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Question 1 Tries remaining: 1 Marked out of 1.00 Flag question Question 2 Tries remaining: 1 Marked out of 1.00 Flag question Question 3 Tries remaining: 1 Marked out of 1.00 P Flag question You have $2,000 today. What is the future value of this cash flow in: (a) 5 years at an interest rate of 8% per year. $ (b) 10 years at an interest rate of 8% per year. $ Check (c) 5 years at an interest rate of 16% per year. $ (Round to the nearest dollar.) (d) Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)? OThe amount of interest earned in part (a) is really half of the amount of interest earned in part (b) since in part (b) the money grows for twice as many years as in part (a). OThe annual interest rate in part (b) is slightly higher than the rate assumed in part (a). OThe interest rate earned in part (a) is based on a lower effective annual interest rate. OThis is because you earn interest on past interest. Since the beginning of the second 5 year starts off with more money than the beginning of the first 5 years, the money grows faster. (Round to the nearest dollar.) What is the present value of $14,000 received: (a) 12 years from today when the interest rate is 4% per year. $ (Round to the nearest dollar.) (b) 20 years from today when the interest rate is 5% per year. $ (c) 6 years from today when the interest rate is 2% per year. $ Check Check (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) Your daughter is currently 6 years old. You anticipate that she will be going to college in 12 years. You would like to have $144,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 7% per year, how much money do you need to put into the account today to ensure that you will have $144,000 in 12 years? Your deposit today should be $ (Round to the nearest dollar.) Question 4 Tries remaining: 1 Marked out of 1.00 P Flag question Question 5 Tries remaining: 1 Marked out of 1.00 Flag question You have been offered a unique investment opportunity. If you invest $20,000 today, you will receive $1,000 one year from now, $3,000 two years from now, and $20,000 ten years from now. (a) The NPV of the opportunity if the interest rate is 10% per year is $ (Round to the nearest dollar.) Should you take the opportunity OReject it because the NPV is less than 0. OTake it because the NPV is equal or greater than 0. (b) The NPV of the opportunity if the interest rate is 6% per year is $ Should you take the opportunity OReject it because the NPV is less than 0. OTake it because the NPV is equal or greater than 0. Check You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $7,000. You plan to put down $2,000 and borrow $5,000. You will need to make annual payments of $1,100 at the end of each year. Show the timeline of the loan from your perspective. Select one: A. O B. C. O D. Year Cash Flow -$2000 Year 0 Year 0 Year Cash Flow $7000 -$1100 0 1 0 $1100 $1100 1 Cash Flow -$5000 $1100 1 2 1 2 -$1100 2 $1100 2 3 $1100 3 -$1100 3 $1100 3 4 $1100 4 -$1100 4 $1100 4 5 $1100 5 -$1100 5 $1100 (Round to the nearest dollar.) 5 Question 6 Tries remaining: 1 Marked out of 1.00 Flag question Check You make monthly payments of $1,700 on a house mortgage loan. You have just made a payment. The mortgage has 26 years remaining. Show the timeline of the loan from the bank's perspective. Select one: O A. O B. |-------------|- Cash Flow $5000 -$1100 -$1100 -$1100 -$1100 -$1100 O C. OD. Month: Cash Flow: Month: Month: Cash Flow: $1700 Cash Flow: Month: 0 0 Check 0 0 1 $1700 $1700 1 $1700 1 2 1 2 $1700 2 2 Cash Flow: -$1700 -$1700 -$1700 3 $1700 3 $1700 3 4 $1700 4 --|------------|------------|-- -$1700 -$1700 -$1700 -$1700 $1700 4 3 -|----- ----|-- -$1700 -$1700 4 312 --| $1700 360 -1 $1700 312 --1 -$1700 360 --1 -$1700 Question 7 Tries remaining: 1 Marked out of 1.00 Flag question Question 8 Tries remaining: 1 Marked out of 1.00 Flag question You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. (a) If the interest rate is 0% per year, which alternative should you choose? OTake the money now. OWaiting until 5 years after retirement. (b) If the interest rate is 8% per year, which alternative should you choose? OTake the money now. OWaiting until 5 years after retirement. (c) If the interest rate is 20% per year, which alternative should you choose? OTake the money now. OWaiting until 5 years after retirement. Check What is the present value of $5,000 paid at the end of each of the next 78 years if the interest rate is 9% per year? The present value is $ (Round to the nearest dollar.) Check