Module 18 Quiz Flashcards
An investment of $1,000 per month with an annual return of 2% would accumulate to ___________ after 20 years.
A) $249,273.70
B) $29,479.68
C) $24,927.37
D) $294,796.83
D) $294,796.83
Interest paid (earned) on only the original principal borrowed (lent) is often referred to as
A) compound interest.
B) simple interest.
C) present value.
D) future value.
B) simple interest.
To increase a given future value, the discount rate should be adjusted
A) neither upward nor downward.
B) upward.
C) downward.
D) first upward and then downward
B) upward.
Note: As interest (discount) rates rise, the FV increases. For example, the FV of $100 received in 1 year given a 10% return is worth $110 in one year. If rates increase to 12%, the FV rises to $112.
With compounding at 8% for 20 years, what is the approximate future value of a $20,000 initial investment?
A) $915,240
B) $99,061
C) $93,219
D) $52,000
C) $93,219
Your office building will need a new roof in seven years. How much must be set aside annually to accumulate the $50,000 needed for the roof if a 3% interest rate is available for the investment?
A) $6,525.32
B) $6,428.00
C) $642.80
D)$783.04
A) $6,525.32
Note: 7n, 3i, FV 50000, PMT
Kramer put $12,000 into an investment on August 10th and took out $3,000 on September 30th. How should the cash flows be recorded (i.e., money direction)?
A) +$12,000 and -$9,000
B) +$12,000 and -$3,000
C) -$12,000 and -$3,000
D) -$12,000 and +$3,000
D) -$12,000 and +$3,000
Note: On a cash flow (CF) diagram, the investor’s perspective is $12,000 when the money is invested because the cash is leaving the investor’s hand. The money taken out ($3,000) is positive because it comes back to the investor
A client is discussing with an appraiser the annual debt service she has on a commercial property owned by her investment company. What does the client mean by the term “annual debt service”?
A) a loan that is repaid in equal annual installments
B) the annual amount of interest paid on debt
C) the annual amount of principal and interest paid on debt
D) the annual amount of principal paid on debt
C) the annual amount of principal and interest paid on debt
Note: Generally the term is used in reference to mortgage payments accumulated over a one year period
Sharon is debating whether she should take out a 15-year mortgage at 3.75% or a 30-year mortgage at 5.25% on a $175,000 loan. What would be her savings per month by going with the lower payment?
A) $966.36 savings per month with the 30-year mortgage
B) $306.28 savings per month with the 30-year mortgage
C) $1,272.64 savings per month with the 15-year mortgage
D)$596.34 savings per month with the 15-year mortgage
B) $306.28 savings per month with the 30-year mortgage
Note: The 15-year loan has a payment of $1,272.64 and the 30-year loan has a payment of $966.36. The difference is $306.28 lower for the 30-year loan. See
You have just agreed to a new loan and have purchased a $3,000 computer today. The loan has a 19.6% annual interest rate, compounded monthly. The minimum monthly payment is $58 and you do not expect to
ever pay more than the minimum payment. Assuming no additional charges or costs will occur with this loan, approximately what will you owe on the loan at the end of 3 years (36 months) when you expect to need
another new computer?
A) $2,676
B) $2,304
C) $2,564
D) $2,088
C) $2,564
This is really a two-step solution. 1) Find the FV of the $58 annuity for 36 months is $2,812 and 2) Find the FV of the $3,000 PV in 36 months at 1.6333% per month is $5,376. Subtract 1) from 2) is the $2,564 that is still owed!
Peterson began saving $10 per week that she deposited every month in her money market account, earning 4.25% and compounding monthly. If she continues this practice, how much will she have after 10 years?
A) $6,316.04
B) $6,289.15
C) $5,968.29
D) $6,465.65
D) $6,465.65
Jeff and Tina loaned $4,000 to their daughter so she could buy a used car to go to and from the college campus. The parents arranged for their daughter to repay the $4,000 after 4 years plus simple annual interest of 6% to be paid each year. How much will they receive in total when the loan
is repaid?
$4,960
Note:
$4,000 x .06 x 4 = $960 interest + $4,000
If you placed $1,000 into an investment earning
6% annual interest for 1 year, it would earn $60 of simple interest. Let’s contrast that with the effects of compounding. How much would it be compounding monthly?
$1,061.68
1 [g][n]; 6[g][n]; 1,000[CHS][PV]; 0 [PMT]; [FV]
If you placed $1,000 into an investment earning
6% annual interest for 1 year, it would earn $60 of simple interest. Let’s contrast that with the effects of compounding How much would it be compounding quarterly?
$1,061.36
1*4[n]; 6/4[i]; 1,000[CHS][PV]; 0 [PMT]; [FV]
What will an investment of $12,000 grow to if it earns 6% annually over 15 years?
$28,758.70
Note: solve for FV
What will $5,000 grow to if it earns 5.25% annually over 7 years?
$7,153.60
Note: Solve for FV
