Your parents are planning to retire in Phoenix, AZ in 20 years. Currently, the typical house that pleases your parents costs $200,000, but they expect inflation to increase the price of the house at a rate of 4% over the next 20 years. To buy a house upon retirement, what must they save each year in equal annual end-of-year deposits if they can earn 10% annually?
A) $21,910.00
B) $7,650.94
C) $10,000.00
D) $14,715.52
You intend to purchase a new car upon graduation in two years. It will have a cost of $29,371, including all extra features and sales tax. You just received a $3,000 pre-graduation gift from your rich uncle that you intend to deposit in a money market account that pays 6% interest, compounded monthly. If you use the amount in the money market account for a down payment, and take out an auto loan for the remainder, how much will you need to borrow? (Round to the nearest dollar.)
A) $29,371
B) $25,880
C) $26,371
D) $26,000
Assume that two investments have a three-year life and generate the cash flows shown below. Which of the two would you prefer?
Year Investment A Investment B
1 $5,000 $8,000
2 $5,000 $5,000
3 $5,000 $2,000
A) Investment A, since it has the most even cash flows
B) Investment B, since it gives you the largest cash flows in earlier years
C) Neither, since they both have equal lives
D) Both investments are equally attractive
You have just purchased an investment that generates the cash flows that are shown below. You are able to invest your money at 5.75%, compounded annually. How much is this investment worth today?
Year Amount
0 $0
1 $1,250
2 $1,585
3 $1,750
4 $2,225
5 $3,450
A) $7,758
B) $4,521
C) $10,260
D) $8,467
