Present Value Math Quiz Solutions (Fall 2010)
1.
What nominal rate of return is represented by a 25% effective annual rate
with weekly compounding?
In the HP 17BII+:
FIN
ICNV
PER
25
EFF
52
P
NOM
Using the formula:
[1.25^(1/52)1]*52
Ans:
22.36%, so the correct choice is (a)
2.
Five years from now, you plan to make major capital improvements to your
property that will cost $200,000 (at that time).
How much must you
contribute to an account at the end of each quarter to meet your fundraising
goal if your expected nominal rate of return is 7% per year?
PV = 0
FV = 200000
N = 20
I = 7%
P/YR = 4
END mode
PMT = 8438.24
So the correct choice is (c)
3.
When you purchased your car, you received a loan of $15,000 at a 4%
interest rate.
If you make monthly payments of $400, how many months will
it take to pay down (at least) onethird of the balance?
[Hint:
Be very careful
with the amount and sign for FV.
Draw a timeline for borrower and lender
with cash flow arrows if you’re unsure]
PV = 15000
FV= 10000
I = 4%
PMT = 400
P/YR = 12
END mode
N = 13.98
So the correct choice is (b)
4.
If the value of your home doubled in 7 years, what was the annual rate of
appreciation (compounded annually)?
PV = 1
FV = 2
N = 7%
PMT = 0
P/YR = 1
I = 10.41%
So the correct choice is (d)
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5.
What is the outstanding balance after 5 years on a $75,000 loan at 6%
nominal annual interest with full amortization in 15 years?
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 '10
 SESLEN,TRACY
 Finance, Compounding, Net Present Value, Internal rate of return, Correct choice

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