Question : 111.Prudent Policy Life Insurance Co. offers a 10-year term life : 1325663

 

111.Prudent Policy Life Insurance Co. offers a 10-year term life insurance policy with a $250,000 benefit and annual premiums of $200, paid at the beginning of each year. If Prudent can earn 8% on invested capital, what is the present value to the firm of the premiums from one policy, assuming the policy holder outlives the policy term?

a.$1,120

b.$1,342

c.$1,449

d.$1,852

112.Prudent Policy Life Insurance Co. offers a 10-year term life insurance policy with a $250,000 benefit and annual premiums of $200, paid at the beginning of each year. If Prudent can earn 8% on invested capital, what is the future value to the firm of the premiums from one policy, assuming the policy holder outlives the policy term?

a.$3,129

b.$2,897

c.$2,720

d.$1,342

113.You are evaluating a perpetuity. The first payment is $100, and it arrives in one year. Each subsequent annual payment will increase by 10%. If the discount rate is 8%, what is the present value of this perpetuity?

a.$5,500

b.$1,000

c.$1,250

d.The present value is infinite

114.You invest $10,000 in August 2004. In August 2009, the investment is worth $12,000. What was your compound annual rate of return over the period?

a.3.09%

b.3.71%

c.4.00%

d.4.21%

115.If a bank lends you $10,000 and requires that you make payments of $2,500 at the end of each of the next five years, what interest rate is the bank charging?

a.4.56%

b.5.61%

c.7.93%

d.11.18%

116.Which of the following statements is true?

a.It is important to adjust for the differences in the timing of benefits and costs.

b.A dollar received today is worth more than a dollar received in the future, assuming a positive interest rate.

c.Many fund transfers occur over long periods of time and the time frame needs to be adjusted for.

d.All of the above statements are true.

e.Only (a) and (b) are true

117.Discounting is:

a.calculating the future value of present cash flows.

b.calculating the present value of future cash flows.

c.is necessary in order to pull present values to the future.

d.none of the above

118.An annuity is considered:

a.an ordinary annuity if the payments occur at the beginning of each period.

b.an annuity due if the payments occur at the end of each period.

c.an ordinary annuity if the payments occur at the end of each period

d.an annuity due if the payments occur at the beginning of each period.

e.Both (c) and (d)

119.Which of the following statements is true?

a.If compounding at a positive interest rate, the future value of an annuity due is always less than the future value of an otherwise identical ordinary annuity.

b.If compounding at a positive interest rate, the future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.

c.If compounding at a positive interest rate, the future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due.

d.If compounding at an interest rate of 0%, the future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.

e.None of the above

120.If you were evaluating a investment over a 10-year period that paid 8% compounded semiannually:

a.you would not need to make any special adjustments because the semiannual compounding will not impact the investment’s future value.

b.you would need to divide the number of years by two and multiply the interest rate by two to properly adjust for the semiannual compounding.

c.you would need to divide the interest rate by two and multiply the number of years by two to properly adjust for the semiannual compounding.

d.None of the above

121.You are comparing four different investments, as described below:

 

Investment A: Pays 12%, compounded annually

Investment B: Pays 12%, compounded quarterly

Investment C: Pays 12%, compounded semi-annually

Investment D: Pays 12%, compounded continuously

 

Which of the above investments would result in the highest future value?

a.Investment A

b.Investment B

c.Investment C

d.Investment D

e.All of the investments would have the same future value since the stated interest rate is the same.

122.You wish to save $2,500,000 for your retirement by saving a certain sum every month for the next 40 years. If you can earn 9% compounded monthly, and you make your deposits at the beginning of each month, how much would you have to deposit each month to achieve your objective?

a.$616.59

b.$534.04

c.$565.67

d.$530.06

e.None of the above

 

 

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