Question

13.Suppose you deposit $5,000 into your bank account today. If the bank pays 3.75percent per year, then which of the following statements is (are) correct? (x)$7,825.14is in your account after 12years if interest is compounded quarterly but only $7,777.27if the interest is compounded annually.(y)You will earn an additional $31.69of interest in your account after 12years if interest is compounded semi-annually instead of annually, but $27.10less interest if interest is compounded semi-annually instead of monthly.(z)Although compounding daily instead of weekly will only add an additional $1.09of interest after 12years, compounding daily instead of annually will add an additional $64.11of interest

A.(x), (y) and (z)

B.(x) and (y) only

C.(x) and (z) only

D.(y) and (z) only

E.(x) only

14.Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years' supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store the chips?

A.18.23%

B.12.25%

C.10.57%

D.9.54%

E.8.73%

15.You invested $25,000 in the stock market one year ago with hopes that it would grow to $35,000 in 5 years. Today the investment is valued at $23,250. From this point forward, what return would you need to reach your initial goal of $35,000?

A.12.25%

B.10.77%

C.9.73%

D.8.52%

E.6.96%

16.You just purchased a scratch-off lottery ticket at the local convenience store and won $26,500, after taxes. Your friend thinks that youshould buy a new car but you want to put most of it in savings for your retirement. If you want to have $600,000 by the time you are 65, which is 45 years from now and assuming that you can earn 7.5 percent each year on your savings, how much of the $26,500 must you put in savings today?

A.$20,027

B.$20,736

C.$21,326

D.$22,266

E.$23,162

17.You are scheduled to receivea $7,500 cash flow in twoyears, paya $10,000 cash flow in threeyears, receivea $10,000 cash flow in five years,receivea $8,000 payment in sixyearsand paya $8,000 payment in eight years. If interest rates are 4.75% per year, what is the combined present valueof these cash flows?

A.$6,601

B $6,835

C.$7,158

D.$7,500

E.more than $7,500

Answer 1

1.
Option A

future value=present value*(1+rate/compounding periods per year)^(time*compounding periods per year)

x:
compounded quarterly:=5000*(1+3.75%/4)^(4*12)=7825.1400

compounded annually:=5000*(1+3.75%)^(12)=7777.2717

y:
semi annually - annually=5000*(1+3.75%/2)^(2*12)-5000*(1+3.75%)^(12)=31.6835

semi annually - monthly=5000*(1+3.75%/2)^(2*12)-5000*(1+3.75%/12)^(12*12)=-27.1056

z:
daily - weekly=5000*(1+3.75%/365)^(365*12)-5000*(1+3.75%/52)^(52*12)=1.0904

daily - annually=5000*(1+3.75%/365)^(365*12)-5000*(1+3.75%)^(12)=64.1080

2.
Option E
=(actual price/(discounted price+storage cost))^(1/time)-1
=(600000/(500000+7500))^(1/2)-1
=8.73%

3.
Option B
=(future value/present value)^(1/time)-1
=(35000/23250)^(1/4)-1
=10.77%

4.
Option E
=future value/(1+rate)^time
=600000/(1+7.5%)^45
=23161.6961

5.
Option E
=7500/1.0475^2+10000/1.0475^3+10000/1.0475^5+8000/1.0475^6+8000/1.0475^8
=35039.4996