Exam (elaborations)
Business Finance Exam #2 Questions and Answers 2024
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Business Finance Exam #2
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Business Finance Exam #2A commercial bank will loan you $12,000 for one year to buy a car. The loan must be
repaid in 12 equal monthly payments. The annual interest rate on the loan is 24 percent
of the unpaid balance. How large are the monthly payments? - answer12,000=PMT
(PVFA .02, 12)
12,000=PMT(10.575)
PMT=1,134.75
-So the monthly payments would be $1,134.75
Your company has received a $60,000 loan from an industrial finance company. The
annual payments are $5,663.58. If the company is paying 7 percent interest per year,
how many loan payments must the company make? -
answer60,000=5,663.58(PVFA .07, n)
10.594= (PVFA .07, n)
n=20
-So the company must make 20 loan payments
What is the present value of an annuity of $100 received at the beginning of each year
for the next five years? The first payment will be received today, and the discount rate is
10%. - answerPV=100(PVFA .10, 5)
PV=100(3.791)
PV=379.1
-So, the present value of the annuity would be $379.10
George and Barbara will be retiring in five years and would like to buy a lake house.
They estimate that they will need $200,000 at the end of five years to buy this house.
They want to make five equal annual payments into an account at the end of each year.
If they can earn 14% on their money, compounded annually, over the next five years,
how much must they invest at the end of each year for the next five years to have
accumulated $200,000 by retirement? - answer200,000=PMT(FVFA .14, 5)
200,000=PMT(6.610)
PMT= 30,257.19
-So they will need to invest $30,257.19 at the end of each year to hit their mark
Harry just bought a new Jeep Cherokee four-wheel drive for his lumber business. The
price of the vehicle was $40,000 of which he made a $15,000 down payment and took
out an amortized loan for the rest. His local bank made the loan at 9% interest for five
years. He is to pay back the principal and interest in five equal annual installments
beginning one year from now. Determine the amount of Harry's annual payment. -
answer25,000=PMT(PVFA .09, 5)
25,000=PMT(3.791)
, PMT= 6,594.57
-So, his annual payments would be $6,594.57
If you invest $500 every six months at 6 percent compounded semi-annually, how much
would you accumulate at the end of 10 years? - answerFV=500(FVFA .06, 20)
FV=500(36.786)
FV=18,393
-So you would accumulate $18,393 at the end of 10 years
What is the present value of $100 received at the end of each year for 5 years? Assume
a discount rate of 10%. The first payment will be received one year from today. -
answerPV=100(PVFA.10, 5)
PV=100(3.791)
PV=$379.1
-So the present value of their $100 is $379.1
What is the accumulated sum of each of the following streams of payments? $500 a
year for 10 years compounded annually at 5 percent - answerFV=500(FVFA .05, 10)
FV=500(12.578)
FV=6,289
-So, the accumulated sum would be $6,289
What is the accumulated sum of each of the following streams of payments? $100 a
year for 5 years compounded annually at 10 percent - answerFV=100(FVFA .10, 5)
FV=100(6.105)
FV=610.5
-So, the accumulated sum would be $610.50
What is the present value of the following annuities?
$2,500 a year for 10 years discounted back to the present a 7 percent - answerPV=
2,500(PVFA .07, 10)
PV= 2,500(7.024)
PV=17,560
-So, the accumulated sum would be $17,560
What is the present value of the following annuities? $70 a year for 3 years discounted
back to the present at 3 percent - answerPV= 70(PVFA .03, 3)
PV=70(2.829)
PV=198.03
-So, the accumulated sum would be $198.03
Mr. Bill S. Preston, Esq., purchased a new house for $80,000. He paid $20,000 down
and agreed to pay the rest over the next 25 years in 25 equal annual end-of-year
payments that included principal payments plus 9 percent compound interest ion the
unpaid balance. What will these equal payments be? - answer60,000=PMT (PVFA .09,
25)
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