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Western Bank offers you a $12,000, 6-year term loan at 7 percent annual interest. What is the amount of your annual loan payment? 


A) $2,483.33 
B) $2,517.55 
C) $2,066.67 
D) $1,901.18 
E) $1,811.07 

F) A) and D)
G) A) and C)

Correct Answer

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A preferred stock pays an annual dividend of $5.20. What is one share of this stock worth today if the rate of return is 10.44 percent? 


A) $51.48 
B) $41.18 
C) $49.81 
D) $39.87 
E) $42.90 

F) A) and C)
G) A) and D)

Correct Answer

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Assume you borrow $30,000 at an interest rate of 5.35 percent. The terms stipulate that the principal is due in full in 5 years and interest is to be paid annually at the end of each year. How much total interest will you pay on this loan assuming you pay as agreed? 


A) $4,982 
B) $7,400 
C) $8,025 
D) $8,500 
E) $1,605 

F) A) and B)
G) A) and E)

Correct Answer

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 You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?


A) These annuities have equal present values but unequal future values.
B) These two annuities have both equal present and equal future values.
C) Annuity B is an annuity due.
D) Annuity A has a smaller future value than annuity B. 
E) Annuity B has a smaller present value than annuity A.

F) A) and B)
G) A) and C)

Correct Answer

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Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate? (No calculations needed)  


A) Both projects have the same future value at the end of Year 4. 
B) Both projects have the same value at Time 0. 
C) Both projects are ordinary annuities. 
D) Project Y has a higher present value than Project X. 
E) Project X has both a higher present and a higher future value than Project Y. 

F) B) and C)
G) A) and D)

Correct Answer

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Two annuities have equal present values and an applicable discount rate of 7.25 percent. One annuity pays $2,500 on the first day of each year for 15 years. How much does the second annuity pay each year for 15 years if it pays at the end of each year? 


A) $2,331.00 
B) $2,266.67 
C) $2,500.00 
D) $2,390.50 
E) $2,681.25 

F) A) and E)
G) A) and B)

Correct Answer

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You want to be a millionaire when you retire in 30 years and expect to earn 8.5 percent, compounded monthly. How much more will you have to save each month if you wait 10 years to start saving versus if you start saving at the end of this month? 


A) $947.22 
B) $1,046.80 
C) $808.47 
D) $841.15 
E) $989.10 

F) A) and C)
G) A) and B)

Correct Answer

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A credit card company quotes you an APR of 18.9 percent. What is the actual rate of interest you are paying if interest is computed monthly? 


A) 18.90 percent 
B) 19.21 percent 
C) 20.63 percent 
D) 19.57 percent 
E) 20.72 percent 

F) A) and E)
G) B) and C)

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You just received an offer in the mail to transfer the $5,000 balance from your current credit card, which charges an annual rate of 18.7 percent, to a new credit card charging a rate of 7.9 percent. You plan to make payments of $250 a month on this debt. How many fewer payments will you have to make to pay off this debt if you transfer the balance to the new card? 


A) 2.48 payments 
B) 2.63 payments 
C) 3.10 payments 
D) 2.79 payments 
E) 2.86 payments 

F) A) and E)
G) A) and B)

Correct Answer

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You want to borrow $27,500 and can afford monthly payments of $650 for 48 months, but no more. Assume monthly compounding. What is the highest APR rate you can afford? 


A) 6.33 percent 
B) 6.67 percent 
C) 5.82 percent 
D) 7.01 percent 
E) 7.18 percent 

F) A) and B)
G) B) and E)

Correct Answer

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Travis International has a one-time expense of $1.13 million that must be paid two years from today. The firm can earn 4.3 percent, compounded monthly, on its savings. How much must the firm save each month to fund this expense if the firm starts investing equal amounts each month starting at the end of this month? 


A) $38,416.20 
B) $45,172.02 
C)  $51,300.05 
D) $47,411.08 
E) $53,901.15 

F) B) and C)
G) A) and E)

Correct Answer

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You borrow money today at 6.65 percent, compounded annually, and repay the principal and interest in one lump sum of $12,800 two years from today. How much are you borrowing? 


A) $9,900.00 
B) $10,211.16 
C) $11,253.52 
D) $11,401.16 
E) $11,250.00 

F) A) and E)
G) C) and D)

Correct Answer

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Your local pawn shop loans money at an annual rate of 24 percent and compounds interest weekly. What is the actual rate being charged on these loans? 


A) 25.16 percent 
B) 27.05 percent 
C) 26.49 percent 
D) 27.56 percent 
E) 28.64 percent 

F) B) and E)
G) A) and B)

Correct Answer

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Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $218,000, $224,000, and $238,000 over the next three years, respectively. After that time, they feel the business will be worthless. If the desired rate of return is 14.5 percent, what is the maximum Southern Tours should pay today to acquire Holiday Vacations? 


A) $519,799.59 
B) $538,615.08 
C) $545,920.61 
D) $595,170.53 
E) $538,407.71

F) A) and C)
G) A) and E)

Correct Answer

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Beginning three months from now, you will need $1,500 each quarter for the next four years to cover expenses. How much do you need to have saved today to meet these needs if you can earn .35 percent interest per quarter? 


A) $23,300.75 
B) $26,847.15 
C) $21,068.00 
D) $22,319.54 
E) $26,069.79 

F) A) and B)
G) B) and E)

Correct Answer

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On this date last year, you borrowed $3,900. You have to repay the loan with a lump sum payment of $6,000 six years from now. What is the interest rate? 


A) 6.01 percent 
B) 6.35 percent 
C) 6.78 percent 
D) 5.47 percent 
E) 5.38 percent 

F) A) and D)
G) None of the above

Correct Answer

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Your insurance agent is trying to sell you an annuity that costs $50,000 today. By buying this annuity, your agent promises that you will receive payments of $250 a month for the next 20 years. What is the rate of return on this investment? 


A) 3.75 percent 
B) 2.47 percent 
C) 1.88 percent 
D) 2.45 percent 
E) 3.67 percent 

F) B) and C)
G) C) and E)

Correct Answer

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One year ago, JK Mfg. deposited $12,000 in an investment account for the purpose of buying new equipment four years from today. Today, it is adding another $15,000 to this account. The company plans on making a final deposit of $10,000 to the account one year from today. How much cash will be available when the company is ready to buy the equipment assuming an interest rate of 5.5 percent? 


A) $43,609.77 
B) $45,208.61 
C) $44,007.50 
D) $46,008.30 
E) $47,138.09 

F) B) and E)
G) C) and E)

Correct Answer

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Today, you are retiring. You have a total of $289,416 in your retirement savings. You want to withdraw $2,500 at the beginning of every month, starting today and expect to earn 4.6 percent, compounded monthly. How long will it be until you run out of money? 


A) 29.97 years 
B) 8.56 years 
C) 22.03 years 
D) 12.71 years 
E) 18.99 years 

F) B) and D)
G) A) and B)

Correct Answer

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Your father helped you start saving $25 a month beginning on your fifth birthday. He always made you deposit the money into your savings account on the first day of each month just to "start the month out right." Today completes your 15th year of saving and you now have $6,528.91 in this account. What is the rate of return on your savings? 


A) 4.67 percent 
B) 5.30 percent
C) 5.87 percent 
D) 4.98 percent 
E) 6.12 percent 

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

Correct Answer

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