29 Jun Question 3. Ashley is planning to attend
Question
3. Ashley is planning to attend college when she graduates from high school 7 years from now. She anticipates that she will need $10,000 at the beginning of each college year to pay for tuition and fees, and have some spending money. Ashley has made an arrangement with her father to do the household chores if her dad deposits $3,500 at the end of each year for the next 7 years in a bank account paying 8 percent interest. Will there be enough money in the account for Ashley to pay for her college expenses on the day she starts College? Assume the rate of interest stays at 8 percent during the college years.
No, she needs additional $1,891.46
No, she needs additional $2,043.77
No, she needs additional $4,541.16
No, she needs additional $8,770.19
Yes, she has sufficient funds to cover her expenses.
4. Today is Jan. 1, 2012. Starting today you plan to invest $2000 every year, first deposit today and last deposit on Jan. 1, 2032. After that, you plan to leave the money in the same account until Jan. 1, 2040. However, the interest rate is 6% compounded quarterly until your last deposit and only 9% compounded annually after that. How much money will you have in your account on Jan. 1, 2040?
$83,687.63
$150,714.94
$161,875.93
$165,575.63
None of the above
5. You are saving for the college education of your two children. They are three years apart in age; one will begin college in 7 years, and another in 10 years. You estimate your first child’s college expenses to be $30,000 per year, paid at the beginning of each college year (first payment is at year 7 and so on). You estimate your second child’s college expenses to be $50,000 per year, paid at the beginning of each college year (first payment at year 10 and so on). The annual interest rate is 8 percent. How much money must you deposit in an account each year to fund your children’s education? You will begin payments one year from today. You will make your last deposit when your oldest child enters college. Also assume that each child will take 4 years to graduate from college.
$45,714.29
$35,863.17
$25,869.35
$27,938.94
None of the above
6. Ken borrows $15,000 from a bank at 10 percent annually compounded interest to be repaid in six equal installments. Calculate the interest paid in the second year.
$3,444.32
$1,944.32
$2,138.82
$1,305.57
None of the above
7. Elizabeth has $35,000 in an investment account. Her goal is to have the account grow to $100,000 in 10 years without having to make any additional contributions to the account. What effective annual rate of interest would she need to earn on the account in order to meet her goal?
9.03%
11.07%
10.23%
8.65%
12.32%
8. You are currently investing your money in a bank account that has a nominal annual rate of 7 percent, compounded monthly. How many years will it take for you to double your money?
8.67
9.15
9.50
9.93
10.25
9. Today, Bruce and Brenda each have $150,000 in an investment account. No other contributions will be made to their investment accounts. Both have the same goal: They each want their account to reach $1 million, at which time each will retire. Bruce has his money invested in risk-free securities with an expected annual return of 5 percent. Brenda has her money invested in a stock fund with an expected annual return of 10 percent. How many years after Brenda retires will Bruce retire? Pick the closest answer.
12.6
19.0
19.9
29.4
38.9
10. Today is your 20th birthday. Your parents just gave you $5,000 that you plan to use to open a stock brokerage account. Your plan is to add $3,000 on your 21st birthday, followed by $4,000 on your 22nd birthday, and $5,000 on your 23rd birthday. How much money do you anticipate that you will have in the account on your 25th birthday, if your account earns 12% interest compounded monthly?
$25,423.98
$25,991.91
$28,474.86
$22,699.98
None of the above
11. You have $2,000 invested in a bank account that pays a 4 percent nominal annual interest with daily compounding. How much money will you have in the account at the end of July (in 132 days)? (Assume there are 365 days in each year.)
$2,029.14
$2,028.93
$2,040.00
$2,023.44
$2,023.99
16. You want to buy a new sports car 3 years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the 3rd deposit, 3 years from now?
$11,973
$12,603
$13,267
$13,930
$14,626
17. What’s the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%?
$8,509
$8,957
$9,428
$9,924
$10,446
18. Your grandmother just died and left you $100,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?
$24,736
$26,038
$27,409
$28,779
$30,218
19. Ms. Day needs $20,000 to buy her dream car. In her search for the best (low cost) loan, she has gathered the following information from three local banks. Which bank would you recommend Ms. Day borrow from?
Bank Annual Payment Term (Years)
A $8,326.40 3
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