Chapter 06
________
1.
You can afford car payments of $265 a month for three years. The interest rate is 7.5 percent, compounded
monthly. How much can you afford to borrow to buy a car?
a. $8,269.67
b. $8,271.83
c. $8,519.20
d. $8,572.44
________
2.
You want to retire on the day you have $500,000 in your savings account. You expect to earn 5 percent,
compounded monthly, on your money during your retirement. Your plan is to withdraw $4,000 a month as
retirement income from this account. How many months can you be retired until you run out of money?
a. 100.83
b. 125.00
c. 176.94
d. 180.95
________
3.
A preferred stock pays annual dividends of $3.50. How much are you willing to pay today to buy one share of
this stock if you want to earn a 13 percent rate of return?
a. $24.29
b. $26.92
c. $29.99
d. $37.14
________
4.
A project will produce cash flows of $3,000, $4,500, and $5,000 a year for the next three years, respectively.
What is the value of these cash flows today at a discount rate of 7.8 percent?
a. $10,646.57
b. $10,986.09
c. $11,122.44
d. $11,477.01
________
5.
Today you are opening a savings account and depositing an initial $2,000 into it. You plan to deposit $3,000
into the account one year from today and deposit another $4,300 two years from today. How much will you
have in your account five years from today if you earn a 7 percent rate of return?
a. $9,799.80
b. $10,485.79
c. $11,477.01
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 Spring '08
 Ddavidson
 Finance, Interest, Interest Rate, Net Present Value, APV

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