4.
An effective annual rate of 14% is closest to _________% compounded
quarterly?
a.
3.33%
b.
3.50%
c.
13.32%
d.
14.00%
e.
14.75%
()
4
1
4
1 .14
1
4
1 .14
1
4
13.3198%
x
x
x
⎛⎞
+=
+
⎜⎟
⎝⎠
+−
=
=
5.
A 15 year annuity pays $5,000 per year. If the discount rate is 6% per year, then
the future and present values (respectively) are closest to:
Future value ; Present value
a.
$48,561
;
$116,380
b.
$116,380 ; $48,561
c.
$116,380 ; $97,122
d.
$232,760 ; $48,561
For both FV and PV: N=15, PMT = 5000, I/Y = 6
For FV
Î
remember to set the PV = 0
For PV
Î
remember to set the FV = 0
6.
The XYZ Company is considering an investment which will pay $8,000 per year
for the next 10 years and $18,000 in year 11. The investment will cost $25,000
today. If the discount rate is 14% compounded semiannually, the net present value
(NPV) of the investment is closest to:
a.
$20,000
b.
$21,000
c.
$41,000
d.
$43,000
e.
$71,000
Cf0 = -25,000
CF1 = 8000; F1 = 10
CF2 = 18000 (note this cash flow occurs in year 11 not in year 10); F2 = 1
I = 14.49%
NPV = $20,005.8877
2