Question

1. Today you deposited $15,000 into a 5-year CD that will pay 6 percent interest. How much will you withdraw from the account in 5 years? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

2. You have a retirement account that earns 5 percent annual interest with the total account balance of $400,000. How much a year can you withdraw for next 20 years if your first withdrawal starts a year from today? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

3. Daria plans to retire in 20 years and wants to know how much she will need to have in her account when she retires. She wants to be able to withdraw $5,000 per month for 25 years of retirement, and she expects her account to earn a nominal rate of 9 percent per year. Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

4. Today, you start working for University of Houston as administrative staff. You decided to invest $500 a month in a fund that is expected to earn 6 percent annual interest. If you start monthly contribution of $500 today for 35 years, how much will you have in 35 years? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

5. Your company is projected to make $100,000 forever and the company’s cost of capital is 8 percent. What is the value of this perpetuity? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

6. You are considering investment that is going to pay $1,500 a month starting 20 years from today for 15 years. If you can earn 8 percent return on any investment, compounded monthly, how much at most are you willing to pay for this investment opportunity? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

7. Today, you graduated from high school. You are planning to go to UH starting 2 years from now after volunteering abroad. The tuition will be due at the beginning of school year. You will start paying tuitions in two years, and the amount will be $15,000, $15,750, $16,550, and $17,700. How much do you need to have in your account today if you can earn 8% on your account compounded annually? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)

8. What is the effective annual yield of 8% compounded monthly? Answer in the percent format. Round to the nearest hundredth percent. Do not include any unity (If your answer is 4.36%, then enter 4.36 as your answer without % sign).

9.

Which of the following statements is correct?

• a. A perpetuity has inconsistent payments forever.
• b. An annuity due has payments at the beginning of each period which continue for a fixed period of time.
• c. An ordinary annuity has payments at the end of each period which continue forever.
• d. Only A and C
• e. None of the above

10.

If you are calculating how much you need to deposit today into an account with an interest rate of 5 percent in order to withdraw $50,000 in 5 years for a mortgage down payment, you are:

• Discounting
• Analyzing
• Loaning
• Compounding
• None of the above

Answer 1

1.
=15000*1.06^5=20073.38366

2.
=400000*5%/(1-1/1.05^20)=32097.03488

3.
=5000/(9%/12)*(1-1/(1+9%/12)^(12*25))=595808.1108

4.
=500/(6%/12)*(1-1/(1+6%/12)^(12*35))*(1+6%/12)*(1+6%/12)^(12*35)=715916.9251

5.
=100000/8%=1250000

6.
=1500/(8%/12)*(1-1/(1+8%/12)^(12*15))*1/(1+8%/12)^(12*20)=31858.56945

7.
=15000/1.08^1+15750/1.08^2+16550/1.08^3+17700/1.08^4=53539.92729

8.
=(1+8%/12)^12-1=8.3000%

9.
b. An annuity due has payments at the beginning of each period which continue for a fixed period of time.

10.
Discounting