Question

1. What is the implied annual rate if you deposit $750 and receive $2,000 in 8 years, assuming interest is compounded quarterly?

2. How many months it will take to grow your money from $10,250 to $25,000 if you can earn an interest of 8% compounded monthly? How many years will it take?

3. How many years it will take to grow your money from $3308 to $9537 if you can earn an interest of 15% compounded quarterly?

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

a. timing of the annuity payments.

b. interest rate applied to the annuity payments.

c. number of annuity payments.

d. amount of each annuity payment.

5. Which one of the following is an annuity due?

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

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

c. $225 paid forever

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

6. 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%.

7. 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%

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

9. You are considering an investment which would entail $5,000 payments each year for 20 years. The investment will pay 7 percent interest. How much will this investment be worth at the end of the 20 years?

10. Kelly starting setting aside funds six years ago to buy some new equipment for her firm. She has saved $2,000 each quarter and earned an average rate of return of 7.5 percent. How much money does she currently have saved for this purpose?

11. 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?

12. 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).

Answer 1

1.

2

3.

4.

Option a is correct.