Test2_011versionAanswers

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

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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
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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
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7. A municipal bond that was issued 3 years ago has a face value of $5000 and a bond interest rate of
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Test2_011versionAanswers - Test2_011 Version A Key 1. An...

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