2,000[1.06]-1 + $2,000[1.06]-2 + $2,000[1.06]-3 B) FV = $2,000[1.06]1 + $2,000[1.06]2 + $2,000[1.06]3 C) FV = $2,000[1.06]0 + $2,000[1.06]1 + $2,000[1.06]2 D) FV = $2,000[1.06]-0 + $2,000[1.06]-1 + $2,000[1.06]-2 + $1,000[1.06]-3 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 39) Harry just bought a new four-wheel-drive Jeep Cherokee for his lumber business. The price of the vehicle was $35,000, of which he made a $5,000 down payment and took out an amortized loan for the rest. His local bank made the loan at 12% interest for five years. He is to pay back the principal and interest in five equal annual installments beginning one year from now. Determine the amount of Harry's annual payment. A) $8,322 B) $9,600 C) $9,709 D) $6,720 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 40) Your investment goal is to have $3,000,000 in 40 years for retirement. You decide to invest in a mutual fund today that pays 12% per year compounded monthly. How much must you invest at the end of each month to meet your investment goal? Round to the nearest $1. A) $245 B) $255 C) $285 D) $305 E) $315 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 13 Copyright 2011 Pearson Education, Inc. 41) You have borrowed $70,000 to buy a sports car. You plan to make monthly payments over a 15-year period. The bank has offered you a 9% interest rate compounded monthly. Calculate the total amount of interest dollars you will pay the bank over the life of the loan. Round to the nearest dollar and assume end-of-month payments. A) $47,451 B) $51,644 C) $54,776 D) $57,798 Register to View AnswerDiff: 3 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 42) You have borrowed $70,000 to buy rental property. You plan to make monthly payments over a 15-year period. The bank has offered you a 9% interest rate compounded monthly. Calculate the principal paid to the bank in month two of the loan. Assume end-of-period payments. A) $184.01 B) $186.38 C) $188.46 D) $190.64 E) $192.73 Register to View AnswerDiff: 3 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 43) A friend of yours plans to begin saving for retirement by depositing $2,000 at the end of each year for the next 25 years. If she can earn 10% annually on her investment, how much will she have accumulated at the end of 25 years? A) $50,000 B) $196,692 C) $100,000 D) $216,361 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 14 Copyright 2011 Pearson Education, Inc. 44) How much must you deposit at the end of each of the next 10 years in a savings account paying 5% annually in order to have $10,000 saved by the end of the 10th year? A) $1,000 B) $1,638 C) $1,500 D) $795 Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 45) What is the value today of an investment that pays $500 every year at year-end during the next 15 years if the annual interest rate is 9%? A) $4,030.50 B) $7,500.00 C) $3,500.00 D) $7,000.00 Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 46) How much would an investor be willing to pay today for an investment that returns $1,000 every year at year-end for five years if he wants to earn a 10% annual return on the investment? A) $1,000 B) $3,791 C) $5,000 D) $7,700 Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 47) A friend of yours would like you to lend him $5,000 today to be paid back in 5 annual payments. What would be the equal annual end-of-year payment on this loan if you charge your friend 7% interest? A) $869.45 B) $1,000.00 C) $1,219.51 D) $1,350.00 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 15 Copyright 2011 Pearson Education, Inc. 48) Recently you borrowed money for a new car. The loan amount is $15,000 to be paid back in equal annual payments which begin today, and will continue to be payable at the beginning of each year for a total of five years. Interest on the loan is 8%. What is the amount of the loan payment? A) $3,756.85 B) $4,200.00 C) $3,478.31 D) $3,000.00 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 49) A friend of yours borrows $19,500 from the bank at 8% annually to be repaid in 10 equal annual end-of-year installments. The interest paid on this loan in year three is: A) $1,336.01. B) $1,560.00. C) $2,906.11. D) $1,947.10. Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: interest paid Principles: Principle 1: Money Has a Time Value 50) If a loan of $10,000 is paid back in equal annual end-of-year payments of $2,570.69 during the next five years, what is the annual interest rate on the loan? A) 2% B) 5% C) 9% D) 12% Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 16 Copyright 2011 Pearson Education, Inc. 51) What is the present value of an investment that pays $10,000 every year at year-end for the next five years and $15,000 every year at year-end for years six through 10? The annual rate of interest for the investment is 9%. A) $125,000.00 B) $97,250.00 C) $135,173.00 D) $76,827.50 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value income stream Principles: Principle 1: Money Has a Time Value 52) Congratulations. You just won the California State Lottery. The amount awarded is paid in 20 equal annual installments, at the beginning of each year. You can invest your money at 6.6%, compounded annually. You have calculated that the lottery is worth $20,975,400 today. How much was the amount awarded? A) $75,310,294 B) $36,000,000 C) $81,047,770 D) $42,000,000 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 53) If you have $375,000 in an account earning 9% annually, what constant amount could you withdraw each year and have nothing remaining at the end of 20 years? A) $7,500 B) $18,750 C) $66,912 D) $5,575 E) $41,080 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 17 Copyright 2011 Pearson Education, Inc. 54) You wish to borrow $12,000 to be repaid in 60 monthly installments of $257.93. The annual interest rate is: A) 10.50%. B) 12.75%. C) 15.25%. D) 6.50%. E) 8.80%. Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 55) You wish to purchase a condo at a cost of $175,000. You are able to make a down payment of $35,000 and will borrow $140,000 for 30 years at an interest rate of 7.25%. How much is your monthly payment? A) $650 B) $955 C) $1,092 D) $1,023 E) $875 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 56) Suppose that you wish to save for your child's college education by opening up an educational IRA. You plan to deposit $100 per month into the IRA for the next 18 years. Assume that you will be able to earn 10%, compounded monthly, on your investment. How much will you have accumulated at the end of 18 years? A) $21,600 B) $54,719 C) $33,548 D) $85,920 E) $60,056 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 18 Copyright 2011 Pearson Education, Inc. 57) Edward Johnson decided to open up a Roth IRA. He will invest $1,800 per year for the next 35 years. Deposits to the Roth IRA will be made via a $150 payroll deduction at the end of each month. Assume that Edward will earn 8.75% annual interest compounded monthly over the life of the IRA. How much will he have at the end of 35 years? A) $125,250 B) $250,321 C) $363,000 D) $414,405 Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 58) What is a series of equal payments for a finite period of time called? A) A perpetuity B) An axiom C) A lump sum D) An annuity Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 59) Which of the following statements is true? A) The future value of an annuity would be greater if funds are invested at the beginning of each period instead of at the end of each period. B) An annuity is a series of equal payments that are made, or received, forever. C) The effective annual rate (APR) of a loan is higher the less frequently payments are made. D) The future value of an annuity would be greater if funds are invested at the end of each period rather than at the beginning of each period. Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 19 Copyright 2011 Pearson Education, Inc. 60) What is a series of equal payments to be received at the end of each period, for a finite period of time, called? A) A perpetuity B) An annuity due C) A cash cow D) A deferred annuity Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 61) What is a series of equal payments to be received at the beginning of each period, for a finite period of time, called? A) A perpetuity B) An annuity due C) A cash cow D) A deferred annuity Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 62) One characteristic of an annuity that is an equal sum of money is deposited or withdrawn each period. Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 63) The present value of an annuity increases as the discount rate increases. Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 64) We can use the present value of an annuity formula to calculate constant annual loan payments. Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 20 Copyright 2011 Pearson Education, Inc. 65) A compound annuity involves depositing or investing a single sum of money and allowing it to grow for a certain number of years. Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 66) When repaying an amortized loan, the interest payments increase over time. Register to View AnswerDiff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 67) An amortized loan is a loan paid in unequal installments. Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 68) A loan amortization schedule provides a breakdown of loan payments into principal and interest payments. Register to View AnswerDiff: 1 Topic: 6.1 Annuities Keywords: present value Principles: Principle 1: Money Has a Time Value 69) Holding all other variables constant, payment per period for an annuity due will be higher than an ordinary annuity. Register to View AnswerDiff: 3 Topic: 6.1 Annuities Keywords: annuity due Principles: Principle 1: Money Has a Time Value 70) If you have an opportunity cost of 10%, how much must you invest each year to have $4,000 accumulated in 10 years? Answer: $4,000 = A(15.937) A = $250.99 Diff: 1 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 21 Copyright 2011 Pearson Education, Inc. 71) You have just received an endowment of $32,976. You plan to put the entire amount in an account earning 8 percent compounded annually and to withdraw $4000 at the end of each year. How many years can you continue to make the withdrawals? Answer: $32,976 = $4,000 PVIFA[8%, ? yr] 8.244 = PVIFA[8%, ? yr] 