**Please show your work. 1) Phil can afford $160 a month for 5 years for a car l
ID: 2630550 • Letter: #
Question
**Please show your work.
1) Phil can afford $160 a month for 5 years for a car loan. If the interest rate is 4.4 percent compounded monthly, how much can he afford to borrow to purchase a car?
$7,707.28
$8,448.00
$8,603.27
$8,775.33
$9,600.00
2) Atlas Insurance wants to sell you an annuity which will pay you $550 per quarter for 25 years. You want to earn a minimum rate of return of 5.0 percent compounded quarterly. What is the most you are willing to pay as a lump sum today to buy this annuity?
rev: 10_28_2013_QC_37913
$28,778.49
$31,295.74
$31,006.68
$30,319.28
$29,735.24
3) What is the present value of $14,150 to be received 3 years from today if the discount rate is 5.75 percent?
$11,846.79
$11,845.42
$11,965.07
$7,382.61
$12,653.06
4) The interest rate expressed as if it were compounded once per year is called the _____ rate.
stated interest
compound interest
effective annual
periodic interest
daily interest
5) Wicker Imports established a trust fund that provides $171,700 in scholarships each year for needy students. The trust fund earns a 4.00 percent rate of return. How much money did the firm contribute to the fund assuming that only the interest income is distributed?
$4,039,757.60
$4,292,500.00
$3,434,000.00
$6,868,000.00
$5,151,000.00
$7,707.28
$8,448.00
$8,603.27
$8,775.33
$9,600.00
Explanation / Answer
1) n = 5 * 12 months; i = 4.4%/12
PV interest rate factor for uniform series payment = [(1+i)n - 1]/[i*(1+i)n]
= [(1+0.044/12)5*12 - 1]/[0.044/12 * (1+0.044/12)5*12] = 53.77
PMT = payment per period
PV = PMT * PV interest rate factor
= 160 * 53.77 = $8603.27
2) n = 25 * 4 quarters; i = 5%/4
PV interest rate factor for uniform series payment = [(1+i)n - 1]/[i*(1+i)n]
= [(1+0.05/4)100 - 1]/[0.05/4 * (1+0.05/4)100] = 56.90
PMT = payment per period
PV = PMT * PV interest rate factor
= 550 * 56.90 = $31,295.74
3) FV= $14,150 n = 3 years i = 5.75%
PV = 14150/(1+0.0575)3 = $11,965.07
4) effective annual
5) Contribution = 171700/0.04 = $4,292,500.00
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