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# Finance: Annuity Review Questions

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What are the monthly mortgage payments on a 30-year loan for
\$150,000 at 12%?

You have two assets in your portfolio: a stock mutual fund with a
beta of 1.20 and U.S. Treasury securities (assume they are risk free).
What is the beta for your portfolio if 40% of your funds are invested
in the treasury securities?

Find the beta of a portfolio of three stocks. One third of the portfolio
is invested in each of the three stocks. The stocks and their betas
are as follows: Mallmart - beta 1.10, Peak Power - beta 0.85 and
MicroEase - beta 1.40

What is an investment worth that promises to return \$10,000 per
year, given a required rate of return of 15%, if the benefits are
expected for 10 years?

What will a deposit of \$4,500 at 12% compounded monthly be worth
at the end of 10 years?

How long does it take for \$5,000 to grow into \$6,742.44 at
10% compounded quarterly?

How much must you deposit at the end of each year in an account
that pays a annual rate of 20 percent, if at the end of 5 years you
want \$10,000 in the account?

What interest rate would you need to get to have an annuity of
\$7,500 per year accumulate to \$279,600 in 15 years

What would you pay for an annuity of \$2,000 paid every six months
for 12 years if you could invest your money elsewhere at 10%
compounded semiannually?

Thirty years ago Jesse Jones bought 10 acres of land for \$1,000
per acre in what is now downtown Houston. If this land grew in
value at an 8 percent per annum rate, what is it worth today?

A \$10,000 car loan has payments of \$361.52 per month for three
years. What is the interest rate? Assume monthly compounding
and give the answer in terms of an annual rate.

Find the present value of \$1,000 to be received at the end of 2 years
at 12% compounded quarterly?

#### Solution Preview

Please check the attached word document for a better formatted solution

Thank you

1)

Periods = 360 (30 years times 12 months)
Monthly Interest Rate = 12% divided by 12 months = 1%

C = \$1,542.92

2 & 3)

To calculate the Beta of a portfolio:

(&#61538;security A × Weight )+ (&#61538;securityB × weight)

4)

5)

t = ...

#### Solution Summary

The solution includes a word and an excel sheet that show in steps how to calculate the payments on a loan, the beta of a portfolio, present and future values of investments

\$2.19

## Financial Management questions (present value of a bond, price of a bond, value of an investment, and more...)

************
1. A 20-year bond pays 12% on a face value of \$1,000. If similar bonds are currently yielding 9%, What is the present value of the bond? (Use annual analysis, based on 20 yrs-- and a decrease in the inflation premium as shown.)

over \$1,000
under \$1,000
over \$1,200
\$1,000

2. If the inflation premium for a bond goes up, the price of the bond

stays the same.
goes down.
goes up.
cannot be determined.

3. You are to receive \$12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

Present value of an annuity of \$1
Future value of an annuity
Present value of \$1
Future value of \$1

4. Which of the following is not one of the components that makes up the required rate of return on a bond?

real rate of return
maturity payment

5. Babe Ruth Jr. has agreed to play for the Cleveland Indians for \$3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today's dollars?

Present value of an annuity
Present value of a single amount
Future value of an annuity
Future value of a single amount

6. Mr. Nailor invests \$5,000 in a certificate of deposit at his local bank. He receives annual interest of 8% for 7 years. How much interest will his investment earn during this time period? (You will use one of the Appendix tables, in the back of your text, to help calculate the answer)

\$2,915
\$3,570
\$6,254
\$8,570

7. To save for her newborn son's college education, Lea Wilson will invest \$1,000 at the beginning of each year for the next 18 years. The interest rate is 12 percent. What is the future value? (You will use one of the Appendix tables, in the back of your text, to help calculate the answer)

\$7,690.
\$34,931.
\$63,440.
\$55,750.

8. A bond which has a yield to maturity greater than its coupon interest rate will sell for a price

below par.
at par.
above par.
what is equal to the face value of the bond plus the value of all interest payments.

9. The market allocates capital to companies based on all of the following; EXCEPT