Overview
The Portland Stallions professional football team is looking at its future revenue stream from ticket sales. Currently, a season package costs $325 per seat. The Portland Stallions box office has promised season ticket holders this same rate for the next three years. Four years from now, the organization will raise season ticket prices based on the estimated inflation rate of 3.25% per year. What will the season tickets sell for in four years?
Question 1 options:$369.35 | |
$379.46 | |
$399.32 | |
$361.76 | |
$324.56 |
Upstate University charges $16,000 a year in graduate tuition. Tuition rates are growing at 4.5% each year. You plan on enrolling in graduate school in five years. What is your expected graduate tuition in five years?
Question 2 options:$21,542.22 | |
$18,984.44 | |
$19,323.43 | |
$20,567.25 | |
$19,938.91 |
When she was born, Grandma gave Sheila a 18-year maturity, $2,500 savings bond. What is the present value of this savings bonds if the current discount rate is 4% and Sheila turns four years old today?
Question 3 options:$1,245.23 | |
$1,1854.43 | |
$1,279.88 | |
$1,356.43 | |
$1,443.69 |
Standard Insurance is developing a long-life insurance policy for people who outlive their retirement nest egg. The policy will pay out $250,000 on your eighty-fifth birthday. You must buy the policy on your sixty-fifth birthday. The insurance company can earn 7% on the purchase price of your policy. What is the minimum purchase price the insurance company should charge for this policy?
Question 4 options:$61,205.55 | |
$66,350.50 | |
$65,155.45 | |
$64,604.75 | |
$63,875.25 |
You are currently in the job market. Your dream is to earn a six-figure salary ($100,000). You hope to accomplish this goal within the next thirty years. In your field, salaries grow at 3.75% per year. What starting salary do you need to reach this goal?
Question 5 options:$32,565.03 | |
$34,098.85 | |
$33,103.25 | |
$34,124.19 | |
$33,140.33 |
Jackson Enterprises just purchased some land for $230,000. The land was purchased for a future beach front property development project that will include rental cabins, lodge, and recreational facilities. Jackson Enterprises has not committed to the development project but will decide in five years whether to go forward with the project or sell off the land. Real estate values increase annually at 4.5% for unimproved property. For how much can Jackson Enterprises expect to sell the property in five years if it chooses not to proceed with the beach front development project?
Question 6 options:$287,656.92 | |
$286,621.85 | |
$285,935.18 | |
$285,626.65 | |
$290,085.74 |
The State of Confusion wants to change the current retirement policy for state employees. To do so, however, the state must pay the current pension fund members the present value of their promised future payments. There are 240,000 current employees in the state pension fund. The average employee is twenty-two years away from retirement, and the average promised future retirement benefit is $400,000 per employee. If the state has a discount rate of 5% on all its funds, how much money will the state have to pay to the employees before it can start a new pension plan?
Question 7 options:$36,997,900,520 | |
$32,817,590,000 | |
$35,773,906,119 | |
$30,903,441,214 | |
$27,878,297,478 |
In 1972, Bob purchased a new Datsun 240Z for $3,000. Datsun later changed its name to Nissan, and the 1972 240Z became a classic. Bob kept his car in excellent condition and in 2002 could sell the car for six times what he originally paid. What if he keeps the car for another thirty years and earns the same rate? What could he sell the car for in 2032?
Question 8 options:$108,000 | |
$107,000 | |
$110,000 | |
$109,000 | |
$106,000 |
Upstate Bank is offering long-term certificates of deposit with a face value of $100,000 (future value). Bank customers can buy these CDs today for $67,000 and will receive the $100,000 in fifteen years. What interest rate is the bank paying on these CDs?
Question 9 options:2.88% | |
3.33% | |
2.99% | |
2.71% | |
3.12% |
Future Bookstore sells books before they are published. Today they offered the book Adventures in Finance for $14.20, but the book will not be published for another two years. The retail price when the book is published will be $24.00. What is the discount rate Future Bookstore is offering its customers for this book? Round to the nearest percent.
Question 10 options:30% | |
25% | |
20% | |
40% | |
35% |
Jeff, a local traffic engineer, has designed a new pedestrian footbridge. The bridge has been designed to handle 200 pedestrians daily. Once the bridge reaches 1,000 pedestrians daily, however, it will require a new bracing system. Jeff has estimated that traffic will increase annually at 8%. How long will the current bridge system work before a new bracing system is required?
