21. Which of the following is the correct formula for calculating the present value of an amount invested (A) at an interest rate of r, for n periods?
A. A x (1/(1 + r)) x n
B. A x (1/(1 + r)n)
C. A x (1/(r x n))
D. A x (1/(1 + n)r
22. Carlos wants to invest enough money now to have $25,000 in three years to buy a new car. If interest rates are 4%, the amount he needs to invest now is closest to:
A. $22,000.
B. $22,212.
C. $22,224.
D. $24,000.
23. A company has borrowed money at discount; that is, they will not pay any interest on it during the 5 years when the loan is outstanding. If interest rates are 8% and the total repayment will be $50,000, the amount they will receive now from the bank is closest to:
A. $33,841.
B. $34,029.
C. $46,000.
D. $50,000.
24. Mrs. Bertucci wants to give her new granddaughter $40,000 on her 21st
birthday. If she can invest the money at 4%, the amount she needs to set aside when her granddaughter is born is closest to:
A. $6,400.
B. $17,553.
C. $17,355.
D. $18,255.
25. A company owes 2 more payments of $15,000 each on an instalment purchase they made for a piece of equipment. One payment is due tomorrow and the last one a year from now. The company is going to offer the equipment manufacturer one lump-sum payment tomorrow for both payments. If interest rates are 8% compounded semi-annually, the amount the company should offer to pay tomorrow is closest to:
A. $28,227.
B. $28,868.
C. $28,888.
D. $30,000.
26. Which of the following is not a required condition for using the present value annuity formula?
A. The cash flow is the same in each year.
B. There is an even number of cash flows.
C. The same discount rate is applied to each year.
D. The cash flow occurs in every year, beginning one year from the present.
27. Your friend has invited you to participate in his latest business venture. You expect to receive $10,000 a year for the next 10 years, starting one year from now. If interest rates are 7% the amount you would be willing to invest would be closest to?
A. $48,684
B. $50,834
C. $70,000
D. $70,235
28. The lottery has a choice of two different prize payouts. One is to receive a lump sum now; the second is to receive an annual payment of $25,000 a year for the next 40 years starting in one year. If interest rates are 5% the amount of the lump sum that would make you indifferent to the two prizes is closest to?
A. $66,780
B. $425,426
C. $428,977
D. $1,000,000
29. The present value of an annuity stream of $5,000 per year for 10 years at 6% is closest to?
A. $27,919
B. $36,800
C. $39,008
D. $50,000
30. Your rich uncle wants to set up a fund that allows you to withdraw $12,000 per year for the four years you are at university. The first payment will be made the day you start, followed by three other payments starting one year from then. If interest rates are 4%, the amount your uncle needs to have on hand the day before the first payment is closest to?
A. $33,301
B. $43,558
C. $45,301
D. $46,080