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Assignment Unit04
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Submitted Feb 23 at 5:07pm
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Question 1
0 / 1 pts
What would be equivalent today to receiving $1 million in 20 years, using a discount rate of 8%?
Less than $214,535.00 Between $214,535.00 and $214,545.00 Correct Answer
Between $214,545.01 and $214,555.00 Between $214,555.01 and $214,565.00 More than $214,565.00 Answer: PV = 1,000,000 * (1/(1+8%)^20) = 1,000,000*0.214548=214,548.00
Unanswered
Question 2
0 / 1 pts
Sally makes a $300 car payment for 36 months. Each payment is made at the end of the month (EOM). Using a 15% discount rate and
monthly compounding, what is the present value of all these payments?
 Edit   Correct Answer
Less than $8,660.00 Between $8,660.00 and $8,670.00 Between $8,670.01 and $8,680.00 Between $8,680.01 and $8,690.00 More than $8,690.00 Answer: PV=300 * PFVS(EOM, rm=15%/12, n=36) =300 * 28.847267 = 8,654.18
Unanswered
Question 3
0 / 1 pts
Using Beginning of the Month (BOM) computation method, what is the present value factor sum (PVFS) if annual interest rate is 6% with
monthly compounding, and the number of period is 36 months?
Less than 32.75 Between 32.75 and 32.85 Between 32.86 and 32.95 Correct Answer
More than 32.95 Answer: PVFS(r=6%/12, n=36, BOM)=[(1­1/(1+6%/12)^(36­1))/(6%/12)] +1 =) =[(1­1/(1+0.005)^(35))/(0.005)] +1 =(1­
0.839823)/0.005+1=33.035371
Unanswered
Question 4
0 / 1 pts
Using End of the Month (EOM) computation method, what is the present value factor sum (PVFS) if annual interest rate is 6% with monthly
compounding, and the number of period is 36 months?
Less than 32.75 Between 32.75 and 32.85 Correct Answer
Between 32.86 and 32.95 More than 32.95 Answer: PVFS(r=6%/12, n=36, EOM)=[1­1/(1+6%/12)^36)/(6%/12) =[1­1/(1+0.005)^36]/0.005=(1­
0.835645)/0.005=32.871016
Unanswered
Question 5
0 / 1 pts
Using Beginning of the Month (BOM) computation method, what is the present value factor sum (PVFS) if annual interest rate is 12% with
monthly compounding, and the number of period is 48 months?
Less than 38.20 Between 38.20 and 38.30 Correct Answer
Between 38.31 and 38.40 More than 38.40 Answer: PVFS(r=12%/12, n=48, BOM)=[(1­1/(1+12%/12)^(48­1))/(12%/12)] +1 =) =[(1­1/(1+0.01)^(47))/(0.01)] +1 =(1­
0.626463)/0.01+1=38.353699
Unanswered
Question 6
0 / 1 pts
Using End of the Month (EOM) computation method, what is the present value factor sum (PVFS) if annual interest rate is 12% with
monthly compounding, and the number of period is 48 months?
Correct Answer
Less than 38.20 Between 38.20 and 38.30 Between 38.31 and 38.40 More than 38.40 Answer: PVFS(r=12%/12, n=48, EOM)=[1­1/(1+12%/12)^48)/(12%/12) =[1­1/(1+0.01)^48]/0.01=(1­
0.620260)/0.01=37.973959
Unanswered
Question 7
0 / 1 pts
Tony bought a new car costs $15,000, and he made a 25% down payment. What is his loan amount?
Less than $11,235.00 Between $11,235.00 and $11,245.00 Correct Answer
Between $11,245.01 and $11,255.00 Between $11,255.01 and $11,265.00 More than $11,265.00 Answer: L=15000*(1­25%)=11250
Unanswered
Question 8
0 / 1 pts
Tony bought a new car costs $15,000, and he made a 25% down payment. If Tony paid a 6% annual interest rate for a four­year loan, what
is his monthly installment payment if payment is made at the end of each month (EOM)?
