You have just won a $5 million lottery to be received in twenty annual equal pay

Question

You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases during the next 20 years.

it will be worth more

it will increase during the first ten years

it will be worth less

it will not change

10 points   

QUESTION 2

You have just calculated the present value of the expected cash flows of a potential investment. Management thinks your figures are too low. Which of the following actions would improve the present value of your cash flows?

extend the cash flows over a longer period of time, and decrease the discount rate

increase the discount rate

extend the cash flows over a longer period of time

decrease the discount rate

10 points   

QUESTION 3

What is the effective rate of interest on a CD that has a nominal rate of 9.5 percent with interest compounded monthly?

9.92%

9.86%

10.02%

9.74%

10 points   

QUESTION 4

The earnings of Omega Supply Company have grown from $2.00 per share to $4.00 per share over a nine year time period. Determine the compound annual growth rate.

22.2%

11.1%

8%

100%

10 points   

QUESTION 5

Joe Brady just won a $450,000 lottery in Pennsylvania. Instead of receiving a lump sum, he found that he would receive $22,500 annually (end of year) for 20 years. Joe is 75 years old and wants his money now. He has been offered $140,827 to sell his ticket. What rate of return is the buyer expecting to make if Joe accepts the offer?

15%

less than 1%

12%

18%

10 points   

QUESTION 6

The process of finding present values is frequently called

compounding

leasing

annualizing

discounting

5 points   

QUESTION 7

If you invest the $10,000 you receive at graduation (age 22) in a mutual fund that averages a 12% annual return, how much will you have at retirement in 40 years?

$930,510

$510,285

$783,879

$909,090

10 points   

QUESTION 8

The ____ of a perpetual stream of equal, annual returns (PMT) discounted at i% per year is equal to ____.

present value; PMT ´ i

future value; PMT/i

future value; PMT ´ i

present value; PMT/i

10 points   

QUESTION 9

John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to achieve this goal?

$7,499.96

$33,333.33

$5,024.60

$4,143.65

10 points   

QUESTION 10

If you invest $10,000 in a 4-year certificate of deposit (CD) paying 10 percent interest compounded annually, determine how much the CD will be worth at the end of 4 years.

$45,730

$15,958

$14,640

$13,600

10 points   

QUESTION 11

Finding the discounted current value of $1,000 to be received at the end of each of the next 5 years requires calculating the

present value of an annuity

future value of an annuity

future value of an annuity due

present value of an annuity due

a.

it will be worth more

b.

it will increase during the first ten years

c.

it will be worth less

d.

it will not change

Explanation / Answer

Answer to the Question 1: (First Question)

(C) it will be worth less

As the interest rate increses over next 20 years, the rate at which the upcoming cash flow is to be discounted increses. This results in lower present value at higher discounting rate.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.