BUSN 379 Week 2 Homework
1. (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 15% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. (Points : 3)
$7425
$8690
$9203
None of the above
2. (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 16% APR compounded daily. The EAR for First Choice and National Emerald Bank are: (Points : 3)
9.31% and 17.35%, respectively
9% and 17.50%, respectively
9.31% and 17.50%, respectively
9% and 17.35%, respectively
3. (TCO 3) LED Computer Electronics is considering an investment that will have cash flows of $5,000, $6,000, $7,000 and $10,000 for years 1 through 4. What is the approximate value of this investment today if the appropriate discount rate is 9% per year? (Points : 3)
$22,250
$30,520
$22,120
None of the above
4. (TCO 3) Which of the following will increase the total amount of interest earned on an investment assuming that all interest is reinvested? Select all answers that apply: (Points : 4)
increasing the frequency of the interest payments
decreasing the frequency of the interest payments
increasing the interest rate
decreasing the interest rate
5. (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your second payment will be applied towards the principal of the loan?(Points : 3)
$5,000
$4,372
$4,809
can not be determined with the information given
6. (TCO 3) Match the following terms with the examples as appropriate:
(Points : 4)
7. (TCO 3) You are interested in saving to buy a new machine that costs $1,105. You can deposit $250 in your bank today. If your bank pays 8% annual interest on its accounts, how long will it take you to save for the new machine? (Points : 4)
about 19 years
about 9 years
about 4.5 years
Can not be determined
8. (TCO 3) What are some real-life scenarios where you can apply the time value of money? (Points : 6)
Real-life scenarios include: Taking out a loan of any sort. That is, car loans, mortgages, bonds, student loans etc. Pension plans and annuities use the time value of money to compute future annuity payments. Various insurance plans are valued using the time value of money and the probability of the event occurring. The value of a project is computed by discounting its future cash flows. The value of a stock is computed as a discount of future dividends.