Less than $250.00 Between $250.00 and $260.00 Correct Answer
Between $260.01 and $270.00 Between $270.01 and $280.00 More than $280.00 Answer: M=11250/PVFS (EOM, rm=6%/12, n=48)=11250/42.580318=264.21
Unanswered
Question 9
0 / 1 pts
There are 5 questions in this group. For convenience the information is repeated for each question. Suppose you are buying a new car. You
negotiate a price of $30,000 with the salesman, and you want to make a down payment of $2,000. He then offers you two options in terms
of dealer financing: (1) You pay a 12% annual interest rate for a three­year loan, and they will match your down payment (meaning they will
give you $2,000 to be added to your down payment); or (2) You get a 6% annual interest rate on a three­year loan without any rebate.
Please use monthly compounding with end of the month (EOM) calculation. The goal of this exercise is to figure out which option is better
by comparing monthly payments. For option (1), what is the loan amount?
$30,000 $28,000 Correct Answer
$26,000 $24,000 None of the above. Answer: L=30000­2000­2000=26000.
Unanswered
Question 10
0 / 1 pts
Suppose you are buying a new car. You negotiate a price of $30,000 with the salesman, and you want to make a down payment of $2,000.
He then offers you two options in terms of dealer financing: (1) You pay a 12% annual interest rate for a three­year loan, and they will match
your down payment (meaning they will give you $2,000 to be added to your down payment); or (2) You get a 6% annual interest rate on a
three­year loan without any rebate. Please use monthly compounding with end of the month (EOM) calculation. The goal of this exercise is
to figure out which option is better by comparing monthly payments. For option (1), what is your monthly payment?
Less than $830.00 Between $830.00 and $840.00 Between $840.01 and $850.00 Between $850.01 and $860.00 Correct Answer
More than $860.00 Answer: M= 26000 / PVFS (rm=12%/12, n=36, EOM)=26000/30.107505=863.57
Unanswered
Question 11
0 / 1 pts
Suppose you are buying a new car. You negotiate a price of $30,000 with the salesman, and you want to make a down payment of $2,000.
He then offers you two options in terms of dealer financing: (1) You pay a 12% annual interest rate for a three­year loan, and they will match
your down payment (meaning they will give you $2,000 to be added to your down payment); or (2) You get a 6% annual interest rate on a
three­year loan without any rebate. Please use monthly compounding with end of the month (EOM) calculation. The goal of this exercise is
to figure out which option is better by comparing monthly payments. For option (2), what is the loan amount?
$30,000 Correct Answer
$28,000 $26,000 $24,000 None of the above. Answer: L=30000­2000=28000
Unanswered
Question 12
0 / 1 pts
Suppose you are buying a new car. You negotiate a price of $30,000 with the salesman, and you want to make a down payment of $2,000.
He then offers you two options in terms of dealer financing: (1) You pay a 12% annual interest rate for a three­year loan, and they will match
your down payment (meaning they will give you $2,000 to be added to your down payment); or (2) You get a 6% annual interest rate on a
three­year loan without any rebate. Please use monthly compounding with end of the month (EOM) calculation. The goal of this exercise is
to figure out which option is better by comparing monthly payments. For option (2), what is your monthly payment?
Less than $825.00 Between $825.00 and $835.00 Between $835.01 and $845.00 Correct Answer
Between $845.01 and $855.00 More than $855.00 Answer: M=28000 / PVFS (rm=6%/12, n=36, EOM)= 28000/32.871016=851.81
Unanswered
Question 13
0 / 1 pts
Suppose you are buying a new car. You negotiate a price of $30,000 with the salesman, and you want to make a down payment of $2,000.
