Your firm intends to finance the purchase of a new construction crane-online exam

Question 1 of 40 2.5/ 2.5 Points

Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. What is the size of the first payment if the crane is financed with an interest-only loan at an annual rate of 8.50%?

A. $228,611.56

B. $127,500

C. $3,391,475.16

D. There is not enough information to answer this question.

Question 2 of 40 2.5/ 2.5 Points

You just won the Publisher's Clearing House Sweepstakes and the right to 20 after-tax ordinary annuity cash flows of $163,291.18. Assuming a discount rate of 7.50%, what is the present value of your lottery winnings? Use a calculator to determine your answer.

A. $3,265,823.60

B. $1,789,520.81

C. $1,664,670.52

D. There is not enough information to answer this question.

Question 3 of 40 2.5/ 2.5 Points

Your employer has agreed to place year-end deposits of $1,000, $2,000, and $3,000 into your retirement account. The $1,000 deposit will be one year from today, the $2,000 deposit two years from today, and the $3,000 deposit three years from today. If your account earns 5% per year, how much money will you have in the account at the end of Year 3 when the last deposit is made?

A. $5,357.95

B. $6,000

C. $6,202.50

D. $6,727.88

Question 4 of 40 0.0/ 2.5 Points

An annuity is a series of:

A. variable cash payments at regular intervals across time.

B. equal cash payments at regular intervals across time.

C. variable cash payments at different intervals across time.

D. equal cash payments at different intervals across time.

Question 5 of 40 0.0/ 2.5 Points

What is the present value of a lottery paid as an annuity due for 20 years if the cash flows are $250,000 per year and the appropriate discount rate is 7.50%?

A. $5,000,000.00

B. $3,186,045.39

C. $2,739,769.55

D. $2,548,622.84

Question 6 of 40 2.5/ 2.5 Points

You have just won the Reader's Digest lottery of $5,000 per year for 20 years, with the first payment today followed by 19 more start-of-the-year cash flows. At an interest rate of 5%, what is the present value of your winnings?

A. $100,000

B. $65,426.60

C. $62,311.05

D. $47,641.18

Question 7 of 40 0.0/ 2.5 Points

What is the future value in Year 25 of an ordinary annuity cash flow of $2,000 per year at an interest rate of 10% per year?

A. $66,505.81

B. $55,000.00

C. $196,694.12

D. $216,363.53

Question 8 of 40 0.0/ 2.5 Points

Your department at work places $10,000 every year-end into an account earning 5%. The money is used when the corporate office fails to fully finance your profitable projects. The money has not been touched since a deposit was made exactly five years ago. If the most recent deposit was made today, how much money is currently in the account?

A. $55,256.31

B. $60,000

C. $65,256.31

D. $68,019.13

Question 9 of 40 2.5/ 2.5 Points

A/An __________ is a series of equal end-of-the-period cash flows.

A. annuity

B. annuity due

C. perpetuity due

D. None of the above

Question 10 of 40 2.5/ 2.5 Points

If for the next 40 years you place $3,000 in equal year-end deposits into an account earning 8% per year, how much money will be in the account at the end of that time period?

A. $120,000.00

B. $777,169.56

C. $839,343.12

D. $2,606,942.58

Question 11 of 40 0.0/ 2.5 Points

You currently have $67,000 in an interest-earning account. From this account, you wish to make 20 year-end payments of $5,000 each. What annual rate of return must you make on this account to meet your objective?

A. 4.16%

B. 5.03%

C. 6.42%

D. 7.32%

Question 12 of 40 0.0/ 2.5 Points

Your company just sold a product with the following payment plan: $50,000 today, $25,000 next year, and $10,000 the following year. If your firm places the payments into an account earning 10% per year, how much money will be in the account after collecting the last payment?

A. $99,000

B. $98,000

C. $88,500

D. $85,000

Question 13 of 40 0.0/ 2.5 Points

Your parents have an investment portfolio of $400,000, and they wish to take out cash flows of $50,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 4.50%? Use a calculator to determine your answer.

