Lesson 6

Question 1

End of Chapter Questions

Raj and his wife, Shirley, recently opened an investment account with the intention of saving enough to purchase a house. Their goal is to have $45,000 for a down payment in 5 years. Their account will guarantee them a return of 8% compounded annually. How much do they need to put into the account right now to reach their goal?

a. $30,626.24.
b. $39,546.09.
c. $46,778.96.
d. $51,214.75.

Answer 1

The correct answer is A. $30,626.24 
N=5
i=8
PV = ?
PMT = 0
FV = 45,000 <30,626.2439>

Question 2

End of Chapter Questions

Dee’s grandfather set up a savings account for her with a $25,000 gift when she was first born. The account accumulated interest annually at a rate of 6% per year and no other deposits were made to the account. Dee is 21 years old today. To date, how much has accumulated in Dee’s account?

a. $79,231.88.
b. $84,989.09.
c. $98,656.75.
d. $101,378.92.

Answer 2

The correct answer is b. $84,989.09.

N = 21
i=6
PV = <25,000> PMT = 0
FV = ? 84,989.0900

Question 3

End of Chapter Questions

Alberto saved enough tip money from working at the casino to place $125,500 in an investment account generating 9.25% compounded monthly. He wants to collect a monthly income of $1,350, at the beginning of each month, for as long as the money lasts. Approximately, how many months will Alberto have this income coming to him?

A. 139.

B. 145.

C. 152.

D. 162.

Answer 3

The correct answer is D. 162.

BEGIN Mode
N=?
i = 9.25÷12 = 0.7708 PV = <125,500>
PMT = 1,350
FV = 0
161.7058

Question 4

End of Chapter Questions

Liam bought a piece of equipment for $10,000. He paid $3,000 for upgrades during year 1 and the equipment generates $2,000 in cash flow for year 1. In year 2 the equipment generated $3,000 and in year 3 it generated $4,000, but Liam sells it for $6,000 and pays a $500 commission. What is his IRR?

A. 3.4%.

B. 3.9%.

C. 4.4%.

D. 4.9%.

Answer 4

The correct answer is D. 4.9%.

CF0 = <10,000>
CF1 = <3,000> + 2,000 = <1,000> CF2 = 3,000
CF3 = 4,000 + 6,000 - 500 = 9,500 IRR = ?
4.9%

Question 5

End of Chapter Questions

Cher buys a house for $500,000, putting 20% down. Her loan is for 30 years at 6% and she includes closing costs of 3% into her mortgage. How much is her monthly payment (rounded to whole dollars)?

A. $2,457.

B. $2,470.

C. $2,754.

D. $2,785.

Answer 5

The correct answer is B. $2,470.

N = 30 x 12 = 360
i = 6 ÷ 12 = 0.5000
PV = 500,000 x 0.80 x 1.03 = 412,000
PMT = ?
FV = 0
Key: Add 3% closing cost to the amount borrowed <2,470.1482>