SM132 Quiz One Questions

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Boston University *

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132

Subject

Economics

Date

Feb 20, 2024

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Uploaded by LieutenantHare4026

1.) Which payment would you prefer to receive if you can earn 5.4% interest on your savings account? A. $900 in 4 years B. $895 in 2 years C. $835 in 1 year D. $800 today 2.) 4 years ago you invested $15,000 to design a new app to match dog owners with trainers. Today you sold the business and earned a 41% annual return on your investment. How much did you sell the business for? 1 Give the answer as a positive number. (round to the nearest dollar) 3.) Save the Bees supplies beekeepers with hives and other beekeeping equipment. It has just received a contract to sell 600 hives in exchange for a $100,000 payment today and an additional $70,000 one year from today. The hives cost $75 to manufacture (a cost they will incur today). Assuming an interest rate of 6.5%, what is the net benefit today of this contract for Save the Bees? 1 (round to the nearest dollar) 4.) You have decided to invest money today in order to make a $120,000 grant to Sustainability@BU in 2025. If interest rates suddenly decrease, the amount you would have to invest today in order to have $120,000 available for Sustainability@BU in 2025 will: A. Increase B. Decrease C. Remain unchanged D. Cannot be determined without more information 5.) Island Institute has agreed to raise money to fund projects for Maine island schools. It plans to make annual payments and to continue the payments forever. The first payment will be $5,000 one year from today and it plans to increase the payment by 2.45% per year. Given an interest rate of 5.65%, how much is needed to fund this perpetuity today? 1 Give the answer as a positive number. Round to the nearest dollar. 6.) A perpetuity will pay $800 per year beginning 6 years from today. Given an interest rate of 4.3%, what is the value of the perpetuity today? (give the answer as a positive number, round to the nearest dollar) 7.) You have agreed to make nine annual payments to support #QuestromCares. You will make nine $1,400 annual payments beginning today . Assuming an interest rate

of 6%, what is the value today of your payments?Give the answer as a positive number. Round to the nearest dollar. 8.) You plan to invest $4500 at the end of each year for 12 years beginning one year from today. If the investment pays 6.4% interest, what will be the value of your investment 12 years from today after you make your final investment?(round to the nearest dollar, enter the answer as a positive number) 9.) You are saving for a trip in 4 years that will cost $3500. You have saved $950 and plan to save an additional amount every year beginning one year from today for the next 4 years. If the bank pays 6.9% interest on your savings account, how much will you need to invest each year beginning one year from today in order to have a total of $3500 4 years from now? 1 Give the answer as a positive number. Round to the nearest dollar. 10.)You are planning to move to Norway to train for your country's olympic cross-country ski team. The move will cost $10,800. If you already have $7,000 in your bank account and the bank pays 7.5% interest per year, how many years will it take to reach your goal of $10,800? 1 (round to the nearest year) 11.) Today is your 65th birthday and you have saved $1,250,000 for your retirement. You expect to live until age 97. How much can you withdraw every year in retirement (starting one year from today) so that you will have no savings left after your final withdrawal at age 97? Assume that you continue to earn 8.5% interest on your savings. 1 (round to the nearest dollar, enter the answer as a positive number) 12.) You are planning to do a motorcycle trip in Vietnam in 3 years with your college roommate. The trip costs $13,000. You have $6,000 in your bank account now and will deposit an additional $1300 every year beginning one year from today. What interest rate would be required if you are to have $13,000 in your bank account in 3 years? 1 (give the answer as a decimal rounded to 4 digits after the decimal: 0.xxxx) 13.) You have a small business breeding Labradoodle puppies and have found a buyer for your last puppy. The puppy costs $2000 and the buyer has offered you three payment options. If the interest rate is 6%, which of the following would you prefer to receive? A.One payment of $2000 today B.One payment of $2380 three years from today C.Five annual payments of $474 beginning today

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