Test2_011versionAanswers

# Test2_011versionAanswers - Test2_011 Version A Key 1 An...

This preview shows pages 1–4. Sign up to view the full content.

Test2_011 Version A Key 1. An interest rate of 1.5% per month, compounded continuously, is closest to an effective A. 1.51% per quarter B. 4.5% per quarter C. 4.6% per quarter D. 9% per 6 months i/quarter = e 0.045 – 1 = 0.0460 = 4.60% 2. Exotic Faucets and Sinks, Ltd., guarantees that its new infrared sensor faucet will save any household that has two or more children at least \$30 per month in water costs beginning 1 month after the faucet is installed. If the faucet is under full warranty for 5 years, the minimum amount a family could afford to spend now on such a faucet at an interest rate of 6% per year, compounded monthly, is closest to A. \$149 B. \$1552 C. \$1787 D. \$1890 P = 30(P/A,0.5%,60) = \$1552 3. Royalties paid to holders of mineral rights tend to decrease with time as resources become depleted. In one particular case, the right holder received a royalty cheque of \$18,000 six months after the lease was signed. She continued to receive cheques at 6- month intervals, but the amount decreased by \$2000 each time. At an interest rate of 6% per year, compounded semiannually, the equivalent uniform semiannual worth of the royalty payments through the first 4 years is represented by A. A = 18,000 – 2000( A/G , 3%, 8) B. A = 18,000 – 2000( A/G , 6%, 4) C. A = 18,000( A/P , 3%, 8) – 2000 D . A = 18,000 + 2000( A/G , 3%, 8) 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
4. A certain donor wishes to start an endowment at her alma mater that will provide scholarship money of \$40,000 per year beginning in year 5 and continuing indefinitely. If the university earns 10% per year on the endowment, the amount she must donate now is closest to A. \$225,470 B. \$248,360 C. \$273,200 D. \$293,820 CC = [40,000/0.10](P/F,10%,4) = \$273,200 5. This question is based on the following estimates. The cost of money is 10% per year. The capitalized cost of machine X is closest to A. \$2103,910 B. \$2114,310 C. \$2235,990 D. \$2238,580 CC X = [–66,000(A/P,10%,6) – 10,000 + 10,000(A/F,10%,6)]/0.10 = [–66,000(0.22961) – 10,000 + 10,000(0.12961)]/0.10 = \$–238,582 6. A corporate bond has a face value of \$10,000, a bond interest rate of 6% per year payable semiannually, and a maturity date of 20 years from now. If a person purchases the bond for \$9000 when the interest rate in the marketplace is 8% per year, compounded semiannually, the size and frequency of the interest payments the person will receive are closest to A. \$270 every 6 months B. \$300 every 6 months C. \$360 every 6 months D . \$400 every 6 months 2
7. A municipal bond that was issued 3 years ago has a face value of \$5000 and a bond interest rate of

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 09/24/2011 for the course PCS 125 taught by Professor Carvalho during the Winter '11 term at Ryerson.

### Page1 / 9

Test2_011versionAanswers - Test2_011 Version A Key 1 An...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online