Quiz 07 Chapter 06, Part II Multiple Choice

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Accounting
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2) What would you pay for an investment that pays you $20,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.


3) Pearson Corporation makes an investment today (January 1, 2014). They will receive $9,000 every December 31st for the next six years (2014 – 2019). If Pearson wants to earn 12% on the investment, what is the most they should invest on January 1, 2014?

4) Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the end of each year for five years. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually?

5) An accountant wishes to find the present value of an annuity of $1 payable at the beginning of each period at 10% for eight periods. The accountant has only one present value table which shows the present value of an annuity of $1 payable at the end of each period. To compute the present value, the accountant would use the present value factor in the 10% column for

6) Spencer Corporation will invest $20,000 every December 31st for the next six years (2014 – 2019). If Spencer will earn 12% on the investment, what amount will be in the investment fund on December 31, 2019?

7) Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $100,000 in eighteen years. If they are able to earn 5% per annum, how much must be deposited at the end of each of the next eighteen years to fund the education?

8) John won a lottery that will pay him $250,000 at the end of each of the next twenty years. Zebra Finance has offered to purchase the payment stream for $3,397,500. What interest rate (to the nearest percent) was used to determine the amount of the payment?

9) What would you pay for an investment that pays you $30,000 at the beginning of each year for the next ten years? Assume that the relevant interest rate for this type of investment is 10%.

10) Garretson Corporation will receive $10,000 today (January 1, 2014), and also on each January 1st for the next five years (2015 – 2019). What is the present value of the six $10,000 receipts, assuming a 12% interest rate?
11) Hiller Corporation makes an investment today (January 1, 2014). They will receive $50,000 every December 31st for the next six years (2014 – 2019). If Hiller wants to earn 12% on the investment, what is the most they should invest on January 1, 2014?






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