1. A $50,000 municipal bond has an interest rate of 6% per year, compounded semiannually. The bond will mature in 10 years. If the market interest rate is 8% per year compounded semiannually, a person purchasing the bond should be willing to pay:
a. An amount less than $50,000
b. $50,000
c. An amount greater than $50,000
d. The amount cannot be determined from the information provided
2. Two mutually exclusive alternatives, A and B, are to be evaluated by the ROR method. The initial investment for alternative B is greater than that of alternative A. If the overall ROR of both alternatives A, and B, is greater than the MARR, then:
a. Select alternative A because it has a lower initial investment cost.
b. Select alternative B because it has a higher initial investment cost.
c. Conduct an incremental analysis and select A if the ROR of the increment exceeds the MARR
d. Conduct an incremental analysis and select B if the ROR on the increment exceeds the MARR.
3. A person purchases a $5,000, 5% per year bond, with interest payable semiannually, for the amount of $4,000. The bond has a maturity date of 14 years from now. The equation for calculating how much the person must sell the bond for 6 years from now in order to make a rate of return of 12% per year, compounded semiannually, is:
a. 0 = –4,000 + 125(P/A,6%,12) + x(P/F,6%,12)
b. 0 = –4,000 + 100(P/A,6%,12) + x(P/F,6%,12)
c. 0 = –5,000 + 125(P/A,6%,12) + x(P/F,6%,12)
d. 0 = –4,000 + 125(P/A,12%,6) + x(P/F,12%,6)
4. How much must you deposit in your retirement account each year for 10 years starting now (i.e., years 0 through 9) if you want to be able to withdraw $50,000 per year forever beginning 30 years from now? Assume the account earns interest at 10% per year.
a. $4,239
b. $4,662
c. $4,974
d. $5,471