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Exam 4: Discounted Cash Flow Valuation

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Question 71

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Your credit card company charges you 1.5% per month. What is the annual percentage rate on your account?

A) 12.00%
B) 15.00%
C) 15.39%
D) 18.00%
E) 19.56%

F) B) and D)
G) B) and E)

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Question 72

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You hope to buy your dream house six years from now. Today your dream house costs $189,900. You expect housing prices to rise by an average of 4.5% per year over the next six years. How much will your dream house cost by the time you are ready to buy it?

A) $240,284.08
B) $246,019.67
C) $246,396.67
D) $246,831.94
E) $247,299.20

F) All of the above
G) B) and D)

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Question 73

Multiple Choice

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What is the effective annual rate of 9.75% compounded continuously?

Your aunt,in her will,left you the sum of $5,000 a year forever with payments starting immediately. However,the news is better. She has specified that the amount should grow at 5% per year to maintain purchasing power. Given an interest rate of 12%,what is the PV of the inheritance?

You are considering a project with the following cash flows: What is the present value of these cash flows,given a 3% discount rate?

You retire at age 60 and expect to live another 27 years. On the day you retire,you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?

If a student borrows $20,000 to start a business as a 5 year,10% loan,the annual payment is

What is the future value of the following cash flows at the end of year 3 if the interest rate is 6%? The cash flows occur at the end of each year.

What is the effective annual rate if a bank charges you 7.64% compounded quarterly?

Today,you signed loan papers agreeing to borrow $4,954.85 at 9% compounded monthly. The loan payment is $143.84 a month. How many loan payments must you make before the loan is paid in full?

The great,great grandparents of one of your classmates sold their factory to the government 104 years ago for $150,000. If these proceeds had been invested at 6%,how much would this legacy be worth today? Assume annual compounding.

You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period?

Today is January 1. Starting today,Sam is going to contribute $140 on the first of each month to his retirement account. His employer contributes an additional 50% of the amount contributed by Sam. If both Sam and his employer continue to do this and Sam can earn a monthly rate of ½ of 1 percent,how much will he have in his retirement account 35 years from now?

Your great-aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the first day of each year,starting immediately and continuing for fifty years. What is the value of this inheritance today if the applicable discount rate is 6.35%?