110. Which of the following amounts is closest to the end value of investing $5,000 for 14 months at a stated annual interest rate of 6% compounded monthly? A. $5,293B. $5,345C. $5,352D.$5,362E. $6,183 EAR = (1 + r/m) m -1 = [1 + (0.06/12)] 12 - 1 = 0.06167781 End value = $5,000(1 + 0.06167781) 14/12 = $5,361.61 Difficulty level: Medium Topic: EAR & FUTURE VALUE Type: PROBLEMS 111. Which of the following amounts is closest to the end value of investing $10,000 for 18 months at a stated annual interest rate of 12% compounded quarterly? EAR = (1 + r/m) m -1 = [1 + (0.12/4)] 4 -1 = 0.1255 End value = $10,000(1 + 0.1255) 1.5 = $11,940.38 Difficulty level: Medium Topic: EAR & FUTURE VALUE Type: PROBLEMS 4-116

Chapter 04 - Discounted Cash Flow Valuation 112. Which of the following amounts is closest to the end value of investing $7,500 for 2.5 years at an effective annual interest rate of 12.36%. Interest is compounded semiannually. End value = $7,500(1 + 0.1236) 2.5 = $10,036.69 Difficulty level: Medium Topic: FUTURE VALUE Type: PROBLEMS 113. If the stated rate of interest is 12% and it is compounded monthly, what is the effective annual interest rate? (1 + .12/12) 12 - 1 = 12.68% Difficulty level: Medium Topic: EAR Type: PROBLEMS 4-117

Chapter 04 - Discounted Cash Flow Valuation 114. What is the present value of a payment of $21,000 three years from now if the effective annual interest rate is 4%? A. $17,951B. $18,480C. $18,658D.$18,669E. $19,218 PV = FV/(1 + r) n = $21,000/(1 + .04) 3 = $18,668.92 Difficulty level: Easy Topic: PRESENT VALUE - SINGLE SUM Type: PROBLEMS 115. Thornton will receive an inheritance of $500,000 three years from now. Thorton's discount rate is 10% compounded semiannually. Which of the following values is closest to the amount that Thornton should accept today for the right to his inheritance? EAR = (1 + r/m) m -1 = [1 + (0.1/2)] 2 -1 = 0.1025 PV = $500,000/(1 + 0.1025) 3 = $373,107.70 Difficulty level: Medium Topic: PRESENT VALUE - FUTURE SUM Type: PROBLEMS 4-118

Chapter 04 - Discounted Cash Flow Valuation 116. A mortgage instrument pays $1.5 million at the end of each of the next two years. An investor has an alternative investment with the same amount of risk that will pay interest at 8% compounded semiannually. Which of the following amounts is closest to what the investor should pay for the mortgage instrument? EAR = (1 + r/m) m -1 = (1 + 0.08/2) 2 -1 = 0.0816 PV = $1.5/(1.0816) 1 + $1.5/(1.0816) 2 = $2,669,041 Difficulty level: Easy Topic: PRESENT VALUE - FUTURE SUM Type: PROBLEMS 117. You are to receive $75 per year indefinitely. The market rate of interest for these types of payments is 8%. The price you would pay for this stream is: PV perpertuity = C/r = $75/.08 = $937.50. Difficulty level: Easy Topic: PERPETUITY Type: PROBLEMS 4-119