He then offers you two options in terms of dealer financing: (1) You pay a 12% annual interest rate for a three­year loan, and they will match
your down payment (meaning they will give you $2,000 to be added to your down payment); or (2) You get a 6% annual interest rate on a
three­year loan without any rebate. Please use monthly compounding with end of the month (EOM) calculation. The goal of this exercise is
to figure out which option is better by comparing monthly payments. Which option is better?
Option (1). Correct Answer
Option (2). The two options are equally good. Answer: Because the length of the loan and the down payment amounts are the same for these two options, the
consumer only needs to compare monthly payment. Option (2) has the lower monthly payment and is thus better.
Unanswered
Question 14
0 / 1 pts
There are 3 questions in this group. For convenience the information is repeated for each question. Suppose you won some prize money
and you are offered two options to receive payments. Option (1) is to receive $500 in two years, and option (2) is to receive $750 in five
years. The goal of this exercise is to find out which option is better if money can be invested at 7% interest rate, annually compounded.
First, what is the present value of receiving $500 in two years?
Less than $420.00 Between $420.00 and $430.00 Correct Answer
Between $430.01 and $440.00 Between $440.01 and $450.00 More than $450.00 Answer: PV=500* PVF(r=7%, n=2)=500*(1 /(1+7%)^2)=500*0.873439=436.72
Unanswered
Question 15
0 / 1 pts
Suppose you won some prize money and you are offered two options to receive payments. Option (1) is to receive $500 in two years, and
option (2) is to receive $750 in five years. The goal of this exercise is to find out which option is better if money can be invested at 7%
interest rate, annually compounded. What is the present value of receiving $750 in five years?
Less than $500.00 Between $500.00 and $510.00 Between $510.01 and $520.00 Between $520.01 and $530.00 Correct Answer
More than $530.00 Answer: PV=750*PVF(r=7%, n=5) = 750*((1/(1+7%)^5)=750*0.712986=534.74
Unanswered
Question 16
0 / 1 pts
Suppose you won some prize money and you are offered two options to receive payments. Option (1) is to receive $500 in two years, and
option (2) is to receive $750 in five years. The discount rate is 7% compounded annually. Which option is better?
Having $500 in two years is better. Correct Answer
Having $750 in five years is better. These two options are equal. Answer: Option (2) is better because it has a higher PV compared to Option (1).
Unanswered
Question 17
0 / 1 pts
Kate won a lottery and she faces two options in receiving the money. Option (1) is to receive $150,000 right now. Option (2) is to receive
$25,000 per year for the next 10 years (EOM). Kate's discount rate is 10%. The goal of this exercise is to figure out which option is better
for Kate. First, what is the present value of receiving $150,000 today?
Less than $150,000 Correct Answer
$150,000 More than $150,000 Answer: $150,000. No discount needed as it is received now.
Unanswered
Question 18
0 / 1 pts
There are 3 questions in this group. For convenience the information is repeated for each question. Kate won a lottery and she faces two
options in receiving the money. Option (1) is to receive $150,000 right now. Option (2) is to receive $25,000 per year for the next 10 years
(EOM). Kate's discount rate is 10%. What is the present value of receiving $25,000 per year for the next 10 years, annual compounding?
Less than $153,600.00 Between $153,600.00 and $153,610.00 Correct Answer
Between $153,610.01 and $153,620.00 Between $153,620.01 and $153,630.00 More than $153,630.00 Answer: PV=25000*PVFS (EOM, r=10%, n=10)=25000*6.144567=153,614.18
Unanswered
Question 19
0 / 1 pts
Kate won a lottery and she faces two options in receiving the money. Option (1) is to receive $150,000 right now. Option (2) is to receive
$25,000 per year for the next 10 years (EOM). Kate's discount rate is 10%. Which option is better?
Receiving $150,000 right now is better. Correct Answer
Receiving $25,000 per year for the next 10 years is better. These two options are equal. Answer: Option (2) receiving $25,000 per year for the next 10 years is better.