14 years Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 72) To repay a $2,000 loan from your bank, you promise to make equal payments every six months for the next five years totaling $3,116.20. What annual rate of interest will you be paying? Answer: Total payments of $3,116.20 indicates that each payment is $311.62. $2,000 = $311.62 PVIFA[? %, 10 periods] 6.418 = PVIFA[? %, 10 periods] i = 9% Annual interest rate = (.09)(2) = .18 = 18% Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 73) You are saving money to buy a house. You will need $7,473.50 to make the down payment. If you can deposit $500 per month in a savings account which pays 1% per month, how long will it take you to save the $7,473.50? Answer: $7,473.50 = $500 FVIFA[1%, n periods] 14.947 = FVIFA[1%, n periods] n = 14 months Diff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 22 Copyright 2011 Pearson Education, Inc. 74) You have a credit card with a balance of $18,000. The annual interest rate on the card is 18% compounded monthly, and the minimum payment is $400 per month. If you pay only the minimum payment each month and do not make any new charges on the card, how many years will it take for you to pay off the $18,000 balance? Answer: Calculator steps: 18,000 PV -400 PMT 18 I/yr or I N = Approximately 75 months = 6.25 years Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 75) You have borrowed $70,000 to buy a speed boat. You plan to make monthly payments over a 15-year period. The bank has offered you a 9% interest rate, compounded monthly. Create an amortization schedule for the first two months of the loan. Answer: MO Beg PMT Int. Princ. End 1 $70,000 $709.99 $525 $184.99 $69,815.01 2 $69,815.01 $709.99 $523.61 $186.38 $69,628.63 Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 76) You have just purchased a car from Friendly Sam. The selling price of the car is $6,500. If you pay $500 down, then your monthly payments are $317.22. The annual interest rate is 24%. How many payments must you make? Answer: $6,000 = $317.22 PVIFA[2%, ? periods] 18.914 = PVIFA[2%, ? periods] n = 24 months Diff: 2 Topic: 6.1 Annuities Keywords: present value of annuity Principles: Principle 1: Money Has a Time Value 23 Copyright 2011 Pearson Education, Inc. 77) a.) If Sparco, Inc. deposits $150 at the end of each year for the next eight years in an account that pays 5% interest, how much money will Sparco have at the end of eight years? b.) Suppose Sparco decides that they need to have $5,300 at the end of the eight years. How much will they have to deposit at the end of each year? Register to View AnswerFV = $150 FVIFA [5%, 8 yr] FV = $150 (9.549) = $1,432.35 b. $5,300 = PMT FVIFA [5%, 8 yr] $5,300 = PMT(9.549) PMT = $555.03 Diff: 2 Topic: 6.1 Annuities Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 6.2 Perpetuities 1) What is a series of equal payments for an infinite period of time called? A) A perpetuity B) An axiom C) A cash cow D) An annuity Register to View AnswerDiff: 1 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 2) You have just purchased a share of preferred stock for $50.00. The preferred stock pays an annual dividend of $5.50 per share forever. What is the rate of return on your investment? A) .055 B) .010 C) .110 D) .220 Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 24 Copyright 2011 Pearson Education, Inc. 3) The present value of a perpetuity decreases when the ________ decreases. A) number of investment periods B) annual discount rate C) perpetuity payment D) both B and C Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 4) You are going to pay $800 into an account at the beginning of each of 20 years. The account will then be left to compound for an additional 20 years. At the end of the 41st year you will begin receiving a perpetuity from the account. If the account pays 14%, how much will you receive each year from the perpetuity (round to nearest $1,000)? A) $140,000 B) $150,000 C) $160,000 D) $170,000 Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 5) You are considering the purchase of XYZ Company's perpetual preferred stock which pays a perpetual annual dividend of $8 per share. If the appropriate discount rate for this investment is 14%, what is the price of one share of this stock? A) $7.02 B) $57.14 C) $36.43 D) Cannot be determined without maturity date Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: present value of a perpetuity Principles: Principle 1: Money Has a Time Value 25 Copyright 2011 Pearson Education, Inc. 6) Michael Bilkman has an opportunity to buy a perpetuity that pays $24,350 annually. His required rate of return on this investment is 14.25%. At what price would Michael be indifferent to buying or not buying the investment? Round off to the nearest $1. A) $83,470 B) $170,877 C) $95,621 D) $121,709 Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: present value of a perpetuity Principles: Principle 1: Money Has a Time Value 7) What is the present value of a $200 perpetuity when the discount rate is 10%? A) $2,000 B) $20,000 C) $4,000 D) $40,000 Register to View AnswerDiff: 1 Topic: 6.2 Perpetuities Keywords: present value of a perpetuity Principles: Principle 1: Money Has