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1.            Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today.  You need money today to start a new business, and your uncle offers to give you $120,000 for the annuity.  If you sell it, what rate of return would your uncle earn on his investment?

 

a.            6.85%

b.            7.21%

c.            7.59%

d.            7.99%

e.            8.41%

 

 

2.            What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?

 

a.            $77.19

b.            $81.25

c.            $85.31

d.            $89.58

e.            $94.06

 

 

3.            What is the present value of the following cash flow stream at a rate of 6.25%?

 

Years:   0             1             2             3             4

                |             |             |             |             |

CFs:       $0           $75         $225      $0           $300

 

a.            $411.57

b.            $433.23

c.            $456.03

d.            $480.03

e.            $505.30

 

 

4.            What is the present value of the following cash flow stream at a rate of 12.0%?

 

Years:   0             1             2             3             4

                |             |             |             |             |

CFs:       $0           $1,500   $3,000   $4,500   $6,000

 

a.            $9,699

b.            $10,210

c.            $10,747

d.            $11,284

e.            $11,849

               

 

5.            What is the present value of the following cash flow stream at a rate of 8.0%?

 

Years:   0             1             2             3

                |             |             |             |

CFs:       $750      $2,450   $3,175   $4,400

 

a.            $7,917

b.            $8,333

c.            $8,772

d.            $9,233

e.            $9,695

               

 

 

6.            You sold a car and accepted a note with the following cash flow stream as your payment.  What was the effective price you received for the car assuming an interest rate of 6.0%?

 

Years:   0             1             2             3             4

                |             |             |             |             |

CFs:       $0           $1,000   $2,000   $2,000   $2,000

 

a.            $5,987

b.            $6,286

c.            $6,600

d.            $6,930

e.            $7,277

 

 

7.            At a rate of 6.5%, what is the future value of the following cash flow stream?

 

Years:   0             1             2             3             4

                |             |             |             |             |

CFs:       $0           $75         $225      $0           $300

 

a.            $526.01

b.            $553.69

c.            $582.83

d.            $613.51

e.            $645.80

               

 

8.            Your father paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $10,000 at the end of the 5th year.  What is the expected rate of return on this investment?

 

a.            6.77%

b.            7.13%

c.            7.50%

d.            7.88%

e.            8.27%

               

 

9.            You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4.  What rate of return would you earn if you bought this asset?

 

a.            4.93%

b.            5.19%

c.            5.46%

d.            5.75%

e.            6.05%

               

 

10.          What’s the future value of $1,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually?

 

a.            $1,819

b.            $1,915

c.            $2,016

d.            $2,117

e.            $2,223

 

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