1) Auto Loans R Them loans you $24,000 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 9 percent. What is the monthly payment?
A) $500.92
B) $543.79
C) $563.82
D) $597.24
2) It is your 6th birthday today. You have a trust fund with $50,000 that is earning 8% per year. You expect to withdraw $30,000 per year for 7 years starting on your 22nd birthday for graduate school. How much money will be left in the trust fund after your last withdrawal (rounded to the nearest $10)?
A) $125,660
B) $35,780
C) $4,140
D) You will not have enough money to pay for graduate school.
3) Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make?
A) 15
B) 13
C) 12
D) 19
4) What is the present value of an annuity of $4,000 received at the beginning of each year for eight years? The first payment will be received today, and the discount rate is 9% (round to nearest $1).
A) $36,288
B) $35,712
C) $25,699
D) $24,132
5) It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the end of the 40th year? Assume that the account pays 12% interest compounded annually and round your answer to the nearest $1000.
A) $93,000
B) $766,000
C) $767,000
D) $850,000
6) Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment the day he retires. Using an interest rate of 8%, how much must Charlie invest today in order to have his retirement annuity (round to nearest $10).
A) $167,130
B) $200,450
C) $256,890
D) $315,240
7) Stock W has the following returns for various states of the economy:
State of the Economy Probability Stock W's Return
Recession 10% -30%
Below Average 20% -2%
Average 40% 10%
Above Average 20% 18%
Boom 10% 40%
Stock W's standard deviation of returns is
A) 10%.
B) 14%.
C) 17%.
D) 20%
8) Assume that you have $330,000 invested in a stock that is returning 11.50%, $170,000 invested in a stock that is returning 22.75%, and $470,000 invested in a stock that is returning 10.25%. What is the expected return of your portfolio?
A) 15.6%
B) 12.9%
C) 18.3%
D) 14.8%
9) Investment A has an expected return of 14% with a standard deviation of 4%, while investment B has an expected return of 20% with a standard deviation of 9%. Therefore
A) a risk averse investor will definitely select investment A because the standard deviation is lower.
B) a rational investor will pick investment B because the return adjusted for risk (20% - 9%) is higher than the return adjusted for risk for investment A ($14% - 4%).
C) it is irrational for a risk-averse investor to select investment B because its standard deviation is more than twice as big as investment A's, but the return is not twice as big.
D) rational investors could pick either A or B, depending on their level of risk aversion.