a Time Value 8) Your rich great, great aunt just passed away at the age of 91. She liked you more than she let on and left you in her will. You will receive 100 British bonds that pay interest forever. The amount of annual interest payments that you will receive is $5,000. If you could invest your money at 4.25%, how much are these bonds worth today? A) $64,480 B) $197,250 C) $250,000 D) $117,647 E) $55,000 Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: present value of a perpetuity Principles: Principle 1: Money Has a Time Value 9) A bond paying interest of $120 per year forever is an example of a perpetuity. Register to View AnswerDiff: 1 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 26 Copyright 2011 Pearson Education, Inc. 10) The formula for calculating the present value of a perpetuity is P = A/(1 + i). Register to View AnswerDiff: 1 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 11) A perpetuity is an investment that continues forever but pays a different dollar amount each year. Register to View AnswerDiff: 1 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 12) The present value of a $100 perpetuity discounted at 5% is $1200. Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: present value of a perpetuity Principles: Principle 1: Money Has a Time Value 13) All else constant, an individual would be indifferent between receiving $2,000 today or receiving a $200 perpetuity when the discount rate is 10% annually. Register to View AnswerDiff: 2 Topic: 6.2 Perpetuities Keywords: perpetuity Principles: Principle 1: Money Has a Time Value 14) If your opportunity cost is 12%, how much will you pay for a bond that pays $100 per year forever? Answer: PV = $100/.12 = $833.33 Diff: 1 Topic: 6.2 Perpetuities Keywords: present value of a perpetuity Principles: Principle 1: Money Has a Time Value 27 Copyright 2011 Pearson Education, Inc. 15) What is the present value of the following perpetuities? a. $600 discounted at 7% b. $450 discounted at 12% c. $1,000 discounted at 6% d. $880 discounted at 9% Register to View AnswerPV = $600/.07 PV = $8,571.43 b. PV = $450/.12 PV = $3,750 c. PV = $1,000/.06 PV = $16,666.67 d. PV = $880/.09 PV = $9,777.78 Diff: 2 Topic: 6.2 Perpetuities Keywords: present value of a perpetuity Principles: Principle 1: Money Has a Time Value 6.3 Complex Cash Flow Streams 1) What is the value on 1/1/05 of the following cash flows? Use a 10% discount rate, and round your answer to the nearest $10. Date Cash Received Amount of Cash 1/1/07 $100 1/1/08 $200 1/1/09 $300 1/1/10 $400 1/1/11 $500 A) $490 B) $460 C) $970 D) $450 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 28 Copyright 2011 Pearson Education, Inc. 2) Consider the following cash flows: Date Cash Received Amount of Cash 1/1/07 $100 1/1/08 $100 1/1/09 $500 1/1/10 $100 What is the value on 1/1/05 of the above cash flows? Use an 8% discount rate, and round your answer to the nearest $10. A) $600 B) $620 C) $630 D) $650 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 3) If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years, how much will be in the account at the end of the 20th year? Assume that the account earns 10%, and round to the nearest $10. A) $8,300 B) $9,100 C) $8,900 D) $9,700 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 4) An investment is expected to yield $300 in three years, $500 in five years, and $300 in seven years. What is the present value of this investment if our opportunity rate is 5%? A) $735 B) $865 C) $885 D) $900 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 29 Copyright 2011 Pearson Education, Inc. 5) Jay Coleman just graduated. He plans to work for five years and then leave for the Australian "Outback" country. He figures that he can save $3,500 a year for the first three years and $5,000 a year for the next two years. These savings will start one year from now. In addition, his family gave him a $2,500 graduation gift. If he puts the gift, and the future savings when they start, into an account that pays 7.75% compounded annually, what will his financial "stake" be when he leaves for Australia five years from now? Round off to the nearest $1. A) $36,082 B) $24,725 C) $30,003 D) $27,178 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value complex income stream Principles: Principle 1: Money Has a Time Value 6) You are thinking of buying a miniature golf course. It is expected to generate cash flows of $40,000 per year in years one through four and $50,000 per year in years five through eight. If the appropriate discount rate is 10%, what is the present value of these cash flows? A) $285,288 B) $167,943 C) $235,048 D) $828,230 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 7) You have been depositing money at the end of each year into an account drawing 8% interest. What is the balance in the account at the end of year four if you deposited the following amounts? Year End of Year Deposit 1 $350 2 $500 3 $725 4 $400 A) $1,622 B) $2,207 C) $2,384 D) $2,687 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value complex income stream Principles: Principle 1: Money Has a Time Value 30 Copyright 2011 Pearson Education, Inc. 8) You want to travel to Europe to