What is the effective annual rate

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Reference no: EM132349409

Question 1:

JG Asset Services is recommending that you invest $1,400 in a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures?
Select the correct answer.

a. $1,700.36

b. $1,672.16

c. $1,662.76

d. $1,690.96

e. $1,681.56

Question 2:

The going rate of interest on a 5-year treasury bond is 4.25%. You have one that will pay $2,250 five years from now. How much is the bond worth today?

Select the correct answer.

a. $1,827.27

b. $1,821.87

c. $1,832.67

d. $1,811.07

e. $1,816.47

Question 3:

Brockman Corporation's earnings per share were $3.50 last year, and its growth rate during the prior 5 years was 11.2% per year. If that growth rate were maintained, how many years would it take for Brockman's EPS to triple?
Select the correct answer.

a. 10.35

b. 11.95

c. 15.15

d. 8.75

e. 13.55

Question 4:

Your friend offers to pay you an annuity of $8,100 at the end of each year for 3 years in return for cash today. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?
Select the correct answer.

a. $21,844.76

b. $21,870.26

c. $21,861.76

d. $21,836.26

e. $21,853.26

Question 5:

A new investment opportunity for you is an annuity that pays $1,600 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?
Select the correct answer.

a. $4,585.91

b. $4,554.11

c. $4,575.31

d. $4,543.51

e. $4,564.71

Question 6:

Suppose you earned a $360,000 bonus this year and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years?

Select the correct answer.

a. $37,327.97

b. $37,351.57

c. $37,333.87

d. $37,345.67

e. $37,339.77

Question 7:

Your girlfriend just won the Florida lottery. She has the choice of $11,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity?
Select the correct answer.

a. 7.24%

b. 7.34%

c. 7.04%

d. 6.94%

e. 7.14%

Question 8:

What's the present value of $1,475 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?
Select the correct answer.

a. $1,096.62

b. $1,102.82

c. $1,093.52

d. $1,099.72

e. $1,087.32

Question 9:

Suppose your credit card issuer states that it charges a 9.50% nominal annual rate, but you must make monthly payments, which amounts to monthly compounding. What is the effective annual rate?
Select the correct answer.

a. 10.42%

b. 9.67%

c. 9.92%

d. 9.42%

e. 10.17%

Question 10:

Billy Thornton borrowed $225,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The bank uses a 360-day year. How much interest would Billy have to pay in a 30-day month?

Select the correct answer.

a. $1,361.18

b. $1,355.78

c. $1,357.58

d. $1,362.98

e. $1,359.38

Reference no: EM132349409

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