Finance Essay

714 Words Sep 22nd, 2014 3 Pages
Question 1
When you retire 40 years from now, you want to have $1.2 million. You think you can earn an average of 12 percent on your investment. To meet your goal, you are trying to decide whether to deposit lump sum today, or to wait and deposit a lump sum 2 years from today. How much more will you have to deposit as a lump sum if you wait for 2 years before making the deposit?

A)$1414.14 B)$2319.47 C)$2891.11 D)$3280.78 E)$3406.78

Question 2
Samantha opened a savings account this morning. Her money will earn 5 percent interest, compounded annually. After five years, her savings account will be worth $5000. Assume she will not make any withdrawals. Given this, which one of the following statements is true?

A) Samantha
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His holdings are now worth $598100. What is his annual rate of return on this stock?

A) 14.13% B) 14.24% C) 14.29% D) 14.37% E) 14.68%

Question 7
You are comparing two investment options that each pay 5 percent interest, compounded annually. Both options will provide you with $12000 of income. Options A pays three annual payments starting with $2000 the first year followed by two annual payments of $5000 each. Option B pays three annual payments of $4000 each. Which one of the following statements is correct given these two investment options?

A) Both options are of equal value given that they both provide $12000 of income
B) Option A has the higher future value at the end of year three
C) Option B has a higher present value at time zero than does option A
D) Option B is a perpetuity
E) Option A is an annuity

Question 8
You just won a national sweepstakes! For your prize, you opted to receive never0ending payments. The first payment will be $12500 and will be paid one year from today. Every year thereafter, the payments will increase by 3.5 percent annually. What is the present value of your prize at a discount rate of 8 percent?

A)$166666.67 B)$248409.19 C)$277777.78 D)$291006.12 E)$300000.00

Question 9
Southern Tours is considering

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