Question 1 Tries remaining: 1 Marked out of 1.00 Flag question Question 2 Tries remaining: 1 Marked out of 1.00 Flag question Question 3 Tries remaining: 1 Marked out of 1.00 P Flag question You have $2,000 today. What is the future value of this cash flow in: (a) 5 years at an interest rate of 8% per year. $ (b) 10 years at an interest rate of 8% per year. $ Check (c) 5 years at an interest rate of 16% per year. $ (Round to the nearest dollar.) (d) Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)? OThe amount of interest earned in part (a) is really half of the amount of interest earned in part (b) since in part (b) the money grows for twice as many years as in part (a). OThe annual interest rate in part (b) is slightly higher than the rate assumed in part (a). OThe interest rate earned in part (a) is based on a lower effective annual interest rate. OThis is because you earn interest on past interest. Since the beginning of the second 5 year starts off with more money than the beginning of the first 5 years, the money grows faster. (Round to the nearest dollar.) What is the present value of $14,000 received: (a) 12 years from today when the interest rate is 4% per year. $ (Round to the nearest dollar.) (b) 20 years from today when the interest rate is 5% per year. $ (c) 6 years from today when the interest rate is 2% per year. $ Check Check (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) Your daughter is currently 6 years old. You anticipate that she will be going to college in 12 years. You would like to have $144,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 7% per year, how much money do you need to put into the account today to ensure that you will have $144,000 in 12 years? Your deposit today should be $ (Round to the nearest dollar.) Question 4 Tries remaining: 1 Marked out of 1.00 P Flag question Question 5 Tries remaining: 1 Marked out of 1.00 Flag question You have been offered a unique investment opportunity. If you invest $20,000 today, you will receive $1,000 one year from now, $3,000 two years from now, and $20,000 ten years from now. (a) The NPV of the opportunity if the interest rate is 10% per year is $ (Round to the nearest dollar.) Should you take the opportunity OReject it because the NPV is less than 0. OTake it because the NPV is equal or greater than 0. (b) The NPV of the opportunity if the interest rate is 6% per year is $ Should you take the opportunity OReject it because the NPV is less than 0. OTake it because the NPV is equal or greater than 0. Check You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $7,000. You plan to put down $2,000 and borrow $5,000. You will need to make annual payments of $1,100 at the end of each year. Show the timeline of the loan from your perspective. Select one: A. O B. C. O D. Year Cash Flow -$2000 Year 0 Year 0 Year Cash Flow $7000 -$1100 0 1 0 $1100 $1100 1 Cash Flow -$5000 $1100 1 2 1 2 -$1100 2 $1100 2 3 $1100 3 -$1100 3 $1100 3 4 $1100 4 -$1100 4 $1100 4 5 $1100 5 -$1100 5 $1100 (Round to the nearest dollar.) 5 Question 6 Tries remaining: 1 Marked out of 1.00 Flag question Check You make monthly payments of $1,700 on a house mortgage loan. You have just made a payment. The mortgage has 26 years remaining. Show the timeline of the loan from the bank's perspective. Select one: O A. O B. |-------------|- Cash Flow $5000 -$1100 -$1100 -$1100 -$1100 -$1100 O C. OD. Month: Cash Flow: Month: Month: Cash Flow: $1700 Cash Flow: Month: 0 0 Check 0 0 1 $1700 $1700 1 $1700 1 2 1 2 $1700 2 2 Cash Flow: -$1700 -$1700 -$1700 3 $1700 3 $1700 3 4 $1700 4 --|------------|------------|-- -$1700 -$1700 -$1700 -$1700 $1700 4 3 -|----- ----|-- -$1700 -$1700 4 312 --| $1700 360 -1 $1700 312 --1 -$1700 360 --1 -$1700 Question 7 Tries remaining: 1 Marked out of 1.00 Flag question Question 8 Tries remaining: 1 Marked out of 1.00 Flag question You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. (a) If the interest rate is 0% per year, which alternative should you choose? OTake the money now. OWaiting until 5 years after retirement. (b) If the interest rate is 8% per year, which alternative should you choose? OTake the money now. OWaiting until 5 years after retirement. (c) If the interest rate is 20% per year, which alternative should you choose? OTake the money now. OWaiting until 5 years after retirement. Check What is the present value of $5,000 paid at the end of each of the next 78 years if the interest rate is 9% per year? The present value is $ (Round to the nearest dollar.) Check
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