visit relatives when you graduate from college three years from now. The trip is expected to cost a total of $10,000. Your parents have deposited $5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance the balance. If you are going to put Aunt Hilda's gift in an investment earning 10% annually over the next three years, how much must she deposit now so you can visit your relatives in three years? A) $3,757 B) $3,039 C) $3,801 D) $3,345 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value Principles: Principle 1: Money Has a Time Value 9) What is the present value of the following uneven stream of cash flows? Assume a 6% discount rate and end-of-period payments. Round to the nearest whole dollar. Year Cash Flow 1 $3,000 2 $4,000 3 $5,000 A) $10,588 B) $11,461 C) $12,688 D) $13,591 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 10) As a part of your savings plan at work, you have been depositing $250 per quarter in a savings account earning 8% interest compounded quarterly for the last 10 years. You will retire in 15 years and want to increase your contribution each year from $1,000 to $2,000 per year, by increasing your contribution every four months from $250 to $500. Additionally, you have just inherited $10,000, which you plan to invest now to earn interest at 12% compounded annually for the next 15 years. How much money will you have in savings when you retire 15 years from now? A) $126,862 B) $73,012 C) $161,307 D) $194,415 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value complex income stream Principles: Principle 1: Money Has a Time Value 31 Copyright 2011 Pearson Education, Inc. 11) Ronald Slump purchased a real estate investment with the following end-of-year cash flows: Year 1 2 3 4 EOY Cash Flow $200 $-350 $-430 $950 What is the present value of these cash flows if the appropriate discount rate is 20%? A) $178 B) $160 C) $133 D) $767 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 12) You have just won a magazine sweepstakes and have a choice of three alternatives. You can get $100,000 now, or $10,000 per year in perpetuity, or $50,000 now and $150,000 at the end of 10 years. If the appropriate discount rate is 12%, which option should you choose? A) $100,000 now B) $10,000 perpetuity C) $50,000 now and $150,000 in 10 years Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 13) Your parents are planning to retire in Phoenix, AZ in 20 years. Currently, the typical house that pleases your parents costs $200,000, but they expect inflation to increase the price of the house at a rate of 4% over the next 20 years. In order to buy a house upon retirement, what must they save each year in equal annual end-of-year deposits if they can earn 10% annually? A) $21,910.00 B) $7,650.94 C) $10,000.00 D) $14,715.52 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 32 Copyright 2011 Pearson Education, Inc. 14) You intend to purchase your dream PC upon graduation in two years. It will have a cost of $2,975, including all attachments and sales tax. You just received a $3,000 pre-graduation gift from your rich uncle that you intend to deposit in a money market account that pays 6% interest, compounded monthly. How much of your pre-graduation gift will you need to deposit in order to have $2,975 available for the purchase of the PC upon graduation? A) $1,275 B) $2,588 C) $2,975 D) $1,567 E) $2,639 Register to View AnswerDiff: 3 Topic: 6.3 Complex Cash Flow Streams Keywords: future value Principles: Principle 1: Money Has a Time Value 15) Assume that two investments have a three-year life and generate the cash flows shown below. Which of the two would you prefer? Year Investment A Investment B 1 $5,000 $8,000 2 $5,000 $5,000 3 $5,000 $2,000 A) Investment A, since it has the most even cash flows B) Investment B, since it gives you the largest cash flows in earlier years C) Neither, since they both have equal lives D) Both investments are equally attractive E) None of the above Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 33 Copyright 2011 Pearson Education, Inc. 16) You have just purchased an investment that generates the cash flows that are shown below. You are able to invest your money at 5.75%, compounded annually. How much is this investment worth today? Year Amount 0 $0 1 $1,250 2 $1,585 3 $1,750 4 $2,225 5 $3,450 A) $7,758 B) $4,521 C) $10,260 D) $8,467 E) $6,583 Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 17) To evaluate and compare investment proposals, we must adjust all cash flows to a common date. Register to View AnswerDiff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 18) Consider an investment that has cash flows of $500 the first year and $400 for the next four years. If your opportunity cost is 10%, how much is this investment worth to you? Answer: PV = $500(.909) = $454.50 PV = $400(3.170)(.909) = $1,152.61 454.50 + 1152.61 = $1,607.11 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 34 Copyright 2011 Pearson Education, Inc. 19) If your opportunity cost is 10%, how much are you willing to pay for an investment promising $750 per year for the first four years and $450 for the next six years? Answer: PV = $750(3.17) = $2,377.50 PV = $450(4.355)(.683) = $1,338.51 