AGEC 435 Online Spring 15 Test 3 Topics Old Quiz Test Questions Week 2 TVM Quiz Part 1 1 The Keller s determined that they can reduce their mortgage interest rate from 10 to 4 The value of homes in their neighborhood has been increasing at the rate of 5 annually If the Keller s were to refinance their house with 3 000 in closing costs added to the mortgage balance 277 000 over a period of time which coincides with their chosen retirement age in 20 years what would be the monthly payment for principal and interest This is a harder problem so think it through B 1 691 11 2 Jim is an 18 year old student who desires to be a millionaire by the time he is 55 Ignoring inflation if Jim puts 100 in an account at the end of every month and can earn an annual rate of 12 will he be a millionaire by the age of 55 B No Jim will be almost 57 before he has 1 000 000 3 Sylvia expects to receive 75 000 from a trust fund in 6 years What is the current value of this fund if it is discounted at 9 compounded semiannually B 44 224 79 4 Future value of an annuity due is the future amount to which a series of deposits of equal size will increase when deposited at the end of equal interval periods on the basis of a defined interest rate B False 5 Ted has been dollar cost averaging in a mutual fund by investing 1 500 at the beginning of every quarter for the past 5 years He has been earning an average annual compound return of 9 compounded quarterly on this investment How much is the fund worth today D 38 208 04 6 Lisa wants to withdraw 4 000 at the beginning of each year for the next 7 years She expects to earn 10 5 compounded annually on her investment What lump sum should Lisa deposit today D 21 168 72 7 Jason purchased 60 000 worth of silver coins 8 years ago The coins have appreciated 7 5 compounded annually over the last 8 years How much are the coins worth today D 107 008 67 8 Today Jason put all of his cash into an account earning an annual interest rate of 9 compounded monthly Assuming he makes no withdrawals or additions into this account approximately how many years must Jason wait to double his money D 7 years 9 months 9 One of your clients came to you to talk about an investment in a real estate transaction they are considering The investment would pay them 250 a month in rent and they expect to be able to sell the property for a 10 000 profit in 5 years If an investment of this risk level should return around 9 per year what should be the maximum your client should pay for this investment B 18 430 34 10 Today Zack purchased an investment grade gold coin for 50 000 He expects the coin to increase in value at a rate of 12 compounded annually for the next 5 years How much will the coin be worth at the end of the fifth year if his expectations are correct B 88 117 08 11 Will borrowed 800 from his father to purchase a mountain bike Andy paid back 1 200 to his father at the end of 5 years What was the average annual compound rate of interest on Andy s loan from his father A 8 4472 12 Emma has been dollar cost averaging into a mutual fund by investing 2 000 at the end of every quarter for the past 7 years She has been earning an average annual compound return of 11 compounded quarterly on this investment How much is the fund worth today A 82 721 95 13 Brian purchased 10 shares of an aggressive growth mutual fund at 90 per share 7 years ago Today he sold all 10 shares for 4 500 What was his average annual compound rate of return on this investment before tax C 25 85 14 Future value is the future amount to which a sum of money today will increase on the basis of a defined interest rate and period A True 15 Tim expects to receive 75 000 in 5 years His opportunity cost is 10 compounded monthly What is this sum worth to Tim today A 45 584 14 Week 3 TVM Quiz 2 1 Your credit card company compounds your interest daily and tells you that the nominal rate of interest charged is 14 23 What would be your effective interest rate A 15 29 2 You have an investment opportunity that will yield the following end of year cash flows Year 1 3200 2 3 4 5 6 7 8 9 10 Cash Flow 3200 3200 3000 7500 7500 12000 12000 12000 17000 If the initial investment is 40 000 and your required rate of return is 8 what is the NPV C 3 234 66 3 The Rule of 72 is a method of approximation that estimates the time it takes to double the value of an investment when the earnings interest rate is known A True 4 If inflation is predicted to be 3 and an investment is available that will yield 7 how much would you have to save to have the equivalent of 500 000 in today s dollars in 20 years A 233 366 73 5 Phoebe purchased a car for 19 500 She is financing the auto at an 11 annual interest rate compounded monthly for 3 years What payment is required at the end of each month to finance Phoebe s car D 638 40 6 One can use the internal rate of return IRR as a method of determining the exact discount rate to equalize cash inflows and outflows thus allowing comparison of rates of return on alternative investments of unequal size and investment amounts A True 7 Susan invested 12 000 in an investment property that she expects to produce the Cash Flow following cash flows Year 5000 10000 4500 3000 1 2 3 4 What rate of return will she earn with this investment B 7 12 8 Assuming all other things equal if someone offered to give you the following which one would you take I 200 000 in 10 years assuming an annual interest rate of 10 compounded annually II 1 025 per month at the end of each month for 10 years assuming an annual interest rate of 10 III 235 per week at the end of each week for 10 years assuming an annual interest rate of 10 C II 9 What is the inflation adjusted annual rate of return when the expected investment rate of return is 17 and inflation is expected to average 4 B 12 50 10 If inflation is predicted to be 5 and an investment is available that will yield 6 5 how much would you have to save today have the equivalent of 1 000 000 in today …