Why are life insurance and life annuities often described as opposites?

What are the largest asset categories on a life insurance company balance sheet?

The original Seven Essays, in a cool, new outfit ...

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10

Sep
Categories: General Questions

Comments Off on Why are life insurance and life annuities often described as opposites?

Why are life insurance and life annuities often described as opposites?

What are the largest asset categories on a life insurance company balance sheet?

10

Sep
Categories: General Questions

Comments Off on Dr. Oats, a nutrition professor, invests $80,000 in a piece of land that is expected

1) Dr. Oats, a nutrition professor, invests $80,000 in a piece of land that is expected to increase in value by 14 percent per year for the next five years. She will then take the the proceeds and provide herself with a 10- year annuity. Assuming a 14% interest rate for the annuity how much will this be?

2) I have a contract in which I will receive the following payments for the next five years: $3000, $4000, $5000, $6000, and $7000. Then I will receive an annuity of $9000 a year from the end of the sixth through the end of the 15th year. The discount rate is 13%. If I am offered $40,000 to cancel the contract should I ?

10

Sep
Categories: General Questions

Comments Off on An auto stereo dealer sells a stereo system

An auto stereo dealer sells a stereo system for $600.00 down and monthly payments of $30.00 for the next 3 years. If the interest rate is 1.25% per month on the unpaid balance, find

a.) the cost of the stereo system;

b.) the total amount of interest paid.

Please show formula used. And the list of steps used to find the solution. Thanks.

10

Sep
Categories: General Questions

Comments Off on What is the future value (approx.), where present value=1000, r=6% and n=1?

1. What is the future value (approx.), where present value=1000, r=6% and n=1?

a. 1060.00

b. 1600.00

c. 943.40

d. 900.00

2. What is the future value (approx.), where present value=1000, r=6% and n=10?

a. 1600.00

b. 400.00

c. 1790.85

d. 1645.32

3. What is the present value (approx.), where future value = 1000, r=6% and n=1?

a. 1060.00

b. 1600.00

c. 943.40

d. 900.00

4. What is the present value (approx.), where future value = 1000, r=6% and n=5?

a. 1300.00

b. 747.26

c. 545.38

d. 700.00

5. What is the present value (approx.), where future value = 1000, r=6% and n=10?

a. 558.39

b. 1600.00

c. 400.00

d. 428.32

6. Calculate the interest rate implied (approx.), where PV=1000, n=5, FV=1436.

a. 5.6%

b. 6.2%

c. 7.5%

d. 9.2%

7. Calculate the interest rate implied (approx.), where PV=1000, n=11, FV=1750.

a. 5.2%

b. 3.7%

c. 7.5%

d. 9.2%

8. How long (approx.) will it take for $500 to grow to $1,000 at 8% per year?

a. 6 yrs

b. 7

c. 8

d. 9

9. How long (approx.) will it take for $500 to grow to $700 at 5% per year?

a. 6.9 yrs

b. 10.9

c. 11.7

d. 13.2

10.A famous quarterback just signed a $10 million contract providing $1 million a year for 10 years. The first payment is after one year. The interest rate is 10%. The quarterback’s contract present value is approximately?

a. 5.2 million

b. 6.1

c. 6.8

d. 8.9

11.A less famous receiver just signed an $8 million contract providing $3 million now and $1 million for the next 5 years. The interest rate is 10%. The receiver’s contract present value is approximately?

a. 5.2

b. 6.1

c. 6.8

d. 8.9

12.What is the present value (approx.) of a 5-year annuity of $100 if the discount rate is 6%?

a. 326.25

b. 421.24

c. 532.83

d. 601.23

13.Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four equal annual year-end payments. If the interest rate is 7%, what is the annual payment approximately?

a. 189.65

b. 220.21

c. 295.23

d. 401.89

14.The $40 million lottery payment that you just won actually pays $2 million per year for 20 years. If the discount rate is 5%, and the first payment comes in 1 year, what is the present value of the winnings approximately?

a. 40.00 million

b. 38.26

c. 24.92

d. 19.64

15.You believe you will need to have saved $500,000 by the time you retire in 35 years. If the interest rate is 9% per year, how much must you save each year (approx.) until retirement to meet your retirement goal?

a. 3230.77

b. 2317.92

c. 1875.01

d. 1306.00

Chapter 10 (Block and Hirt)

16. Market-determined required rate of return is the same thing as discount rate, according to the text.

a. True

b. False

17.When the market interest rate exceeds the coupon rate, bonds sell for less than face value.

a. True

b. False

18.The yield to maturity is defined as the discount rate that makes the present value of the bond’s payments equal its price.

a. True

b. False

19.Common stock usually represents a perpetuity.

a. True

b. False

20.Required rate of return = real rate of return + inflation premium + risk premium

a. True

b. False

21.Price-earnings ratio represents a multiplier applied to current earnings to determine the value of a share of stock.

a. True

b. False

22.Supernormal growth pattern is often experienced by firms in mature industries.

a. True

b. False

23.If the annual dividend of a preferred stock is $10 and the required rate of return is 10%, then the price of the preferred stock would be:

a. $10

b. $90

c. $100

d. $110

24.According to the constant growth dividend valuation model, if dividends were $2.00, required rate of return is 12%, and the dividends grow at a constant rate of 7% per year, the price of the stock would be:

a. $24

b. $40

c. $48

d. $60

25.What is the approximate price of a bond if par value is $1000, interest rate of (coupon) 9%, matures in 20 years and the present yield to maturity is 6%?

a. $910

b. $1245

c. $1344

d. $1485

10

Sep
Categories: General Questions

Comments Off on Find the future value of the following annuities.

Find the future value of the following annuities. The first payment in these annuities is made at the end of year one. That is, they are are ordinary annuities.

A) $400 per years for 10 years at 10%

B) $200 per year for 5 years at 5%

C) $400 per year for 5 years at 5%

D) Now rework parts a and b and c assuming that payments are made at the beginning of each year; that is they are annuities due

10

Sep
Categories: General Questions

Comments Off on You need to accumulate $10,000. To do so you plan to make deposits

10

Sep
Categories: General Questions

Comments Off on If you have $20,000 in an account earning 8% annually

a. $3,525.62

b. $5,008.76

c. $3,408.88

d. $2,465.78