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Assignment Unit12
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Submitted Apr 20 at 11:05am
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Question 1
0 / 1 pts
The following 5 questions are in a group. In order to avoid the domino effect of getting a wrong answer early on, I have put in numbers in
subsequent questions that may or may not be the correct answer for the previous question. These numbers are not to be used as answers
for the previous questions. Use annual compounding. Suppose you are 25 years old and you plan to retire at 65 (eligible for early retirement social security benefits). Your goal is to have enough
income after retirement to maintain a standard of living that can be bought with $50,000 today. Assume an annual inflation rate of 4%, how
much income do you need in inflated dollars when you retire in order to maintain a $50,000 worth of standard of living today?
less than $240,000 between $240,000 and $240,010 between $240,011 and $240,020 between $240,021 and $240,030 Correct Answer
more than $240,030 Answer: 50000*(1+4%)^40=240,051
Unanswered
Question 2
0 / 1 pts
Suppose in the previous question you figure out you need $240,025 per year for retirement (note this number may or may not be the correct
answer for the previous question, but please use this number for this question no matter what you got for the previous question). Now with
your income trajectory you expect to have $70,000 per year in social security benefits when you retire at 65. You will not have any pension
income. What is the gap between what you need and what Social Security can provide at retirement?
less than $170,000 between $170,000 and $170,010 between $170,011 and $170,020 Correct Answer
between $170,021 and $170,030 more than $170,030 Answer: Gap=240025­70000=170,025
Unanswered
Question 3
0 / 1 pts
Suppose in the previous question you figure out that the gap between what you need and what the Social Security can provide is $170,000
per year in retirement (note this number may or may not be the correct answer for the previous question, but please use this number for this
question no matter what you got for the previous question). You can buy an annuity that will pay you $170,000 income per year to
supplement your Social Security income. The annuity interest rate is 6%. Your life expectancy is 80 so the annuity should last 15 years.
What nest egg do you need at retirement so you can buy such an annuity?
less than $1,651,065 between $1,651,065 and $1,651,075 Correct Answer
between $1,651,076 and $1,651,085 between $1,651,086 and $1,651,095 more than $1,651,095 Answer: Annuity=170,000*PVFS(r=6%, n=15)=170,000*9.712249=1,651,082
Unanswered
Question 4
0 / 1 pts
Suppose in the previous question you figure out that the amount of nest egg you need to buy such an annuity is $1,651,000 (note this
number may or may not be the correct answer for the previous question, but please use this number for this question no matter what you
got for the previous question). Suppose you want to start saving now at the age of 25 so you have 40 years to save towards that goal.
Assume you can get a 6% annual interest rate and you want to save an equal amount of money each year. What should be your annual
saving?
less than $10,650 between $10,650 and $10,660 Correct Answer
between $10,661 and $10,670 between $10,671 and $10,680 more than $10,680 Answer: Annual saving=1,651,000/FVFS(r=6%, n=40)=1,651,000/154.761966=10,668
Unanswered
Question 5
0 / 1 pts
Now suppose you won't start saving until you are 40 years old so you have only 25 years to save for the goal of having $1,651,000 at 65.
Assume you can get a 6% annual interest rate and you want to save an equal amount of money each year. What should be your annual
saving?
less than $30,060 between $30,060 and $30,070 between $30,071 and $30,080 between $30,081 and $30,090 Correct Answer
more than $30,090 Answer: Annual saving=1,651,000/FVFS(r=6%, n=25)=1,651,000/54.864512=30,092
Unanswered
Question 6
0 / 1 pts
The following 3 questions are in one group. Relevant information will be repeated for each subsequent question. Suppose your loan is $4000 for 24 months, no­up­front costs, if the interest rate is 10%, what is your monthly payment? Please use
monthly compounding.
less than $180 Correct Answer
between $180 and $190 between $191 and $200 greater than $200 Answer: M=4000/PVFS (rm=10%/12, n=24)=4000/21.670855=184.58
Unanswered
Question 7
0 / 1 pts
Suppose your loan is $4000 for 24 months, no­up­front costs, if the interest rate is 10%, what is the APR for this loan?
less than 10% Correct Answer
10% greater than 10% not enough information to tell. If there is no up­front cost, APR is the same as the interest rate. In this case, APR=10%
Unanswered
Question 8
0 / 1 pts
Suppose now that you need to pay an up­front cost of $100 to get this $4,000 loan. How might you go around and figure out the APR?