Unanswered
Question 20
0 / 1 pts
What equal monthly payment will $10,000 generate for 24 months if 6% annual interest rate can be earned, compounded monthly? The
payments are received at the end of each month (EOM).
Less than $430.00. Between $430.00 and $440.00. Correct Answer
Between $440.01 and $450.00. Between $450.01 and $460.00. More than $460.00. Answer: M=10000/PVFS (EOM, rm=6%/12, n=24) =10000/22.562866 = 443.21
Unanswered
Question 21
0 / 1 pts
What equal monthly payment will $10,000 generate for 36 months if 6% annual interest rate can be earned, compounded monthly? The
payments are received at the end of each month (EOM).
Less than $300.00 Correct Answer
Between $300.00 and $310.00 Between $310.01 and $320.00 Between $320.01 and $330.00 More than $330.00 Answer: M=10000/PVFS (EOM, rm=6%/12, n=36) = 10000/32.871016=304.22
Unanswered
Question 22
0 / 1 pts
Jimmy wants to get $1000 at the end of each year (EOM) from an initial fund of $5000. How long will the fund last if the annual interest rate
is 8% compounded annually?
less than 5 years between 5 and 6 years Correct Answer
between 6 and 7 years greater than 7 years Answer: Number of years should be a number that has a PVFS that is closest to 5000/1000=5. You should start out
trying a number that is slightly bigger than 5, such as 6 or 7, and then go from there. PVFS (EOM, r=8%, 6)=4.622880
PVFS (EOM, r=8%, 7)=5.206370 Because 5 is between 4.622880 (6 years) and 5.206370 (7 years), the answer is
between 6 to 7 years. The exact solution is: 5=PVFS (r=8%, n=?, EOM) = 5=[1­ 1/(1+8%)^n]/8%, n=log(1/0.6)/log(1.08)
=0.221849/0.0334238=6.64 years
Unanswered
Question 23
0 / 1 pts
To bring one dollar in the future back to present, one uses
future value factor sum future value factor present value factor sum Correct Answer
present value factor Unanswered
Question 24
0 / 1 pts
Discount rate is
similar to an interest rate a measure of rate of time preference higher when one is more present­oriented Correct Answer
all of the above only a and b are correct Unanswered
Question 25
0 / 1 pts
For annuity computation, one uses
future value factor sum future value factor Correct Answer
present value factor sum present value factor Unanswered
Question 26
0 / 1 pts
The BOM PVFS formula is an easy way to compute which of the follow computation, where r is the interest rate and n is the number of
periods?
(1+r)0+(1+r)1+ …+ (1+r)n­1
(1+r)1+(1+r)2+ …+ (1+r)n
Correct Answer
1/(1+r)0+1/(1+r)1+ …+ 1/(1+r)n­1
1/(1+r)1+1/(1+r)2+ …+ 1/(1+r)n
Unanswered
Question 27
0 / 1 pts
The EOM PVFS formula is an easy way to compute which of the follow computation, where r is the interest rate and n is the number of
periods?
(1+r)0+(1+r)1+ …+ (1+r)n­1
(1+r)1+(1+r)2+ …+ (1+r)n
1/(1+r)0+1/(1+r)1+ …+ 1/(1+r)n­1
Correct Answer
1/(1+r)1+1/(1+r)2+ …+ 1/(1+r)n
Unanswered
Question 28
0 / 1 pts
When PVFS formula is applied in otherwise similar saving situations, the EOM formula will always yield ____ saving amount at the end
compared to the BOM formula.
Correct Answer
a lower a higher the same Unanswered
Question 29
0 / 1 pts
The value of a dollar received today is ______ the value of dollar received a year from today.
Correct Answer
more than less than the same as Unanswered
Question 30
To compute equal monthly installment payments such as car payments, one uses
future value factor sum future value factor 0 / 1 pts
Correct Answer
present value factor sum present value factor Quiz Score: 0 out of 30