“Don’t Pay For One Year”

15. Forever Furniture has a “Don’t Pay For One Year” event on right now at the store, so you purchase an Italian

hand-stitched leather sofa. You will pay $1,369 for the sofa in one year. Forever Furniture charges 18.0%

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annual interest compounded monthly on overdue payments. If you forget and don’t pay for the sofa until 6

months after payment is due, how much will you pay for the sofa at that time if interest charges begin on the

first day after the year is over?

A. $1,436

B. $1,475

C. $1,492

D. $1,497

E. $1,505

16. Four years ago, Penny invested $7,500 and locked in a 4.25 percent annual interest rate for 24 years (end 20

years from now). Leonard can make a twenty year investment today and lock in a 5.65 percent interest rate.

How much money should he invest now in order to have the same amount of money in 20 years as Penny?

A. $6,728

B. $6,784

C. $6,816

D. $7,072

E. $7,351

17. Your current investment will mature in 2 years for $20,000, at which time you will reinvest the funds for 12

more years at 5.85% per year. What will be the value of your investment at the end of the 14th year?

A. $35,313

B. $37,154

C $39,566

D. $41,986

E. $44,330

18. $1,500 is received at the beginning of year 1, $2,200 is received at the beginning of year 2, and $3,300 is

received at the beginning of year 3. If these cash flows are deposited at 9.75 percent, their combined future

value at the end of year 3 is:

A. $8,255

B. $8,348

C. $8,432

D. $8,659

E. $9,254

19. You are scheduled to receive a $7,500 cash flow in two years, pay a $2,500 payment in three years receive

a $12,750 cash flow in four years, and pay a $4,250 payment in five years. If interest rates are 4.75% per

year, what is the combined present value of these cash flows?

A. $10,263

B. $11,880

C. $11,997

D. $12,175

E. $12,444

20 How many years will it take $100,000 to grow to $350,000 with an annual interest rate of 7.25 percent?

(Hint: See Footnote 4 on page 94; ln = natural log)

A. 15 years, 3 months

B. 15 years, 8 months

C. 16 years, 4 months

D. 17 years, 2 months

E. 17 years, 11 months

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