13.Suppose you deposit $5,000 into your bank account today. If the bank pays 3.75percent per year,...

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13.Suppose you deposit $5,000 into your bank account today. Ifthe bank pays 3.75percent per year, then which of the followingstatements is (are) correct? (x)$7,825.14is in your account after12years if interest is compounded quarterly but only $7,777.27ifthe interest is compounded annually.(y)You will earn an additional$31.69of interest in your account after 12years if interest iscompounded semi-annually instead of annually, but $27.10lessinterest if interest is compounded semi-annually instead ofmonthly.(z)Although compounding daily instead of weekly will onlyadd an additional $1.09of interest after 12years, compounding dailyinstead of annually will add an additional $64.11of interest
A.(x), (y) and (z)
B.(x) and (y) only
C.(x) and (z) only
D.(y) and (z) only
E.(x) only
14.Your firm receives an offer from the supplier who providescomputer chips used to manufacture cell phones. Due to poorplanning, the supplier has an excess amount of chips and is willingto sell $600,000 worth of chips for only $500,000. You already havetwo years' supply on hand. It would cost you $7,500 today to storethe chips until your firm needs them in two years. What impliedinterest rate would you be earning if you purchased and store thechips?
A.18.23%
B.12.25%
C.10.57%
D.9.54%
E.8.73%
15.You invested $25,000 in the stock market one year ago withhopes that it would grow to $35,000 in 5 years. Today theinvestment is valued at $23,250. From this point forward, whatreturn would you need to reach your initial goal of $35,000?
A.12.25%
B.10.77%
C.9.73%
D.8.52%
E.6.96%
16.You just purchased a scratch-off lottery ticket at the localconvenience store and won $26,500, after taxes. Your friend thinksthat youshould buy a new car but you want to put most of it insavings for your retirement. If you want to have $600,000 by thetime you are 65, which is 45 years from now and assuming that youcan earn 7.5 percent each year on your savings, how much of the$26,500 must you put in savings today?
A.$20,027
B.$20,736
C.$21,326
D.$22,266
E.$23,162
17.You are scheduled to receivea $7,500 cash flow in twoyears,paya $10,000 cash flow in threeyears, receivea $10,000 cash flow infive years,receivea $8,000 payment in sixyearsand paya $8,000payment in eight years. If interest rates are 4.75% per year, whatis the combined present valueof these cash flows?
A.$6,601
B $6,835
C.$7,158
D.$7,500
E.more than $7,500

Answer & Explanation Solved by verified expert

3.7 Ratings (519 Votes)

1.
Option A

future value=present value*(1+rate/compounding periods per year)^(time*compounding periods per year)

x:
compounded quarterly:=5000*(1+3.75%/4)^(4*12)=7825.1400

compounded annually:=5000*(1+3.75%)^(12)=7777.2717

y:
semi annually - annually=5000*(1+3.75%/2)^(2*12)-5000*(1+3.75%)^(12)=31.6835

semi annually - monthly=5000*(1+3.75%/2)^(2*12)-5000*(1+3.75%/12)^(12*12)=-27.1056

z:
daily - weekly=5000*(1+3.75%/365)^(365*12)-5000*(1+3.75%/52)^(52*12)=1.0904

daily - annually=5000*(1+3.75%/365)^(365*12)-5000*(1+3.75%)^(12)=64.1080

2.
Option E
=(actual price/(discounted price+storage cost))^(1/time)-1
=(600000/(500000+7500))^(1/2)-1
=8.73%

3.
Option B
=(future value/present value)^(1/time)-1
=(35000/23250)^(1/4)-1
=10.77%

4.
Option E
=future value/(1+rate)^time
=600000/(1+7.5%)^45
=23161.6961

5.
Option E
=7500/1.0475^2+10000/1.0475^3+10000/1.0475^5+8000/1.0475^6+8000/1.0475^8
=35039.4996

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Transcribed Image Text

13.Suppose you deposit $5,000 into your bank account today. Ifthe bank pays 3.75percent per year, then which of the followingstatements is (are) correct? (x)$7,825.14is in your account after12years if interest is compounded quarterly but only $7,777.27ifthe interest is compounded annually.(y)You will earn an additional$31.69of interest in your account after 12years if interest iscompounded semi-annually instead of annually, but $27.10lessinterest if interest is compounded semi-annually instead ofmonthly.(z)Although compounding daily instead of weekly will onlyadd an additional $1.09of interest after 12years, compounding dailyinstead of annually will add an additional $64.11of interestA.(x), (y) and (z)B.(x) and (y) onlyC.(x) and (z) onlyD.(y) and (z) onlyE.(x) only14.Your firm receives an offer from the supplier who providescomputer chips used to manufacture cell phones. Due to poorplanning, the supplier has an excess amount of chips and is willingto sell $600,000 worth of chips for only $500,000. You already havetwo years' supply on hand. It would cost you $7,500 today to storethe chips until your firm needs them in two years. What impliedinterest rate would you be earning if you purchased and store thechips?A.18.23%B.12.25%C.10.57%D.9.54%E.8.73%15.You invested $25,000 in the stock market one year ago withhopes that it would grow to $35,000 in 5 years. Today theinvestment is valued at $23,250. From this point forward, whatreturn would you need to reach your initial goal of $35,000?A.12.25%B.10.77%C.9.73%D.8.52%E.6.96%16.You just purchased a scratch-off lottery ticket at the localconvenience store and won $26,500, after taxes. Your friend thinksthat youshould buy a new car but you want to put most of it insavings for your retirement. If you want to have $600,000 by thetime you are 65, which is 45 years from now and assuming that youcan earn 7.5 percent each year on your savings, how much of the$26,500 must you put in savings today?A.$20,027B.$20,736C.$21,326D.$22,266E.$23,16217.You are scheduled to receivea $7,500 cash flow in twoyears,paya $10,000 cash flow in threeyears, receivea $10,000 cash flow infive years,receivea $8,000 payment in sixyearsand paya $8,000payment in eight years. If interest rates are 4.75% per year, whatis the combined present valueof these cash flows?A.$6,601B $6,835C.$7,158D.$7,500E.more than $7,500