2377.50 + 1338.51 = $3,716.01 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 20) You have been offered the opportunity to invest in a project which will pay $1,000 per year at the end of years one through 10 and $2,000 per year at the end of years 21 through 30. If the appropriate discount rate is 8%, what is the present value of this cash flow pattern? Answer: Present value of $1,000 per year for years 1 through 10 = $1,000(6.710) = $6,710 i = 8% Value in year 20 of annuity of $2,000 per year for years 21 through 30 = $2,000(6.710) = $13,420 Present value of annuity of $2,000 per year for years 21 through 30 = $13,420(.215) = $2,885.30 Total present value = $6,710 + $2,885.30 = $9,595.30 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 21) You are considering purchasing common stock in AMZ Corporation. You anticipate that the company will pay dividends of $5.00 per share next year and $7.50 per share in the following year. You also believe that you can sell the common stock two years from now for $30.00 per share. If you require a 14% rate of return on this investment, what is the maximum price that you would be willing to pay for a share of AMZ common stock? Answer: PV = $5.00 PVIF[14%, 1 yr] + ($7.50 + $30.00) PVIF[14%, 2 yr] = $5.00(.877) + ($37.50)(.769) = $33.22 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 35 Copyright 2011 Pearson Education, Inc. 22) You have decided to invest $500 in a mutual fund today and make $500 end-of-the-year investments in the fund each year until you retire for 40 years. Assuming an opportunity cost of 12%, what do you estimate that you will have in this account at retirement? Answer: Calculator steps: -500 PV -500 PMT 40 N 12 I/yr or I FV = $430,071 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value of annuity Principles: Principle 1: Money Has a Time Value 23) You are planning to deposit $10,000 today into a bank account. Five years from today you expect to withdraw $7,500. If the account pays 5% interest per year, how much will remain in the account eight years from today? Answer: FV = $10,000 FVIF[5%, 5 yr] = $10,000(1.276) = $12,760 Amount to invest in remaining three years = $12,760 - $7,500 = $5,260 FV = $5,260 FVIF[5%, 3 yr] = $5,260(1.158) = $6,091.08 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value complex income stream Principles: Principle 1: Money Has a Time Value 24) Suppose you are 40 years old and plan to retire in exactly 20 years. 21 years from now you will need to withdraw $5,000 per year from a retirement fund to supplement your social security payments. You expect to live to the age of 85. How much money should you place in the retirement fund each year for the next 20 years to reach your retirement goal if you can earn 12% interest per year from the fund? Answer: Amount in fund at age 60 = $5,000 PVIFA[12%, 25 yr] = $5,000(7.843) = $39,215 $39,215 = (annual contribution) FVIFA[12%, 20 yr] $39,215 = (annual contribution)(72.052) Annual contribution = $39,215/72.052 = $544.26 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value complex income stream Principles: Principle 1: Money Has a Time Value 36 Copyright 2011 Pearson Education, Inc. 25) An investment will pay $500 in three years, $700 in five years, and $1,000 in nine years. If the opportunity rate is 6%, what is the present value of this investment? Answer: PV = $500(1/(1.06)3) + $700(1/1.06)5) + $1000(1/(1.06)9) PV = $500(.840) + $700(.747) + $1000(.592) = $420.00 + $522.90 + $592.00 = $1,534.90 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 26) What is the value (price) of a bond that pays $400 semiannually for 10 years and returns $10,000 at the end of 10 years? The market discount rate is 10% paid semiannually. Answer: Bond value = = $400[12.462] + $10,000[.386] = $4984.80 + $3,860 = $8,844.80 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 27) Delight Candy, Inc. is choosing between two bonds in which to invest their cash. One bond is being offered from Hershey's and will mature in 10 years and pays 12% per year, compounded quarterly. The other alternative is a Mars bond that will mature in 20 years and that pays 12% per year, compounded quarterly. What would be the present value of each bond if the discount rate is 10%? Answer: Bond A PV = $1,000, 10 years, 12% interest compounded quarterly, 10% discount rate PV = $1,125.51 Bond B PV = $1,000, 20 years, 12% interest compounded quarterly, 10% discount rate PV = $1,172.26 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: present value complex income stream Principles: Principle 1: Money Has a Time Value 37 Copyright 2011 Pearson Education, Inc. 28) In order to send your oldest child to law school when the time comes, you want to accumulate $40,000 at the end of 18 years. Assuming that your savings account will pay 6% compounded annually, how much would you have to deposit if: a. you want to deposit an amount annually at the end of each year? b. you want to deposit one large lump sum today? Register to View AnswerPymt = $1,294.26 b. Pymt = $14,013.75 Diff: 2 Topic: 6.3 Complex Cash Flow Streams Keywords: future value Principles: Principle 1: Money Has a Time Value 38 Copyright 2011 Pearson Education, Inc.

