Fin 301 Exam 1
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
What would the future value of $100 be after 5 years at 10% compound interest?
a.
$161.05
b.
$134.54
c.
$127.84
d.
$151.29
e.
$143.65
____
2.
Suppose a U.S. government bond will pay $1,000 three years from now. If the going interest rate on 3-year
government bonds is 4%, how much is the bond worth today?
a.
$943.46
b.
$991.43
c.
$889.00
d.
$907.91
e.
$968.40
____
3.
Uncle Junior has $500,000 and wants to retire. He expects to live for another 20 years, and to be able to earn
8% on his invested funds. How much could he withdraw at the end of each of the next 20 years and end up
with zero in the account?
a.
$55,119.76
b.
$53,431.83
c.
$54,764.40
d.
$47,843.15
e.
$50,926.10
____
4.
Credit card issuers must by law print their Annual Percentage Rate (APR) on their monthly statements (This
is the nominal rate). If the APR is stated to be 15%, with interest paid monthly, what is the EFF% on the
card?
a.
15.59%
b.
16.71%
c.
17.10%
d.
16.08%
e.
12.91%

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5.
You have been offered a 7-year investment at a price of $50,000. It will pay $5,000 at the end of year 1,
$10,000 at the end of year 2, and $15,000 at the end of year 3, plus a fixed but currently unspecified cash
flow, X, at the end of Years 4 through 7. The payer is essentially riskless, so you are sure the payments will
be made, and you regard 9% (yearly compound interest rate) as an appropriate rate of return on riskless 7-year
investments. What cash flow must the investment provide at the end of each of the final 4 years, that is, what
is X?
a.
$10,158.58
b.
$13,431.83
c.
$14,764.40
d.
$17,843.15
e.
$15,119.76
____
6.
A real estate investment has the following expected cash flows:
Year
Cash Flows
1
$10,000
2
25,000
3
50,000
4
35,000
If the discount rate is 8%, what is the investment's present value?
a.
$103,799
b.
$
96,110
c.
$
95,353
d.
$120,000
e.
$77,592
____
7.
Today is your 20
th
birthday, and your parents just gave you $5,000 that you plan to use to open a stock broker-
age account. You plan to add $500 to the account each year on your birthday. Your first $500 contribution
will come one year from now on your 21
st
birthday. Your 45
th
and final $500 contribution will occur on your
65
th
birthday. You plan to withdraw $5,000 from the account five years from now on your 25
th
birthday to
take a trip to Europe. You also anticipate that you will need to withdraw $10,000 from the account 10 years
from now on your 30
th
birthday to take a trip to Asia. You expect that the account will have an average annual
return of 12%. How much money do you anticipate that you will have in the account on your 65
th
birthday,
following your final contribution?
a.

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