10 May WHAT IS THE EFFECTIVE ANNUAL RATE ON AN INVESTMENT THAT PAYS AN INTEREST OF 6.25% CONTINUOUSLY?
Lesson 4: Time Value of MoneyQuestion 1 You have just won the lottery. The Lottery Corporation offers you two options:· a lump-sum payment of $1 million or· an annual installment of $100 000 over the next 15 years.At what interest rate r will you be indifferent between the two options?Select one:a. 10.00%b. 7.75%c. 5.56%d. 2.74%e. 50.00%Question 5Juliet has a 10-year mortgage of $500 000 with an interest rate of 3.5% APR compounded quarterly. Mortgage payments are made at the beginning of each month. What is the balance remaining on this mortgage after the 60th payment?Select one:a. $216 077b. $270 937c. $275 065d. $266 797e. $250 000Question 6A 10-year investment will pay $1 800 at the end of this year and the payments will grow at a rate of 5% per year. The required return is 12%. What is the present value of this investment?Select one:a. $5 590.53b. $6 985.47c. $10 170.40d. $12 228.16e. $25 714.29Question 7An investment will pay $225 per year (indefinitely) starting in one year’s time. The annual payments will grow at a rate of 3% per year. If the price of this investment is $2 000 what is its rate of return?Select one:a. 11.25%b. 14.00%c. 14.25%d. 15.00%e. 17.25%Question 8Mike Smith just turned 16 years old. He wishes to buy a used car in two years and he is willing to spend $8 000. He plans to work part-time and put all his monthly earnings into a bank account that will pay 0.25% interest per month. How much must he save per month in order to be able to purchase the car in two years?Select one:a. $754.72b. $416.67c. $405.33d. $333.33e. $323.85Question 9Given the following information calculate the rate of return.Price = $282.51 Time to maturity = 10 years Annual payment = $50 Type = annuity dueSelect one:a. 10.00%b. 11.65%c. 12.00%d. 15.73%e. 17.70%Question 10 What is the effective annual rate on an investment that pays an interest of 6.25% continuously?Select one:a. 6.45%b. 6.72%c. 6.35%d. 4.47%e. 8.68%
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