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Your Green Investment Tips subscription is about to expire.You plan to subscribe to the magazine for the rest of your life, and you can renew it by paying $85 annually, beginning immediately, or you can get a lifetime subscription for $850, also payable immediately.Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant, how many years must you live to make the lifetime subscription the better buy?


A) 7.48
B) 8.80
C) 10.35
D) 12.18
E) 14.33

F) A) and D)
G) A) and C)

Correct Answer

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Your investment advisor has recommended your invest in bonds that pay 6.0%, compounded annually.If you invest $10, 000 today, how many years will it take for your investment to grow to $30, 000?


A) 12.37
B) 13.74
C) 15.27
D) 16.97
E) 18.85

F) A) and E)
G) A) and B)

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The payment made each period on an amortized loan is constant, and it consists of some interest and some principal.The closer we are to the end of the loan's life, the smaller the percentage of the payment that will be a repayment of principal.

A) True
B) False

Correct Answer

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The store where you bought new home furnishings offers you two alternative payment plans.The first plan requires a $4, 000 immediate up-front payment.The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years.What nominal annual interest rate is built into the monthly payment plan?


A) 12.31%
B) 12.96%
C) 13.64%
D) 14.36%
E) 15.08%

F) C) and E)
G) D) and E)

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At a rate of 6.5%, what is the future value of the following cash flow stream? At a rate of 6.5%, what is the future value of the following cash flow stream? A) $526.01 B) $553.69 C) $582.83 D) $613.51 E) $645.80


A) $526.01
B) $553.69
C) $582.83
D) $613.51
E) $645.80

F) C) and E)
G) All of the above

Correct Answer

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Your bank offers a savings account that pays 3.5% interest, compounded annually.If you invest $1, 000 in the account, then how much will it be worth at the end of 25 years?


A) $2, 245.08
B) $2, 363.24
C) $2, 481.41
D) $2, 605.48
E) $2, 735.75

F) A) and D)
G) B) and C)

Correct Answer

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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

F) A) and B)
G) A) and C)

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Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?


A) Exactly 10% of the first monthly payment represents interest.
B) The monthly payments will increase over time.
C) A larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment.
D) The total dollar amount of interest being paid off each month gets larger as the loan approaches maturity.
E) The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

F) B) and E)
G) B) and D)

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Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25, 000 per year for 15 years, with the first payment being made today, or a lump sum.If a fair return is 7.5%, how large must the lump sum be to leave her as well off financially as with the annuity?


A) $225, 367
B) $237, 229
C) $249, 090
D) $261, 545
E) $274, 622

F) A) and E)
G) All of the above

Correct Answer

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Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts.

A) True
B) False

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You plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?


A) Bank 1; 6.1% with annual compounding.
B) Bank 2; 6.0% with monthly compounding.
C) Bank 3; 6.0% with annual compounding.
D) Bank 4; 6.0% with quarterly compounding.
E) Bank 5; 6.0% with daily (365-day) compounding.

F) C) and E)
G) None of the above

Correct Answer

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Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

A) True
B) False

Correct Answer

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Partners Bank offers to lend you $50, 000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly.An offer to lend you the $50, 000 also comes from Community Bank, but it will charge 6.0%, simple interest, with interest paid at the end of the year.What's the difference in the effective annual rates charged by the two banks?


A) 1.56%
B) 1.30%
C) 1.09%
D) 0.91%
E) 0.72%

F) A) and E)
G) D) and E)

Correct Answer

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You want to open a sushi bar 3 years from now, and you plan to save $7, 000 per year, beginning immediately.You will make 3 deposits in an account that pays 5.2% interest.Under these assumptions, how much will you have 3 years from today?


A) $20, 993
B) $22, 098
C) $23, 261
D) $24, 424
E) $25, 645

F) D) and E)
G) B) and C)

Correct Answer

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Pacific Bank pays a 4.50% nominal rate on deposits, with monthly compounding.What effective annual rate (EFF%) does the bank pay?


A) 3.72%
B) 4.13%
C) 4.59%
D) 5.05%
E) 5.56%

F) All of the above
G) B) and C)

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Suppose you deposited $5, 000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months, assuming each month has 30 days?


A) $5, 178.09
B) $5, 436.99
C) $5, 708.84
D) $5, 994.28
E) $6, 294.00

F) B) and E)
G) C) and E)

Correct Answer

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The payment made each period on an amortized loan is constant, and it consists of some interest and some principal.The closer we are to the end of the loan's life, the greater the percentage of the payment that will be a repayment of principal.

A) True
B) False

Correct Answer

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You would like to travel in South America 5 years from now, and you can save $3, 100 per year, beginning one year from today.You plan to deposit the funds in a mutual fund that you think will return 8.5% per year.Under these conditions, how much would you have just after you make the 5th deposit, 5 years from now?


A) $18, 369
B) $19, 287
C) $20, 251
D) $21, 264
E) $22, 327

F) A) and B)
G) A) and C)

Correct Answer

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A $250, 000 loan is to be amortized over 8 years, with annual end-of-year payments.Which of these statements is CORRECT?


A) The proportion of interest versus principal repayment would be the same for each of the 8 payments.
B) The annual payments would be larger if the interest rate were lower.
C) If the loan were amortized over 10 years rather than 8 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 8-year amortization plan.
D) The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.
E) The last payment would have a higher proportion of interest than the first payment.

F) None of the above
G) A) and C)

Correct Answer

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What's the present value of $1, 525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?


A) $969
B) $1, 020
C) $1, 074
D) $1, 131
E) $1, 187

F) A) and B)
G) All of the above

Correct Answer

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