How much would you be willing to pay (rounded to the nearest dollar) for a 20-year annuity due
if the payments are $4,500 per year and you want to earn a rate of return equal to 5.5% per year?
a.
$84,500
b.
$63,445
c.
$56,734
d.
$53,777
2.
How much would you be willing to pay (rounded to the nearest dollar) for a 20-year ordinary
annuity if the payments are $4,500 per year and you want to earn a rate of return equal to 5.5%
per year?
a.
$84,500
b.
$63,445
c.
$56,734
d.
$53,777
3.
You just graduated and landed your first job in your new career. You remember that your favorite
finance professor told you to begin the painless job of saving for retirement as soon as possible,
so you decided to put away $2,000 at the end of each year in a Roth IRA. Your expected annual
rate of return on the IRA is 7.5%. How much will you accumulate at retirement after 40 years of
investing (note: this may assume that you are even retiring
early
)?
a.
$94,426
b.
$247,921
c.
$1,088,632
d.
$454,513
4.
Congratulations! You are the proud winner of the multi-state Sour Ball Lottery. You are to
receive $2,000,000 at the end of each year for the next 20 years. While the Lottery Commission
refers to this as a $40,000,000 jackpot, if you choose the “cash option” they will give you much
less than that; you can receive a lump sum payment today equal to the present value of the
ordinary annuity instead of the 20 annual payments. If the discount rate that the Lottery
Commission uses to determine the lump sum payoff is 7%, what is your payoff if you select the
cash option?
a.
$26,945,332
b.
$39,707,503
c.
$42,977,401
d.
$21,188,028
5.
Jimmy just bought a new Ford SUV for his business. The price of the vehicle was $40,000.
Jimmy made a $5,000 down payment and took out an amortized loan for the rest. The car
dealership made the loan at 8% interest compounded monthly for five years. He is to pay back the
principal and interest in equal monthly installments beginning one month from now. Determine
the amount of Jimmy's monthly payment.
a.