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Financial Management: Principles and Applications, 11e (Titman)Chapter 17 Financial Forecasting and Planning17.1 An Overview of Financial Planning1) Types of plans that businesses typically use to guide their operations include:A) strategic plans.B)
California PA - BUSINESS - 21056
Financial Management: Principles and Applications, 11e (Titman)Chapter 18 Working Capital Management18.1 Working Capital Management and the Risk-Return Tradeoff1) An increase in _ would increase net working capital.A) plant and equipmentB) accounts p
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Financial Management: Principles and Applications, 11e (Titman)Chapter 19 International Business Finance19.1 Foreign Exchange Markets and Currency Exchange Rates1) Trading in foreign exchange markets is dominated by:A) Russian rubles, Indian rupees an
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Financial Management: Principles and Applications, 11e (Titman)Chapter 20 Corporate Risk Management20.1 Five-Step Corporate Risk Management Process1) The major risks assumed by firms include:A) demand risk.B) foreign-exchange risk.C) operational ris
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1Operations andProductivityPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson1-1Outline Global Company Profile:
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2Operations Strategy in aGlobal EnvironmentPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson2-1Outline Global
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4PowerPoint slides by Jeff HeylForecastingPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e Principles 2011 Pearson Education, Inc. publishing as Prentice Hall4-1Outl
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6PowerPoint slides by Jeff HeylManaging QualityPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e Principles 2011 Pearson Education, Inc. publishing as Prentice Hall6-1
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7Process Strategy and SustainabilityPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing a
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S7PowerPoint slides by Jeff HeylCapacity and Constraint ManagementPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e Principles 2011 Pearson Education, Inc. publishing a
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8Location StrategiesPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson8-1Outline Global Company Profile:FedEx
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9Layout StrategiesPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice Hall9-
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10Human Resources, JobDesign, and WorkMeasurementPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson10 - 1Outlin
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11Supply-Chain ManagementPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice
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S11Outsourcing as a SupplyChain StrategyPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 PearsonS11 - 1Outline What i
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12InventoryManagementPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson12 - 1Outline Global Company Profile:Am
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14Material RequirementsPlanning (MRP) and ERPPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson14 - 1Outline Gl
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15Short-Term SchedulingPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice Ha
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16JIT and Lean OperationsPowerPoint presentation to accompany PowerPoint Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice
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17Maintenance andReliabilityPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff HeylAdditional content from Gerry Cook 2011 Pearson
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Ranking CorruptionRank2011 CPI Score (out of 10)1New Zealand2Demark, Finland5Singapore6Norway8Australia, Switzerland10Canada12Hong Kong14Germany, Japan16UK24USA32Taiwan43South Korea60Malaysia75China112 Vietnam 2011 Pearson
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ADecision-MakingToolsPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice Hal
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BLinear ProgrammingPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice HallB
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CTransportation ModelsPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice Hal
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DWaiting-Line ModelsPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice Hall
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ELearning CurvesPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice HallE-1
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FSimulationPowerPoint presentation to accompanyPowerPointHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePrinciplesPowerPoint slides by Jeff Heyl 2011 Pearson Education, Inc. publishing as Prentice HallF-1Outli
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Practice Problems: Chapter 1, Operations and ProductivityProblem 1: Mance Fraily, the Production Manager at Ralts Mills, can currently expect his operation to produce 1000 square yards of fabric for each ton of raw cotton. Each ton of raw cotton requires
