Practice Quiz Chapter 04

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. A company has borrowed $200,000 to purchase equipment. The loan carries an interest rate of 5% per year and is to be repaid in equal installments over the next 7 years. What is the amount of the annual installment?

a) $34,560 correct incorrect

b) $33,240 correct incorrect

c) $34,500 correct incorrect

d) $36,700 correct incorrect

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. Farhan is opening a retirement account at a bank. His goal is to accumulate $500,000 in the account by the time he retires in 10 years. A local bank is willing to open a retirement account that pays 7% interest compounded annually throughout the 10 years. Farhan expects that his annual income will increase by 5% annually during his working career. He wishes to start with a deposit at the end of Year 1 and increase the deposit at a rate of 5% each year thereafter. What should be the amount of his first deposit? (The last deposit will be made at the end of Year 10.)

a) $28,313.55 correct incorrect

b) $29,562.22 correct incorrect

c) $34,357.01 correct incorrect

d) $51,555.85 correct incorrect

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. Suppose you make equal quarterly deposits of $1,000 into a fund that pays interest at a rate of 7% compounded monthly. What will be the balance at the end of Year 2?

a) $8445.2 correct incorrect

b) $7663.4 correct incorrect

c) $9445.7 correct incorrect

d) $8510.6 correct incorrect

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. A lottery prize pays $500 at the end of first year, $1,500 the second, $2,500 the third, and so on for 15 years. If there is only one prize in the lottery and 5,000 tickets sold, and you may invest your money elsewhere at 10% interest, how much is each ticket worth, on average?

a) $6.95 correct incorrect

b) $7.71 correct incorrect

c) $9.95 correct incorrect

d) $8.79 correct incorrect

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. What value of A makes two annual cash flows equivalent at 12% interest compounded annually?

a) $60.62 correct incorrect

b) $58.25 correct incorrect

c) $44.32 correct incorrect

d) $89.91 correct incorrect

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. You want to build up a venture capital of $10,000 in eight years. How much do you have to save each year if the interest rate is 7%?

a) $9,747 correct incorrect

b) $11,6829 correct incorrect

c) $11,852 correct incorrect

d) $12,500 correct incorrect

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. What is the present value of $1,200 to be received one year from now if it will always grow at a rate of 4%, given the opportunity cost is 10%?

a) $75,00 correct incorrect

b) $12,000 correct incorrect

c) $20,000 correct incorrect

d) $30,000 correct incorrect

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. Suppose Maple Leaf Ltd. just paid a dividend of $2 and its perpetual growth rate is estimated at 5%. If the required rate of return is 20%, how much should you pay for a share of a common stock of the company?

a) $8.4 correct incorrect

b) $10 correct incorrect

c) $10.5 correct incorrect

d) $14 correct incorrect

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. You just invested $5,000 in Apple's stock that will yield 10% per year. Assumed that your annual returns are invested, how long will it take to triple your investment?

a) 7.2 years correct incorrect

b) 10 years correct incorrect

c) 11.5 years correct incorrect

d) 30 years correct incorrect

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. An investment has an installed cost of $500,000. The cash flows over the four-year life of the investment are estimated to be $250,000, $220,000, $180,000, and $110,000. What is the net present value of the investment given the discount rate is zero?

a) $-500,000 correct incorrect

b) $0 correct incorrect

c) $260,000 correct incorrect

d) $760,000 correct incorrect