A. 8 years

B. 9.10 years

C. 9.60 years

D. 10.14 years

Question 14 of 40 0.0/ 2.5 Points

When you pay off the principal and all of the interest at one time at the maturity date of the loan, we call this type of loan a(n):

A. amortized loan.

B. interest-only loan.

C. discount loan.

D. compound loan.

Question 15 of 40 0.0/ 2.5 Points

Given the following cash flows, what is the future value at Year 6 when compounded at an interest rate of 8%?

Year 0 2 4 6

Cash Flow $5,000 $7,000 $9,000 $11,000

A. $38,955.39

B. $56,687.43

C. $42,074.42

D. $32,000

Question 16 of 40 0.0/ 2.5 Points

If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay the total amount of principal and interest due of $215,892.50 at the end of 10 years, what type of loan did you have?

A. Amortized loan

B. Interest-only loan

C. Discount loan

D. Compound loan

Question 17 of 40 0.0/ 2.5 Points

The main variables of the TVM equation are:

A. present value, future value, time, interest rate, and payment.

B. present value, future value, perpetuity, interest rate, and payment.

C. present value, future value, time, annuity, and interest rate.

D. present value, future value, perpetuity, interest rate, and principal.

Question 18 of 40 0.0/ 2.5 Points

What is the future value in Year 12 of an ordinary annuity cash flow of $6,000 per year at an interest rate of 4% per year?

A. $90,154.83

B. $93,761.02

C. $28,675.97

D. $32,117.08

Question 19 of 40 0.0/ 2.5 Points

The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $1,000 each with the first payment to be made one year from today. If the discount rate is 6%, what is the present value of the furniture payments?

A. $3,183.60

B. $3,000

C. $2,833.39

D. $2,673.01

Question 20 of 40 0.0/ 2.5 Points

If you borrow $50,000 at an annual interest rate of 12% for six years, what is the annual payment (prior to maturity) on a discount loan?

A. $0

B. $6,000

C. $8,333.33

D. $12,161.29

Part 2 of 2 - Lesson 5 Questions 17.5/ 50.0 Points

Question 21 of 40 0.0/ 2.5 Points

Suppose you deposit money in a certificate of deposit (CD) at a bank. Which of the following statements is true?

A. The bank is borrowing money from you without a promise to repay that money with interest.

B. The bank is lending money to you with a promise to repay that money with interest.

C. The bank is technically renting money from you with a promise to repay that money with interest.

D. The bank is lending money to you, but not borrowing money from you.

Question 22 of 40 0.0/ 2.5 Points

The phrase "price to rent money" is sometimes used to refer to:

A. historical prices.

B. compound rates.

C. discount rates.

D. interest rates.

Question 23 of 40 0.0/ 2.5 Points

Suppose you postpone consumption so that by investing at 8% you will have an extra $800 to spend in one year. Suppose that inflation is 4% during this time. What is the approximate real increase in your purchasing power?

A. $800

B. $600

C. $400

D. $200

Question 24 of 40 2.5/ 2.5 Points

The number of periods for a consumer loan (n) is equal to the:

A. number of years times compounding periods per year.

B. number of years.

C. number of years in a period.

D. number of compounding periods.

Question 25 of 40 0.0/ 2.5 Points

When interest rates are stated or given for loan repayments, it is assumed that they are __________ unless specifically stated otherwise.

A. daily rates

B. annual percentage rates

C. effective annual rates

D. APYs

Question 26 of 40 0.0/ 2.5 Points

As applied to mortgage loans, which of the following statements is FALSE?

A. Advertised rates are annual percentage rates.

B. A spreadsheet uses the periodic interest rate, not the annual percentage rate.

C. By increasing the number of payments per year you increase your effective borrowing rate.

D. A mortgage problem is unlike a future value problem with an annuity.

Question 27 of 40 0.0/ 2.5 Points

The Fisher Effect involves which of the items below?

