Principles of Finance

# Multiple Choice

Principles of FinanceMultiple Choice

General instructions: Approximations and minor differences because of rounding are acceptable. Ignore the effect of taxes. Please assume that all percentages are annual rates and compounding occurs annually unless otherwise indicated.

1.
For which of the following situations would you NOT be able to use the one-step shortcut provided by an annuity calculation?
1. Planning an amortization table for a three-year car loan at 2%
2. Investing $2,000 per year for 10 years at 5% 3. Calculating the monthly payment on a 20-year home mortgage of$150,000 at 3%
4. Finding the present value of a fund that will pay $1,000 the first year,$2,000 in the second year, and $3,500 in the third year 2. If you invest$3,000 today, $5,000 one year from now, and$3,000 two years from now, approximately how much money will you have at the end of the third year if you invest in a fund paying 7%?
1. $11,770.24 2.$12,609.63
3. $13,187.79 4.$14,274.50
3.
You intend to invest four annual payments, starting immediately: $10,000 now, another$10,000 at the end of year 1, $12,000 at the end of year 2, and$15,000 at the end of year 3. How much will you have at the end of year 4 if the fund is always earning 6% compounded annually?
1. $53,918.13 2.$54,417.52
3. $57,685.30 4.$57,894.77
4.
You can invest a windfall of $40,000 today at 4% compounded annually. You don’t believe you can make another investment one year from now, but you believe that you can save enough that two years from now, you can deposit another$10,000 in the same investment, which will still be earning 4% compounded annually. How much will you have accumulated in this investment three years from now?
1. $50,400.00 2.$54,875.32
3. $55,394.56 4.$57,123.33
5.
Donna can invest today in a fund that will guarantee her a 5% return compounded annually for five years. She can invest $1,200 today,$1,400 one year from now, $1,800 two years from now, and$2,100 three years from now. If she can make these investments as scheduled, how much will she have accumulated five years from now?
1. $6,878.97 2.$7,632.23
3. $8,142.52 4.$8,799.49
6.
Jane wants to create a fund today that will provide her a 4% guaranteed compounded annual rate. She wants to withdraw $15,000 one year from now and$27,000 two years from now, after which the fund will be depleted. How much must she invest today to achieve this goal?
1. $42,400.00 2.$41,912.43
3. $40,775.89 4.$39,386.10
7.
You wish to draw from a fund you’re creating today with a 3% guaranteed compounded annual rate. You hope to withdraw $40,000 one year from now,$35,000 two years from now, and $25,000 three years from now, at which point the fund will be depleted. How much must you invest today to achieve this? 1.$94,704.35
2. $95,346.98 3.$95,255.12
4. \$95,945.78
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