1.

Erica wants to plan for her retirement. She is currently 35 years old and plans to retire at

age 65 and live for another 30 years. Erica’s current salary is $100.000, but she thinks her

wage replacement ratio will be 70% during retirement and that Social Security will

provide $20,000 of income (annually) during retirement. She believes she can earn a 9%

return on her investments and that inflation will be 4%. How much must she save at the

beginning of each year, to meet her retirement goal?

2.

Hines Ward purchased a 15 year bond that’s callable in 5 years at $1,000. The bond is

paying an 8% coupon (semi- annually) and selling at $1,200. If the bond is called, what

would Hines’ yield to call be?

3.

Calculate the standard deviation of these returns: Year 1) 18%. Year 2) 10%, Year 3)

-14%, Year 4) 3%, Year 5) 11%

4.

What is the weighted average expected return of the following Stocks?

Stock Market Value Expected Return

Google $40,000 35%

Citigroup $20,000 15%

General Electric $25,000 5%

Microsoft $35,000 4%

Total $120,000 ?

5.

Calculate the standard deviation of these returns: Year 1) 10%. Year 2) 8%, Year 3) -1%,

Year 4) 5%

6.

Miles Matheson would like to plan for his son’s college education. He would like his

son, who was born today, to attend a private university for 4 years beginning at age 18.

Tuition is currently $35,000 a year and has increased at an annual rate of 6%, while

inflation is increasing at 4% per year. Miles can earn an after-tax rate return of 9%. How

much must Miles save at the end of each year if he would like to make his last payment at

the beginning of his son’s first year of college?

7.

Mike Wallace wants to receive the equivalent of $40,000 in today’s dollars at the

beginning of each year for the next 8 years. He assumes inflation will average 4% over

the long run, and he can earn a 7% compound annual after-tax return on his investments.

What lump sum does Mike need to invest today to achieve his goal?

8.

Mary Decker wants to retire in 8 years. In terms of today’s dollars, she needs an

additional $350,000 in 8 years to have sufficient funds to finance this objective. She

assumes inflation will average 4%, and she can earn an 8% compound annual alter-tax

return on investments. What serial payment should Mary invest at the end of the first year

to attain her objective?

9.

Harry and David purchased 100 shares of stock six months ago for $4,400. At the end of

the third month, they received $88 in dividends. Today (6 months after the purchase),

they sold the stock for $4,700. What was the annual internal rate of return on this

investment?

10.

Brady Quinn inherited $45,000, which he invested today in an account earning 7%

interest, compounded semi-annually. He plans also to invest a payment of $500 at the end

of each six month period. How much will the account be worth in 12 years?

11.

Eli Manning invests in a bond, which pays 5% coupon interest semi-annually and will

pay a face amount of $1,000 in eight years. Similar bonds are featuring yields to maturity

of 7%. How much should he pay for the bond?

12.

John Runyan purchased a plot of land for $200,000. He had the following inflows and

outflows associated with the investment:

Inflows Outflows

End of year 1: $4,000 $24,000

End of year 2: $9,500 $4,000

End of year 3: $10,000 $6,100

End of year 4: $10,500 $6,500

End of year 5: $9,500 $17,500

At the end of year 5, John sold the land for $250,000. What was the internal rate of return

on this investment?

13.

Max Starks wants to receive the equivalent of $50,000 in today’s dollars at the beginning

of each year for the next 15 years. He assumes inflation will average 4% over the long

run, and he can earn an 8% compound annual after-tax return on his investments. What

lump sum does Max need to invest today to achieve his goal?

14.

Antonio Brown invested in a mutual fund one year ago. His initial investment was

$5,000. He has invested $150 at the end of each month, except for the fifth month. In

addition, at the end of the fourth month, they redeemed $600 worth of shares. His fund

balance is currently worth $5,800. What has been the annual internal rate of return on this

investment?

15.

Tim Taylor and Al Borland are considering the purchase of a classic car. They believe

that they will be able to sell the car in six months for $60,000. They anticipate the

following expenses for restoration, storage, insurance, and maintenance over the next five

months.

Outflows:

End of month 1: $3,000

End of month 2: $1,200

End of month 3: $1,400

End of month 4: $2,100

End of month 5: $3,300

If they required annual return on the vehicle is 24%, what is the maximum initial cost

they can incur for the vehicle?

16.