A. Nominal rate, the real rate, and inflation

B. Nominal rate and the real rate only

C. Nominal rate and inflation only

D. Nominal rate, the bond rate, and inflation

Question 28 of 40 2.5/ 2.5 Points

Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank. Your reward for postponing consumption implies that at the end of the year:

A. you will be able to consume fewer goods.

B. you will be able to buy the same amount of goods or services.

C. you will be able to buy fewer goods or services.

D. you will be able to buy more goods or services.

Question 29 of 40 2.5/ 2.5 Points

Which of the following statements is true if you increase your monthly payment above the required loan payment?

A. The extra portion of the payment does not go to the principal.

B. You can significantly increase the number of payments needed to pay off the loan.

C. The extra portion of the payment increases the principal.

D. You can significantly reduce the number of payments needed to pay off the loan.

Question 30 of 40 0.0/ 2.5 Points

The two major components of the interest rate that cause rates to vary across different investment opportunities or loans are:

A. the default premium and the bankruptcy premium.

B. the liquidity premium and the maturity premium.

C. the default premium and the maturity premium.

D. the inflation premium and the maturity premium.

Question 31 of 40 0.0/ 2.5 Points

If you take out a loan from a bank, you will be charged:

A. for principal but not interest.

B. for interest but not principal.

C. for both principal and interest.

D. for interest only.

Question 32 of 40 0.0/ 2.5 Points

A company selling a bond is __________ money.

A. borrowing

B. lending

C. taking

D. reinvesting

Question 33 of 40 0.0/ 2.5 Points

The __________ compensates the investor for the additional risk that the loan will not be repaid in full.

A. default premium

B. inflation premium

C. real rate

D. interest rate

Question 34 of 40 0.0/ 2.5 Points

James is a rational investor wishing to maximize his return over a 20-year period. The current yield curve is inverted with one-year rates at 5% and 20-year rates at 3.5%. James will invest in the lower-rate 20-year bonds if:

A. he thinks rates will fall in the future and locking in long-term rates today may provide the highest long-run average return.

B. he thinks rates will rise in the future and locking in long-term rates today may provide the lowest long-run average return.

C. he thinks rates will remain flat at 5% in the future and locking in long-term rates today will prevent him from appearing greedy to those without this investment opportunity.

D. James has no idea what to do and should just skip this question.

Question 35 of 40 2.5/ 2.5 Points

Nominal interest rates are the sum of two major components. These components are:

A. the real interest rate and expected inflation.

B. the risk-free rate and expected inflation.

C. the real interest rate and default premium.

D. the real interest rate and the T-bill rate.

Question 36 of 40 2.5/ 2.5 Points

The frequency of default on a home loan is __________ the frequency of default on a credit card.

A. much lower than

B. much higher than

C. a bit lower than

D. a bit higher than

Question 37 of 40 0.0/ 2.5 Points

What is the EAR if the APR is 10.52% and compounding is daily?

A. Slightly above 10.09%

B. Slightly below 11.09%

C. Slightly above 11.09%

D. Over 11.25%

Question 38 of 40 2.5/ 2.5 Points

We can write the true relationship between the nominal interest rate and the real rate and expected inflation as which of the following?

A. (1 + r) = (1 + r) × (1 + h*)

B. r = (1 + r*) × (1 + h) - 1

C. r* = (1 + r) × (1 + h) -1

D. r = (1 + r*) × (1 + h) + 1

Question 39 of 40 0.0/ 2.5 Points

Assume you just bought a new home and now have a mortgage on the home. The amount of the principal is $150,000, the loan is at 5% APR, and the monthly payments are spread out over 30 years. What is the loan payment? Use a calculator to determine your answer.

A. $798.95

B. $805.23

C. $850.32

D. $903.47

Question 40 of 40 2.5/ 2.5 Points

You put down 20% on a home with a purchase price of $300,000. The down payment is thus $60,000, leaving a balance owed of $240,000. The bank will loan you the remaining balance at 4.28% APR. You will make annual payments with a 20-year payment schedule. What is the annual annuity payment under this schedule?

A. $18,100.23

B. $22,625.29

C. $12,000.00

D. $33,785.23