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
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