The true cost of lending is the
A) annual percentage rate.
B) effective annual rate.
C) quoted interest rate.
D) none of the above.
Answer: B
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- PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest rate of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the next four years as complete repayment of the loan with interest. How much did he loan out to his brother? (Round to the nearest dollar.)
- FV of multiple cash flows: International Shippers, Inc., have forecast earnings of $1, 233,400, $1,345,900, and $1,455,650 for the next three years. What is the future value of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.)
- FV of multiple cash flows: Shane Matthews has invested in an investment that will pay him $6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive? (Round to the nearest dollar.)
- FV of multiple cash flows: Tariq Aziz will receive from his investment cash flows of $3,125, $3,450, and $3, 800. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at the end of three years? (Round to the nearest dollar.)
- FV of multiple cash flows: Stiglitz, Inc., is expecting the following cash flows starting at the end of the year—$113,245, $132,709, $141,554, and $180,760. If their opportunity cost is 9.6 percent, find the future value of these cash flows. (Round to the nearest dollar.)
- FV of multiple cash flows: Chandler Corp. is expecting a new project to start producing cash flows, beginning at the end of this year. They expect cash flows to be as follows:
- Rate of growth: Link Net, Inc. just generated earnings per share of $3.75 for the fiscal year ending September 30, 2010. The firm is expected to achieve earnings per share of $8.76 in 5-years. At what rate will Link Net, Inc.'s earnings per share be growing over this 5-year period? (Round off to the nearest 1/10 percent)
- Number of Periods it Takes an Investment to Grow a Certain Amount: Sally Wilson is planning her retirement. She is presently investing in a 401(k) but needs an additional $500,000 to reach her retirement goal. As luck would have it, Sally just won a brand new car that is worth $36,000 in a raffle. If Sally were to sell the car and invest the $36,000 proceeds at a rate of 6.50%, compounded annually, how long will it be before Sally could retire? (Round off to the nearest 1/10 of a year)
- Present Value: Juan and Carla Herman plan to buy a time-share in six years in the amount of $16,860. In order to have adequate funds to do so, the Herman's want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Carla need to deposit today to achieve their goal? (Round off to the nearest dollar.)
- Future Value: Herbert Hall just received an inheritance of $35,775 from his great aunt. He plans to invest the funds for retirement. If Herbert can earn 4.75% per year with quarterly compounding for 32 years, how much will he have accumulated? (Round off to the nearest dollar.)
- Time to attain goal: Cheryl Merriweather wants to invest in a bank CD that will pay her 7.8 percent annually. If she is investing $11,500 today, when will she reach her goal of $15,000? (Round off to the nearest year.)
- Time to attain goal: Ryan Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually. How many years will it take for his investment to grow to $10,000? (Round off to the nearest year.)
- Time to attain goal: Franklin Foods announced that its sales were $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.)
- Time to attain goal: Elegant Designers have generated sales of $625,000 for the current year. If they can grow their sales at a rate of 12 percent every year, how long will they take to triple their sales? (Round off to the nearest year.)
- Time to attain goal: Your uncle is looking to double his investment of $10,000. He claims he can get earn 14 percent on his investment. How long will it be before he can double his investment? Use the Rule of 72 and round to the nearest year.
- Growth rate: Vidmar Agencies is a fast-growing advertising agency. Currently, their sales are at $700,000. They expect their sales to grow at an annual rate of 35 percent in the next two years, followed by an annual rate of 25 percent in years 3 through 7. Finally, their growth rate would slow down to 10 percent in years 8-10. What will be their sales as of year 10? (Round to the nearest dollar.)
- Growth rate: Peterson Electrical Supplies has generated a net income of $161,424 this year. The firm expects to see an annual growth of 30 percent for the next five years, followed by a growth rate of 15 percent for each of the next three years. What will be the firm's expected net income in eight years? (Round to the nearest dollar.)
- Growth rate: Cleargen, a detergent manufacturer, has announced this year's net income as $832,500. It expects its net earnings to grow at a rate of 15 percent per year for the next two years, before dropping to 12 percent for each of the following two years. What is the firm's net income after four years? (Round to the nearest dollar.)
- Growth rate: Petry Corp. is a growing company with sales of $1.25 million this year. The firm expects to grow at an annual rate of 25 percent for the next three years, followed by a growth of 20 percent per year for the next two years. What will be Petry's sales at the end of five years? (Round to the nearest percent.)
- Growth rate: Trojan Traps manufactures an innovative mouse trap. Sales this year are $325,000. The company expects its sales to go up to $500,000 in five years. What is the expected growth rate in sales for this firm? (Round to the nearest percent.)
- Interest rate: Trayne Rice has $3,000 to invest for three years. He wants to receive $5,000 at the end of the three years. What invest rate would his investment have to earn to achieve his goal? (Round to the nearest percent.)
- Interest rate: Pedro Martinez wants to invest $25,000 in a spa that his sister is starting. He will triple his investment in six years. What is the rate of return that Pedro is being promised? (Rounded to the nearest percent.)
- Interest rate: Ray Seo has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment?
- Interest rate: Rachael Steele wants to borrow $6,000 for a period of four years. She has two choices. Her bank is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow from her firm and will have to repay a total of $8,130.93 at the end of four years. Should Rachael go with her bank or the firm, and what is the interest rate if she borrows from her firm? (Round to the nearest percent.)
- Interest rate: Your tuition for the coming year is due today. You borrow $8,000 from your uncle and agree to repay in the three years an amount of $9,250. What is the interest rate on this loan? Round to the nearest percent.
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