Question

How long does it take a present value amount to triple if the expected return is 9%?

1. 8.00 periods
2. 8.04 periods
3. 12.00 periods
4. 12.75 periods
5. insufficient information to compute

What is the PV of a 5-year annuity due (payments at beginning of period, aka annuity in advance) of $650 if the required return is 6.5%

1. 2286
2. 2434
3. 2750
4. 2877
5. insufficient information to compute

You have just taken out a 30‑year, $120,000 mortgage on your new home. This mortgage is to be repaid in 360 equal monthly installments. If the stated (nominal) annual interest rate is 10.75 percent, what is the amount of the INTEREST portion of the FIRST monthly installment?

a. $1,475

b. $1,472

c. $1,075

d. $17,700

e. insufficient information to compute

What is the EAR for a 9.5% APR with continuous compounding?

a. 7.48%

b. 9.5%

c. 9.97%

d. 10.99%

e. insufficient information to compute

Answer 1

Question 1

Let X be the amount invested

Future value = Present value * (1+ rate per period)^ no. of periods

3X = X*1.09^N

1.09^N = 3

N = log 3 / log 1.09

= 0.47712125472/0.03742649794

= 12.75 periods

Question 2

Present value of Annuity Due = A*[(1-(1+r)^-n)/r]*(1+r)

Where

A - Annuity payment = 650

r - rate per period = 6.5%

n - no. of periods = 5

Present value of Annuity Due = 650*(1-(1.065)^-5)/.065]*1.065

= 650*(1-0.72988083652)/.065]*1.065

= 650*4.15567943815*1.065

= 2877

Question 3

Interest paid = Opening Balance*APR/12

= 120000*10.75%/12

= 1075

Question 4

EAR = e^r -1

= 2.71828^.095 -1

= 1.09965878486-1

= 9.97%