Question 1

The Perpetual Life Insurance Co is trying to sell you an investment policy that will pay you and your heirs $12,767 per year forever. Suppose the Perpetual Life Insurance Co. told you the policy costs $180,510. At what interest rate would this be a fair deal? Just enter the number in percentages up to 2 decimal points.

Question 2

What should you be willing to pay in order to receive $530 annually forever, if you require 10% per year on the investment? Just enter the number up to 2 decimal points.

Question 3

If you receive $308 at the end of each year for the first three years and $619 at the end of each year for the next three years. What is the present value? Assume interest rate is 5%. Hint: This is an uneven cash flow problem. Use the CF function and solve for NPV to get the answer. Just enter the number up to 2 decimal points.

Question 4

Barrett Pharmaceuticals is considering a drug project that costs $167,489 today and is expected to generate end-of-year annual cash flows of $11,463, forever. At what discount rate would Barrett be indifferent between accepting and rejecting the project? Just enter the number in percentages up to 2 decimal points.

Question 5

The Perpetual Life Insurance Co is trying to sell you an investment policy that will pay you and your heirs $11,754 per year forever. If the required return on this investment is 12%, how much will you pay for the policy? Just enter the number up to 2 decimal points.

Question 6

What is the present value of $809 received at the end of each year forever if the interest rate is 5%? Just enter the number up to 2 decimal points

Question 7

Which one of the following is an annuity due?

a. $600 paid at the beginning of every quarter for five years, starting today

b. $100 paid at the end of each monthly period for one year

c. $225 paid at the end of each monthly period for an infinite period of time

d. $225 paid forever

Question 8

What is the future value of semi-annual payments of $2,474 for 13 years at 4 percent?

Question 9

What is the future value of quarterly payments of $962 for 10 years at 6 percent?

Question 10

What is the future value of annual payments of $2,267 for 4 years at 6 percent?

Question 11

If you want to have $1,700 in seven years, how much money must you put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly.

a. $1,120

b. $1,110

c. $1,130

d. $1,140

Question 12

What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today. Use a discount rate of 9%.

a. $1,488

b. $1,211

c. $1,359

d. $1,252

Question 13

What is the present value of $250 received at the beginning of each year for 21 years? Assume that the first payment is received today. Use a discount rate of 12%

a. $1,870

b. $3,243

c. $2,090

d. $2,117

Question 14

What is the present value of an annuity of $27 received at the beginning of each year for the next six years? The first payment will be received today, and the discount rate is 10%.

a. $120.11

b. $100.22

c. $129.35

d. $110.64

Question 15

Today, you are purchasing a $85,000 20-year car loan at 6 percent. You will pay annually at the end of each year. What is the amount of each payment?

a. $7,189.16

b. $6,997.08

c. $7,316.67

d. $7,100.00

e. $7,410.69

Question 16

The difference between an ordinary annuity and an annuity due is the:

a. amount of each annuity payment.

b. timing of the annuity payments.

c. interest rate applied to the annuity payments.

d. number of annuity payments.

Question 17

You are considering an investment which would entail $585 payments each year for 13 years. The investment will pay 9 percent interest. How much will this investment be worth at the end of the 13 years?

Question 18

You just won a lottery that will pay you $2,500 a year for twenty years. You will receive your first payment today. If you can earn 8 percent on your money, what are your winnings worth to you today? (Note that since you will receive your first payment today, it is an annuity due problem).

a. $24,545.45

b. $28,203.17

c. $24,989.12

d. $22,500.00

e. $26,509.00

Question 19

What is the future value of $2,274 for 10 years at 7 percent if interest is compounded semi-annually? Note: Do not enter “$” in your answer. Simply write down the number that you get as your answer.

Question 20

What is the future value of semi-annual payments of $6,500 for eight years at 12 percent?

a. $147,896.32

b. $166,871.43

c. $118,009.09

d. $165,122.86

e. $112,406.18

Question 21

Kelly starting setting aside funds 8 years ago to buy some new equipment for her firm. She has saved $3,363 each quarter and earned an average rate of return of 8 percent. How much money does she currently have saved for this purpose?

Question 22

Today, you are purchasing a $1,594 12-year car loan at 4 percent. You will pay annually at the end of each year. What is the amount of each payment?

Question 23

Jessica Qin purchased a small company for $189,000. The seller agreed to accept annual payments of $24,000 at an interest rate of 7.5 percent. How many years will it take Jessica to pay for this purchase?

a. 12.35 years

b. 14.65 years

c. 11.20 years

d. 15.33 years

e. 10.75 years