# 41. Assume that you own an annuity that will pay you \$15,000 per year

41. Assume that you own an annuity that will pay you \$15,000 per year for 12 years, with the first payment being made today. You need money today to start a new business, and your uncle offers to give you \$120,000 for the annuity. If you sell it, what rate of return would your uncle earn on his investment?

a. 6.85%

b. 7.21%

c. 7.59%

d. 7.99%

e. 8.41%

42. What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of \$1,250?

a. \$77.19

b. \$81.25

c. \$85.31

d. \$89.58

e. \$94.06

43. What is the present value of the following cash flow stream at a rate of 6.25%?

Years: 0 1 2 3 4 | | | | |

CFs: \$0 \$75 \$225 \$0 \$300

a. \$411.57

b. \$433.23

c. \$456.03

d. \$480.03

e. \$505.30

44. What is the present value of the following cash flow stream at a rate of 12.0%?

Years: 0 1 2 3 4 | | | | |

CFs: \$0 \$1,500 \$3,000 \$4,500 \$6,000

a. \$9,699

b. \$10,210

c. \$10,747

d. \$11,284

e. \$11,849

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45. What is the present value of the following cash flow stream at a rate of 8.0%?

Years: 0 1 2 3 | | | |

CFs: \$750 \$2,450 \$3,175 \$4,400

a. \$7,917

b. \$8,333

c. \$8,772

d. \$9,233

e. \$9,695

46. You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?

Years: 0 1 2 3 4 | | | | |

CFs: \$0 \$1,000 \$2,000 \$2,000 \$2,000

a. \$5,987

b. \$6,286

c. \$6,600

d. \$6,930

e. \$7,277

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47. At a rate of 6.5%, what is the future value of the following cash flow stream?

Years: 0 1 2 3 4 | | | | |

CFs: \$0 \$75 \$225 \$0 \$300

a. \$526.01

b. \$553.69

c. \$582.83

d. \$613.51

e. \$645.80

48. Your father paid \$10,000 (CF at t = 0) for an investment that promises to pay \$750 at the end of each of the next 5 years, then an additional lump sum payment of \$10,000 at the end of the 5th year. What is the expected rate of return on this investment?

a. 6.77%

b. 7.13%

c. 7.50%

d. 7.88%

e. 8.27%

49. You are offered a chance to buy an asset for \$7,250 that is expected to produce cash flows of \$750 at the end of Year 1, \$1,000 at the end of Year 2, \$850 at the end of Year 3, and \$6,250 at the end of Year 4. What rate of return would you earn if you bought this asset?

a. 4.93%

b. 5.19%

c. 5.46%

d. 5.75%

e. 6.05%

50. What’s the future value of \$1,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually?

a. \$1,819

b. \$1,915

c. \$2,016

d. \$2,117

e. \$2,223