Question 11 options:18.85 | |
19.75 | |
20.91 | |
17.67 | |
16.54 |
Upstate University currently has a 6,000-car parking capacity for faculty, staff, and students. This year the university issued 4,356 parking passes. Parking passes have been growing at a rate of 6% per year. How long will it be before the university will need to add additional parking?
Question 12 options:5.35 | |
5.10 | |
5.50 | |
5.15 | |
5.73 |
Approximately how long will it take to double your money if you get a 9.5% annual return on your investment?
Question 13 options:8.02 | |
7.20 | |
7.80 | |
7.55 | |
7.64 |
BONUS: Kant Miss Company is promising its investors that it will double their money every three years. If you invested $250 now and Kant Miss were able to deliver on its promise, how long would it take before your investment reaches $32,000?
Question 14 options:22 | |
21 | |
23 | |
24 | |
25 |
Currently, the couple has four different investments: a 401(k) plan, two pension plans, and a personal portfolio. The couple is five years away from retirement.
401(k): $88,000 growing at 6.5%
Pension plan 1: $304,000 growing at 7%
Pension plan 2: $214,000 growing at 7.25%
Personal portfolio: $149,000 growing at 8.5%
What will be the value of their entire portfolio in 5 years?
Question 15 options:$1,074,657.08 | |
$1,052,633.55 | |
$1,081,629.87 | |
$1,076,499.65 | |
$1,055,461.23 |
Given the following cash inflow, what is the present value of this cash flow at a 25% discount rate?
Year 1: $3,000
Year 2: $5,000
Years 3 through 7: $0
Year 8: $25,000
Question 1 options:10,140.28 | |
10,228.83 | |
9,662.90 | |
10,042.83 | |
9,794.30 |
A speculator has purchased land along the southern Oregon coast. He has taken out a ten-year loan with annual payments of $7,200. At the end of ten years, he believes that he can sell the land for $100,000. What is the interest rate that the speculator will earn?
Question 2 options:7.88% | |
8.12% | |
7.45% | |
7.11% | |
7.99% |
You are a new employee with the Metro Daily Planet. The Planet offers three different retirement plans for you to choose from. Plan 1 starts the first day of work and puts $1,000 away in your retirement account at the end of every year for thirty years. Plan 2 puts away $2,000 every year for the last twenty years. Plan 3 puts away $4,000 every year for the last ten years of employment. All three plans guarantee an annual growth rate of 8%. What is the amount of money you will have if you only plan to work at the Planet for the next thirty years and select the plan with the greatest ending value?
Question 3 options:106,591.52 | |
113,283.21 | |
103,161.73 | |
108,956.45 | |
117,791.71 |
County Ranch Insurance Company wants to offer a guaranteed annuity in units of $500, payable at the end of each year for twenty-five years. The company has a strong investment record and can consistently earn 7% on its investments after taxes. If the company wants to make 1% on this contract, what price should it set on it? Use 6% as the discount rate. Assume that it is an ordinary annuity and that the price is the same as present value.
Question 4 options:6,289.52 | |
5,341.18 | |
6,652.33 | |
6,932.55 | |
6,391.68 |
Cooley Landscaping Company needs to borrow $30,000 for a new front-end dirt loader. The bank is willing to loan the funds at 8.5% interest with annual payments at the end of the year for the next ten years. What is the annual payment on this loan for Cooley Landscaping?
Question 5 options:5,005.60 | |
4,572.23 | |
5,430.38 | |
5,588.90 | |
5,825.10 |
BONUS: Reginald is about to lease an apartment for the year. The landlord wants the lease payments paid at the start of the month. The twelve monthly payments are $1,300 per month. The landlord says he will allow Reginald to prepay the rent for the entire year with a discount. The one-time annual payment due at the beginning of the lease is $14,778. What is the implied discount rate for the rent?
Question 6 options:1.3% | |
.84% | |
1.5% | |
1.75% | |
1% |
Mauer Mining Company leases a special drilling press with annual payments of $150,000. The contract calls for rent payments at the beginning of each year for a minimum of six years. Mauer Mining can buy a similar drill for $750,000 but will need to borrow the funds at 8%. Determine the present value of the lease payments at 8%. (Rounded to nearest dollar)
Question 7 options:748,907 | |
750,291 | |
723,658 | |
771,081 | |
769,402 |
The Canadian government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $50 in interest each year (at the end of the year) but never return the principal. What should this bond sell the discount rate is 8.5%?