Marcia Brady wants to start a business in 5 years. She needs to accumulate $30,000 in

today’s dollars in 5 years to sufficiently finance her venture. She assumes inflation will

average 4%, and she can earn a 6% compound annual return on investments. What serial

payment should Marcia invest at the end of the second year to attain her goal?

17.

Rick Grimes purchased a bond for $950 four years ago. The bond pays 6% coupon

interest semi-annually. The bond matures today, and will pay a face value of $1,000.

What is the yield to maturity for this bond?

18.

James Farrior purchased an antique lamp for $2,500. One year after the purchase, he

restored the lamp at a cost of $550. At the end of the second year, he sold the lamp for

$3,425. What was the internal rate of return on this transaction?

19.

In May of 2006, Bill Cowher loaned $25,000 to Kordell Stewart at 6% interest,

compounded annually and payable upon termination of the loan. When Kordell repaid the

loan in May 2012, how much did Bill receive?

20.

Vanessa Williams invested $30,000 in a mutual fund. She expects the fund to earn a 9%

annual rate of return over the next 6 years, compounded annually. How much will the

fund be worth at the end of 6 years?

21.

Willie Colon wants to accumulate $200,000 in 8 years to purchase a condo at the beach.

He expects to earn an annual rate of 8% compounded quarterly. How much does Willie

need to invest today to attain his goal?

22.

Gabby Douglas’ mother opened a $10,000 savings account for Gabby when she was

born, and the account now has a value of $40,000. Approximately how old is Gabby if

the deposit has been accumulating at an annual rate of 6% compounded annually?

23.

Ahmad Bradshaw invested $100,000 in a certificate of deposit (CD). In 5 years, when the

CD matures, Ahmad will receive $125,000. If interest is compounded monthly, what is

the annual compound rate of return on the CD?

24.

Lawrence Taylor has been dollar cost averaging in a mutual fund portfolio by investing

$5,000 at the beginning of every quarter for the past 9 years. He has been earning an

annual return of 8% compounded quarterly on his investment. How much is the portfolio

worth today?

25.

Franco Harris expects to receive $40,000 at the end of each of the next 8 years. His

opportunity cost on investments is 10% compounded annually. What is this sum worth to

Franco today?

26.

Gary Anderson has an option to receive $750,000 today or to receive equal periodic

payments at the beginning of each of the next 15 years from a trust. His opportunity cost

on investments is 8% compounded annually. What annual payment should Gary receive

to equal the $750,000 lump-sum payment today?

27.

Michael Vick wants to have $500,000 to buy a used car lot in 5 years. How much should

he invest today at an annual interest rate of 6% compounded annually to have $500,000

in 5 years?

28.

Shane Falco purchased a lot in the city for $10,000 last week. He is confident that the

property will appreciate at an annual compounded rate of 6% because of its location.

Shane wants to sell the lot when its value doubles. Approximately how many years must

he own the property to receive $20,000 when he sells it?

29.

Al and Peg Bundy have been investing $10,000 at the end of each 6-month period to

accumulate funds for retirement. They plan to retire in 10 years and have been earning a

10% annual rate compounded semi-annually on their investments. How much will they

have accumulated at retirement?

30.

Gary Shandling wants to accumulate $500,000 for retirement in 18 years. He expects to

earn an annual return of 10% compounded semi-annually on investments. How much

should he invest at the beginning of each 6-month period to attain his goal?

31.

Mark Sanchez expects to receive $650,000 from a trust fund in 10 years. What is the

current value of this fund if it is discounted at an annual rate of 8% compounded semiannually?

32.

Jerome Bettis wants to save $390,000 for the down payment for a restaurant. He recently

won a lawsuit in the amount of $150,000 that he can invest at an annual rate of 7%

compounded semi-annually. If this is the only amount he can invest for this goal,

approximately how many years will be before Jerome has $390,000?

33.

Rolando McLain wants to withdraw $500 at the beginning of each month for the next 25

years. He expects to earn an annual rate of 9% compounded monthly. What lump sum

should Rolando invest today to achieve this goal?

34.

Dez Bryant wants to purchase new jewelry in 3 years. He expects to spend $150,000 for

the jewelry. If he earns an annual compound rate of return of 5% on his investments, how

much should he invest at the end of each year to achieve his objective?

35.

Ben Roethlisberger is purchasing a house for $1,000,000. He is putting a 20% down

payment for the house and borrowing the rest. He will get a mortgage at an annual rate of

4.50% compounded monthly for 30 years for the remainder. What payment will be

required at the end of each month to repay the principal and interest on this loan?

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