Q1. Aaron plans to invest $20,000 at the end of Year 1, $44,000 at the end of Ye

Q1. Aaron plans to invest $20,000 at the end of Year 1, $44,000 at the end of Year 2, and $53,000 at the end of Year 3. You want to have the same amount of money as Aaron three years from now, but you want to make one lump sum investment today. What amount must you invest today if you both earn 9.7 percent per year, compounded annually?
Q2. You want to save an equal amount each year for the next 38 years, at which time you will retire. What amount of annual savings are needed if you desire a retirement income of $55,000 per year for 25 years and earn 7.5 percent, compounded annually?
Q3. Twenty-two years ago, a particular violin cost $2,000. Today, that same violin costs $21,472. What has been the inflation rate on this instrument?
Q4. Several years ago, Jacquelyn invested $6,000. Today, that investment is worth $97,920. It has earned an average annual rate of return of 9.5 percent, compounded annually. How long ago did Jacquelyn make her investment?
Q5. Assume the annual percentage rate is 8 percent. The highest effective annual rate that can be derived from it is computed as:
Q6. A credit card compounds interest monthly and has an effective annual rate of 12.67 percent. What is the annual percentage rate?
Q7. What is the effective annual rate if your credit card charges you 10.64 percent compounded daily? (Assume a 365-day year.)
Q8. You have $2,500 to deposit into a savings account. The five banks in your area offer the following rates. In which bank should you deposit your savings?
Q9. A preferred stock pays an annual dividend of $6.50 per share and has an annual rate of return of 7.35 percent. What is the stock price?
Q10. Kwame is willing to pay $185 per month for four years for a car payment. If the interest rate is 4.9 percent per year, compounded monthly, and he makes a cash down payment of $2,500, what price car can he afford to purchase?
Q11. Geller & Lao will deposit $3,000 per quarter for the next three years. The first deposit will be made today. The money is expected to earn 2.75 percent per year, compounded quarterly. If the company had wanted to deposit one lump sum today, rather than make quarterly deposits, how much would it have had to deposit to have the same amount saved at the end of the three years?
Q12. You are comparing two annuities with equal present values. The applicable discount rate is 6.5 percent per year, compounded annually. One annuity will pay $2,000 per year, starting today, for 20 years. The second annuity will pay an annual amount, starting one year from today, for 20 years. What is the annual payment for the second annuity?
Q13. An annuity costs $70,000 today, pays $3,500 per year, and earns a return of 4.5 percent. What is the length of the annuity time period?
Q14. Christina will receive annuity payments of $1,200 per year for five years, with the first payment occurring at Year 4. What is the value of this annuity to her today at a discount rate of 7.25 percent?
Q15. Seven years ago, Carlos took out a mortgage for $185,000 at 5.6 percent, compounded monthly, for 30 years. He has made all of the monthly payments as agreed. What is his current loan balance?
Q16. Project A has an initial cost of $75,000 and annual cash flows of $33,000 for three years. Project B costs $60,000 and has cash flows of $25,000, $30,000, and $25,000 for Years 1 to 3, respectively. Projects A and B are mutually exclusive. The incremental IRR (cross-over rate) is _______ percent and if the required rate is higher than the crossover rate then Project _______ should be accepted.
Q17. Michaela has been offered an employment contract for ten years at a starting salary of $65,000 with guaranteed raises of 5 percent per year. What is the current value of this offer at a discount rate of 7 percent?