Question 8 options:588.24 | |
612.45 | |
599.35 | |
675.50 | |
645.82 |
The Stack has just written and recorded the single greatest rock song ever made. The boys in the band believe that the royalties from this song will pay the band a handsome $200,000 every year forever. The record studio is also convinced that the song will be a smash hit and that the royalty estimate is accurate. The record studio wants to pay the band upfront and not make any more payments for the song. What should the record company offer the band if they use a 10% discount rate?
Question 9 options:20,000 | |
2,000 | |
200,000 | |
20,000,000 | |
2,000,000 |
The band from the previous problem agrees to the one-time payment at a 5% discount rate, but it wants to figure the royalty payments from the beginning of the year, not the end of the year. How much will the band receive with annuity due payments on the royalty checks?
Question 10 options:4,000,000 | |
42,000 | |
2,400,000 | |
4,200,000 | |
40,000 |
Use this information for the next 3 questions. Chuck Ponzi has talked an elderly woman into loaning him $25,000 for a new business venture. She has, however, successfully passed a finance class and requires Chuck to sign a binding contract to repay the $25,000 with an annual interest rate of 10% over the next ten years. She has left the method of repayment up to him.
Determine the amount of money paid at maturity if Ponzi chooses a discount loan (one lump sum).
Question 11 options:72,109.68 | |
62,646.65 | |
51,533.18 | |
69,446.88 | |
64,843.56 |
Determine the total amount of money paid with an interest-only loan, in which Ponzi will pay the annual interest expense each year and pay the principal back at the end of the contract.
Question 12 options:75,000 | |
100,000 | |
5,000 | |
50,000 | |
25,000 |
Determine the annual payments to the woman under a fully amortized loan, in which Ponzi will make equal annual payments at the end of each year so that the final payment will completely retire the original $25,000 loan.
Question 13 options:3,876.63 | |
6,009.93 | |
4,255.35 | |
4,068.64 | |
5,635.04 |
Loan Consolidated Incorporated (LCI) is offering a special one-time package to reduce Custom Autos' outstanding bills to one easy-to-handle payment plan. LCI will pay off the current outstanding bills of $242,000 for Custom Autos if Custom Autos will make an annual payment to LCI at a 10% interest rate over the next fifteen years. What is the annual payment? (rounded to the nearest dollar)
Question 14 options:33,718.38 | |
31,816.65 | |
30,270.44 | |
30,001.46 | |
36,124.08 |
What is the total interest expense on the loan over the fifteen years?
Question 15 options:208,490 | |
165,890 | |
235,250 | |
241,259 | |
245,717 |
What is the remaining principal at the end of year 2? (rounded to the nearest dollar?)
HINT: Set up amortization table for next 2 problems.
Question 16 options:231,010 | |
228,000 | |
226,005 | |
219,235 | |
213,750 |
BONUS: What is the amount of interest during year 3?
Question 17 options:21,923.50 | |
23,101.00 | |
22,800.00 | |
22,600.50 | |
21,375.00 |
Your grandfather will sell you a beach front property for $72,500. He says the price is firm whenever you can pay him cash. You know that your finances will only allow you to save $5,000 a year and that you can make 8% on your investment. If you invest faithfully every year at the end of the year, how long will it take for you to accumulate the necessary $72,500 future cash for the beach front property? (rounded to the nearest year)
Question 18 options:8 | |
12 | |
10 | |
11 | |
9 |
Number of Payments or Years | Annual Interest Rate | Future Value | Annuity | Present Value |
100 | ? | $1,044,010.06 | $400.00 | 0 |
What is the annual interest rate for this annuity-DUE stream?
Question 19 options:6.24% | |
5.43% | |
5.93% | |
4.94% | |
5.22% |
A local government is about to run a lottery but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust and have the trust (probably a local bank) pay the annual payments. The first winner of the lottery chooses the annuity and will receive $150,000 a year for the next twenty-five years. The local government will give the trust $2,000,000 to pay for this annuity. What investment rate must the trust earn to break even on this arrangement?
Question 20 options:4.88% | |
4.32% | |
3.78% | |
5.25% | |
5.56% |
Your dreams of becoming rich have just come true. You have won the State of Tranquility's lottery. The state offers you two payment plans for the $5,000,000 advertised jackpot. You can take annual payments of $250,000 for the next twenty years or $2,867,480 today. At what investment rate will the annuity stream of $250,000 be the same as the lump sum payment of $2,867,480?
Question 21 options:7.5 | |
7.0 | |
6.5 | |
6.0 | |
5.5 |