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Practice Problems: Chapter 2, Operations Strategy in a Global EnvironmentProblem 1: Identify how changes in the external environment may affect the OM strategy for a company. For example, what impact are the following factors likely to have on OM strateg
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Practice Problem: Chapter 3, Project ManagementProblem 1: The following represent activities in a major construction project. Draw the network to represent this project.Activity A B C D E F G HImmediate Predecessor A B B C, E D F, G1Problem 2: Given
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Practice Problems: Chapter 4, ForecastingProblem 1: Auto sales at Carmen's Chevrolet are shown below. Develop a 3-week moving average. Week Auto Sales 8 10 9 11 10 13 -1 2 3 4 5 6 7Problem 2: Carmen's decides to forecast auto sales by weighting the thr
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Practice Problems: Chapter 5, Design of Goods and ServicesProblem 1: You wish to compete in the super premium ice cream market. The task is to determine the wants of the super premium market and the attributes/hows to be met by their firm. Use the house
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Practice Problems: Chapter 6, Managing QualityProblem 1: The accounts receivable department has documented the following defects over a 30-day period:Category Invoice amount does not agree with the check amount Invoice not on record (not found) No forma
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Practice Problems: Chapter 7, Process StrategyProblem 1: Jackson Custom Machine Shop has a contract for 130,000 units of a new product. Sam Jumper, the owner, has calculated the cost for three process alternatives. Fixed costs will be: for generalpurpose
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Practice Problems: Chapter 8, Location StrategiesProblem 1: A major drug store chain wishes to build a new warehouse to serve the whole Midwest. At the moment, it is looking at three possible locations. The factors, weights, and ratings being considered
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Practice Problems: Chapter 9, Layout StrategyProblem 1: As in most kitchens, the baking ovens in Lori's Kitchen in New Orleans are located in one area near the cooking burners. The refrigerators are located next to each other as are the dishwashing facil
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Practice Problems: Chapter 10, Human Resources, Job Design, and WorkMeasurementProblem 1:Develop a Process Chart for making a grilled cheese sandwich.Problem 2:Develop an Activity Chart for doing three loads of laundry.Problem 3:Develop a Process C
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Practice Problems: Chapter 11, Supply-Chain ManagementProblem 1: Determine the sales necessary to equal a dollar of savings on purchases for a company that has a net profit of 6% and spends 70% of its revenues on purchases. Problem 2: Determine the sales
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Practice Problems: Chapter 12, Inventory Management Problem 1:ABC Analysis Stock Number Annual $ Volume 12,500 9,000 3,200 1,550 620 65 53 32 30 Percent of Annual $ VolumeJ24 R26 L02 M12 P33 T72 S67 Q47 V2046.2 33.3 11.8 5.8 2.3 0.2 0.2 0.1 0.1 = 100.
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Practice Problem: Chapter 13, Aggregate Planning Problem 1: Set the following problem up in transportation format and solve for the minimum cost plan.Period Feb Demand 55 Mar 70 Apr 75Capacity Regular Overtime Subcontract 50 5 12 50 5 12 50 5 10Beginni
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Practice Problems: Chapter 14, Material Requirements Planning (MRP) and ERPProblem 1: The Hunicut and Hallock Corporation makes two versions of the same basic file cabinet, the TOL (Top-of-the-line) five drawer file cabinet and the HQ (High-quality) five
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Practice Problem: Chapter 15, Short Term SchedulingProblem 1:Assume that Susan is a sorority pledge coordinator with four jobs and only three pledges.The table below gives the expected time for each pledge to do each job.Job 1Job 2Job 3Job 4Alice
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Practice Problem: Chapter 16, Just-in-Time Systems Problem 1: Bryant Electronics produces short runs of battery-powered pocket lanterns. You have been asked to reduce inventory by introducing a kanban system. After several hours of analysis you have devel
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Practice Problems: Chapter 17, Maintenance and ReliabilityProblem 1: California Instruments, Inc., produces 3,000 computer chips per day. Three hundred are tested for a period of 500 operating hours each. During the test, six failed: two after 50 hours,
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Practice Problems: Module A, Decision Making Problem 1: Bascomb's Candy is considering the introduction of a new line of products. In order to produce the new line, the bakery is considering either a major or minor renovation of the current plant. The mar
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Practice Problems: Module B, Linear ProgrammingProblem 1: Chad's Pottery Barn has enough clay to make 24 small vases or 6 large vases. He has only enough of a special glazing compound to glaze 16 of the small vases or 8 of the large vases. Let X1 = the n