Financequiz2 - 1. Question: The U.S. Treasury offers to...

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1. Question: The U.S. Treasury offers to sell you a bond for $613.81. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price?
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Your Answer: 5.91 % 6.71 % 7.10 % 5.59 % IN CO RR ECT 5.00 % C ORR ECT ANS WE R
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Instructor Explanatio n: Interest rate on a simple lump sum investment FV = PV (1 + i) n $1,000 = $613.81 (1 + i) 10 1.6292 = (1+i) 10 ; take the 1/10 th root of both sides: 1.6292 0.10 = 1 + i 1.0500 = 1 + i .0500 = i or i = 5% On a financial calculator: N 10; PV -613.81; PMT 0; FV 1,000; I/YR ?? I/YR = 5.00% Points Received: 0 of 4 Comments: 2. Question: You want to buy a condo 5 years from now, and you plan to save $3,000 per year, beginning one year from today. You will deposit the money in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now?
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Your Answer: $14,7 64.40 $13,4 31.83 $16,9 11.28 C ORR ECT $17,8 43.15 $15,1 19.76
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Instructor Explanatio n: FV of an ordinary annuity FVA = PMT * [(1+i) n - 1] / i FVA = $3,000 * [(1 + .06) 5 – 1] / .06 FVA = $3,000 * [1.3382 – 1] / .06 FVA = $3,000 * .3382/.06 FVA = $3,000 * 5.6371 = $16,911.28 On a financial calculator: N 5; I/YR 6; PV 0; PMT -3,000; FV ??; FV = $16,911.28 Points Received: 4 of 4 Comments: 3. Question: Your father is about to retire, and he wants to buy an annuity that will provide him with $50,000 of income per year for 20 years, beginning a year from today. The going rate on such annuities is 6%. How much would it cost him to buy such an annuity today?
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Your Answer: $488, 349.1 5 $416, 110.3 4 $517, 513.6 8 $615, 976.8 4 $573, 496.0 6
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This note was uploaded on 08/06/2011 for the course MT 217 taught by Professor Finance during the Spring '11 term at Kaplan University.

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Financequiz2 - 1. Question: The U.S. Treasury offers to...

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