## financial management principles and applications, 13e – sheridan titman, arthur j. keown _ john h. martin tb

Financial Management: Principles & Applications, 13e (Titman)

Chapter 6 The Time Value of Money-Annuities and Other Topics

1) You wish to borrow $2,000 to be repaid in 12 monthly installments of $170.30. The annual interest rate is

A) 24%.

B) 4%.

C) .04%.

D) 22%.

Answer: B

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: New question

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

2) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years?

A) $3,525.62

B) $5,008.76

C) $3,408.88

D) $2,465.78

Answer: B

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

3) If you invest $750 every six months at 8% compounded semi-annually, how much would you accumulate at the end of 10 years?

A) $10,065

B) $10,193

C) $22,334

D) $21,731

Answer: C

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

4) A commercial bank will loan you $17,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The annual interest rate on the loan is 6% of the unpaid balance. What is the amount of the monthly payments?

A) $1,394.98

B) $688.11

C) $3779.39

D) $775.61

Answer: D

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: New question

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

5) 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% interest per year, how many loan payments must the company make?

A) 15

B) 13

C) 12

D) 19

Answer: A

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

6) Ordinary annuities assume that cash flows occur

A) at the beginning of a period.

B) at the end of a period.

C) annually

D) Both B and C

Answer: B

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: New question

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

7) When comparing annuity due to ordinary annuities, annuity due annuities will have higher

A) present values.

B) annuity payments.

C) future values.

D) both A and C.

E) all of the above.

Answer: D

Diff: 3

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

8) Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina’s plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%. Round off to the nearest $1.

A) $1,497

B) $5,281

C) $75

D) $3,622

Answer: A

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

9) Francis Peabody just won the $89,000,000 California State Lottery. The lottery offers the winner a choice of receiving the winnings in a lump sum or in 26 equal annual installments to be made at the beginning of each year. Assume that funds would be invested at 7.65%. Francis is trying to decide whether to take the lump sum or the annual installments. What is the amount of the lump sum that would be exactly equal to the present value of the annual installments? Round off to the nearest $1.

A) $89,000,000

B) $38,163,612

C) $13,092,576

D) $41,083,128

Answer: D

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

10) As the number of monthly payments on a loan increases, the size of each payment ________ and the total interest paid over the life of the loan ________.

A) increases, decreases

B) decreases, stays the same

C) stays the same, decreases

D) decreases, increases

Answer: D

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: New question

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

11) What is the present value of an annuity of $27 received at the beginning of each year for the next six years? The first payment will be received today, and the discount rate is 10% (round to nearest $10).

A) $120

B) $130

C) $100

D) $110

Answer: B

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

12) What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today. Use a discount rate of 9%, and round your answer to the nearest $10.

A) $1,360

B) $1,480

C) $1,250

D) $1,210

Answer: A

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

13) What is the present value of $250 received at the beginning of each year for 21 years? Assume that the first payment is received today. Use a discount rate of 12%, and round your answer to the nearest $10.

A) $1,870

B) $2,090

C) $2,117

D) $3,243

Answer: C

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

14) What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%. The first payment will be received one year from today (round to the nearest $1).

A) $25

B) $40

C) $57

D) $118

Answer: C

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

15) What is the present value of an annuity of $100 received at the end of each year for seven years? The first payment will be received one year from today (round to nearest $10). The discount rate is 13%. To solve this problem with a financial calculator, the correct choice is

A) N=7, i=13, PMT= 100, FV=0, solve for PV.

B) N=7, i=13, PV= 100, FV=0, solve for FV.

C) N=7, i=13, PMT= 100, FV=100, solve for PV.

D) N=7, i=.13, PMT= 100, FV=0, solve for PV.

Answer: A

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

16) What is the present value of $27 received at the end of each year for five years? Assume a discount rate of 9%. The first payment will be received one year from today (round to the nearest $1).

A) $42

B) $114

C) $88

D) $105

Answer: D

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

17) What is the present value of $300 received at the beginning of each year for five years? Assume that the first payment is not received until the beginning of the third year (thus the last payment is received at the beginning of the seventh year). Use a 10% discount rate, and round your answer to the nearest $1.00.

A) $1,137

B) $854

C) $940

D) $1,257

Answer: C

Diff: 3

AACSB: 3. Analytic thinking skills

Question Status: New question

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

18) Ingrid Birdman can earn a nominal annual rate of return of 12%, compounded semiannually. If Ingrid made 40 consecutive semiannual deposits of $500 each, with the first deposit being made today, how much will she accumulate at the end of Year 20? Round off to the nearest $1.

A) $52,821

B) $57,901

C) $82,024

D) $64,132

Answer: C

Diff: 2

AACSB: 3. Analytic thinking skills

Question Status: Previous edition

Objective: 6.1 Distinguish between an ordinary annuity and an annuity due and calculate the present and future values of each.

Keywords: annuities

Principles: Principle 1: Money Has a Time Value

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