Question

1. If someone offers you $20,000 in 4 years for an investment of $10,000 today, what is the annual rate of return?

A. 25.74%

B. 18.92%

C. 10.00%

D. 8.76%

2. What is the present value of an annuity that pays $500 at the end of the year for 10 years when the interest rate is 7%?

A. $5,318.01

B. $3,511.79

C. $3,126.89

D. $2,276.98

3. What is the NPV of $100 received in 1 year, 400 received in 2 years and 600 received in 3 years when the interest rate is 10%? (express your answer in dollars and cents)

__________

4. Consider the following of a $15,000 car over 4 years with monthly payments based on an APR of 6% compounded monthly?

A) What is the monthly payment?

A. $352.28

B. $312.50

C. $470.05

D. $331.25

B) How much of the 1st payment is interest?

A. $277.98

B. $18.75

C. $75.00

D. $900.00

Thank you in advance!!!

Answer 1

1.

FV = $20,000

PV = $10,000

T = 4 years

FV = PV(1+r)^t

r = 18.92%

Option B is correct

2.

Annual Cash flow = $500

Interest Rate = 7%

Period = 10 years

$Present Value of Annuity = \sum_{t=1}^{10} 500/(1 + 0.07)^t$

Present Value of Annuity = $3,511.79

Option B is correct

3.

$NPV = \sum_{t=1}^{n} C_{t}/(1+r)^t$

NPV = $872.28

4.

Price of Car = $15,000

Interest Rate = 6% compounded monthly

Period = 48 months

Using TVM calculation,

PMT = [PV = 15000, FV = 0, T = 48 months, R = 6%]

PMT = $352.28

Option A is correct.