Correct Answer
You treat the actual borrowing amount as $3,900 and figure out the interest rate associated with borrowing $3,900 and
paying the monthly payment you figured out earlier for 24 months.
You treat the actual borrowing amount as $4,100 and figure out the interest rate associated with borrowing $4,100 and
paying the monthly payment you figured out earlier for 24 months.
You treat the actual borrowing amount as $4,000 and ignore the $100 up­front fee as that is not relevant to APR
computation.
Answer: Note paying $100 to borrow $4000 is the same as borrowing only $3900.
Unanswered
Question 9
0 / 1 pts
The following 5 questions are in a group. In order to avoid the domino effect of getting a wrong answer early on, I have put in numbers in
subsequent questions that may or may not be the correct answer for the previous question. These numbers are not to be used as answers
for the previous questions. Use annual compounding. Suppose you are 25 years old and you plan to retire at 67 (eligible for social security benefits). Your goal is to have enough income after
retirement to maintain a standard of living that can be bought with $40,000 today. Assume an annual inflation rate of 3%, how much income
do you need in inflated dollars when you retire in order to maintain a $40,000 worth of standard of living today?
less than $138,400 between $138,400 and $138,410 between $138,411 and $138,420 Correct Answer
between $138,421 and $138,430 more than $138,430 Answer: 40000*(1+3%)^42=138,428
Unanswered
Question 10
0 / 1 pts
Suppose in the previous question you figure out you need $138, 483 per year for retirement (note this number may or may not be the correct
answer for the previous question, but please use this number for this question no matter what you got for the previous question). Now with
your income trajectory you expect to have $60,000 per year in social security benefits when you retire at 67. You will not have any pension
income. What is the gap between what you need and what Social Security can provide at retirement?
less than $78,460 between $78,460 and $78,470 between $78,471 and $78,480 Correct Answer
between $78,481 and $78,490 more than $78,490 Answer: Gap=138,483­60,000=78,483
Unanswered
Question 11
0 / 1 pts
Suppose in the previous question you figure out that the gap between what you need and what the Social Security can provide is $78,450
per year in retirement (note this number may or may not be the correct answer for the previous question, but please use this number for this
question no matter what you got for the previous question). You can buy an annuity that will pay you $78,450 income per year to
supplement your Social Security income. The annuity interest rate is 6%. Your life expectancy is 80 so the annuity should last 13 years.
What nest egg to you need at retirement so you can buy such an annuity?
less than $694,470 between $694,470 and $694,480 between $694,481 and $694,490 Correct Answer
between $694,491 and $694,500 more than $694,500 Answer: Annuity=78,450*PVFS(r=6%, n=13)=78,450*8.852682= 694,493
Unanswered
Question 12
0 / 1 pts
Suppose in the previous question you figure out that the amount of nest egg you need to buy such an annuity is $694,942 (note this number
may or may not be the correct answer for the previous question, but please use this number for this question no matter what you got for the
previous question). Suppose you want to start saving now at the age of 25 so you have 42 years to save towards that goal. Assume you
can get a 6% annual interest rate and you want to save an equal amount of money each year. What should be your annual saving?
less than $3,945 Correct Answer
between $3,945 and $3,955 between $3,956 and $3,965 between $3,966 and $3,975 more than $3,975 Answer: Annual saving=694,942/FVFS(r=6%, n=42)= 694,942/175.950545=3,950
Unanswered
Question 13
0 / 1 pts
Now suppose you won't start saving until you are 40 years old so you have only 27 years to save for the goal of having $694,942 at 67.
Assume you can get a 6% annual interest rate and you want to save an equal amount of money each year. What should be your annual
saving?
less than $10,885 between $10,885 and $10,895 between $10,896 and $10,905 Correct Answer
between $10,906 and $10,915 more than $10,915 Answer: Annual saving=694,942/FVFS(r=6%, n=27)= 694,942/63.705766=10,909
Unanswered
Question 14
0 / 1 pts
The following 3 questions are in one group. Relevant information will be repeated for each subsequent question. Suppose your loan is $14000 for 36 months, no­up­front costs, if the interest rate is 12%, what is your monthly payment? Please use
monthly compounding.
less than $450 between $450 and $460 Correct Answer
between $461 and $470 between $471 and $480 more than $480 Answer: M=14000/PVFS(rm=12%/12, n=36)=14000/30.107505=465.00
Unanswered
Question 15
0 / 1 pts
Suppose your loan is $14000 for 36 months, no­up­front costs, if the interest rate is 12%, what is the APR for this loan?
less than 12% Correct Answer
12% greater than 12% not enough information to tell. Unanswered
Question 16
0 / 1 pts
Suppose now that you need to pay an up­front cost of $200 to get this $14,000 loan. How might you go around and figure out the APR?
