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# Multiple Choice

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Please, help me and show how to calculate.

1. Eleanor Spryzak has endowed her alma mater with a scholarship that is designed to pay out a sum of money to a worthy student every year forever. The scholarship amount increased in value by 3% every year. Which terms most accurately describe these assets?
a. annuity
b. perpetuity
c. growth perpetuity
d. assets with single cash flow

2. What is the value of a share of a firm's stock when the firm is expected to pay a \$2.8 per share dividend at the end of each year and the annual discount rate is \$7.5%
a. \$448
b. \$37.33
c. \$39.61
d. \$33.67

3. What is the present value of a lease on a warehouse, where the tenants have a lease that goes into perpetuity and have agree to pay \$300 at the end of each month of the lease with an annual discount rate of 8%.
a. \$3,750
b. \$540,000
c. \$45,000
d. \$38,899

4. Your company just signed a 20 years lease for a new office. The lease requires that your firm pay to \$1,000 of the end of each month over the life of the lease. If the current annual rate is 9% what is the present value of this annuity stream?
a. 11,111
b. 9,129
c. 111,145
d. 109,543

5. Peter Lord's financial advisor has suggest ed that he purchase a piece of land in an area of town that is being target for development. Peter's plan is to purchase the land and then sell it for a profit when demand in the area increases. Which terms most accurately describe these assets?
a. annuity
b. perpetuity
c. growth perpetuity
d. assets with single cash flow

6. An annuity due is an annuity in which the first payment occur immediately. Knowing that, which of the following statements is true?
a. The future value of a 10 year ordinary annuity exceeds the future value of a 10 year annuity due.
b. The present value of a 10-year ordinary annuity is equal to that of a 10-years annuity due.
c. The present value of a 10-year annuity due exceeds the present value of a 10-year ordinary annuity.
7. For perpetuity is needed to solve this problem at a constant rate (g). What will the present value of the perpetuity approach as g approaches zero?
a. 0
b. 1
c. cash flow/r
d. infinity
8. A bond issued by the British government pays a coupon of 100 pounds on January1 of every year for 20 years. Which term most accurately describes these assets?
a. annuity
b. Growing perpetuity
c. Perpetuity
d. Assets with single cash flow
9. Suppose you invest \$800 in a mutual fund at the end of each year for the next 30 years and the fund earns an annual rate of return of 10%. What will be the value of your retirement fund after 30 years?
a. \$131,595
b. \$151,791
c. \$291,235
d. \$161,582

10. You want to invest \$200 at the end of each month until you have reached your goal of a total balance of \$100,000. You plan to invest in an account that earns an annual rate of 8%. How many years will it take to earn the \$100,000
a. 48.25 years
b. 7.14 year
c. 38.81 year
d. 18.39 years

#### Solution Preview

Quiz4
1. Eleanor Spryzak has endowed her alma mater with a scholarship that is designed to pay out a sum of money to a worthy student every year forever. The scholarship amount increased in value by 3% every year. Which terms most accurately describe these assets?
a. annuity
b. perpetuity
c. growth perpetuity
d. assets with single cash flow

Since the cash flows are forever, it is a perpetuity, since the cash flows increase in value, it is a growth perpetuity

2. What is the value of a share of a firm's stock when the firm is expected to pay a \$2.8 per share dividend at the end of each year and the annual discount rate is \$7.5%
a. \$448
b. \$37.33
c. \$39.61
d. \$33.67

The value of the share will be the present value of all dividends. The dividends are a perpetuity. The present value of a perpetuity is given as cash flow/discounting rate
Price per share = 2.8/7.5% = \$37.33

3. What is the present value of a lease on a warehouse, where the tenants have a lease that goes into perpetuity and have agree to pay \$300 at the end of each month of the lease with an annual discount rate of ...

#### Solution Summary

The solution explains various multiple choice questions relating to time value of money

\$2.49