You treat the actual borrowing amount as $13,900 and figure out the interest rate associated with borrowing $13,900
and paying the monthly payment you figured out earlier for 36 months.
Correct Answer
You treat the actual borrowing amount as $13,800 and figure out the interest rate associated with borrowing $13,800
and paying the monthly payment you figured out earlier for 36 months.
You treat the actual borrowing amount as $14,200 and figure out the interest rate associated with borrowing $14,200
and paying the monthly payment you figured out earlier for 36 months.
You treat the actual borrowing amount as $14,000 and ignore the $200 up­front fee as that is not relevant to APR
computation.
Answer: Note paying $200 to borrow $14000 is the same as borrowing only $13800.
Unanswered
Question 17
0 / 1 pts
The following 3 questions are in one group. Relevant information will be repeated for each subsequent question. Suppose your loan is $54000 for 120 months, no­up­front costs, if the interest rate is 8%, what is your monthly payment? Please use
monthly compounding.
less than $630 between $630 and $640 between $641 and $650 Correct Answer
between $651 and $660 more than $660 Answer: M=54000/PVFS(rm=8%/12, n=120)=54000/82.421474=655
Unanswered
Question 18
0 / 1 pts
Suppose your loan is $54000 for 120 months, no­up­front costs, if the interest rate is 8%, what is the APR for this loan?
less than 8% Correct Answer
8% greater than 8% not enough information to tell. Unanswered
Question 19
0 / 1 pts
Suppose now that you need to pay an up­front cost of $2000 to get this $54,000 loan. How might you go around and figure out the APR?
Correct Answer
You treat the actual borrowing amount as $52,000 and figure out the interest rate associated with borrowing $52,000
and paying the monthly payment you figured out earlier for 120 months.
You treat the actual borrowing amount as $56,000 and figure out the interest rate associated with borrowing $56,000
and paying the monthly payment you figured out earlier for 120 months.
You treat the actual borrowing amount as $54,000 and ignore the $2000 up­front fee as that is not relevant to APR
computation.
Answer: Note paying $2000 to borrow $54000 is the same as borrowing only $52,000.
Unanswered
Question 20
0 / 1 pts
U.S. expenditure data show that households with more income spend ______ households with less income.
Correct Answer
more than less than about the same as Unanswered
Question 21
U.S. expenditure data show that compared to households earning $70,000 or less, households earning $150,000 or more
spend more on food but less on health care Correct Answer
spend more on all major categories spend more on housing but less on food spend more on cars but less on gasoline and oil 0 / 1 pts
Unanswered
Question 22
0 / 1 pts
On average, renters have ___________ financial obligations ratio than(as) homeowners.
Correct Answer
higher lower the same Unanswered
Question 23
0 / 1 pts
Life­cycle hypothesis states that
People borrow because they are irrational. People borrow because they are greedy. People borrow because they don't know better. Correct Answer
People borrow because they try to smooth out consumption over their life span. Unanswered
Question 24
According to the life­cycle hypothesis, people in their early twenties are more likely to ________ than people in their middle ages.
Correct Answer
borrow 0 / 1 pts
save no difference Unanswered
Question 25
0 / 1 pts
According to the life­cycle hypothesis, on average, after retirement people will
Correct Answer
spend down their assets save to increase their total assets Unanswered
Question 26
0 / 1 pts
When income increases, people spend ________ of their budget on necessity goods.
Correct Answer
less more the same proportion Unanswered
Question 27
When income decreases, people spend ________ of their budget on necessity goods.
0 / 1 pts
less Correct Answer
more the same proportion Unanswered
Question 28
0 / 1 pts
Which one of the following is NOT a motive for saving?
Retirement Purchase of big­ticket items Correct Answer
Donation Special expenses (vacation, wedding, education, etc) Emergencies Unanswered
Question 29
Consumer loans can take which of the following form(s)?
close­ended open­ended Correct Answer
both a and b. 0 / 1 pts
Unanswered
Question 30
0 / 1 pts
Which one of the following is NOT a characteristic of Chapter 7 straight bankruptcy?
Discharges all debts and provides a fresh start. Homeowner's equity and some personal assets may be partially protected. Cannot file again for 6 years. Correct Answer
Remains on credit report for 20 years. Quiz Score: 0 out of 30