GEB 5879 Fall 2024 Final Exam PDF

FINAL EXAM – GEB 5879 Name: _________________________ Dr. Krieger, GEB 5879, UWF Directions: Show your work and make sure you circle final answers to numerical questions! If you make me hunt for your answer I may not be able to find it! -----...

FINAL EXAM – GEB 5879 Name: _________________________ Dr. Krieger, GEB 5879, UWF Directions: Show your work and make sure you circle final answers to numerical questions! If you make me hunt for your answer I may not be able to find it! ------------------------------------------------------------------------------------------------------------------------------ PART 1 – TIME VALUE OF MONEY ------------------------------------------------------------------------------------------------------------------------------ 1. A car loan is to be repaid with equal, monthly payments. The car is purchased today with a $24,000 loan, and the loan will be repaid, every month, starting one month from today. The interest rate of the loan is 2.4% (APR) with monthly compounding. The last payment will be made six years from today. What is the monthly payment amount? Show calculator inputs/work for partial credit. (4) 2. If the interest rate is 13% annually (APR), then what is today’s value of an investment promising to pay you $3,000 per year (end-of-year payments) for years 1-3 (first payment in one year) and then $7,000 (end-of-year payments) for years 4-8? Draw a timeline if it helps, and/or show your calculator inputs. (4) 3. Consider a 20-year home mortgage loan with monthly payments. If your interest rate is 8.4% (APR) and your monthly mortgage payments are $1620 each month, and the first payment is to be made one month from today, then how much money must you have borrowed for this mortgage? (Round to the penny) Show calculator input for partial credit. (5) Page 1 of 3  FINAL EXAM – GEB 5879 4. If you could invest any funds for a return of 8% (APR) per year, with annual compounding, which of the following investments would you choose (i.e., which is the most valuable?)? This item (only) is graded “all or nothing.” (3) The letter for the correct answer is _________. Cash Flows a. $31,400 today b. $4,900 payment at the end of each year for 10 years c. $144,000 single payment at the end of 20 years d. $3,200 today and a $5,000 payment at the end of each year for 7 years e. $5,000 today and another lump sum $55,000 in 10 years 5. Your parents will retire in 17 years. They currently have $150,000 and will need $1,500,000 at retirement. Their retirement account projects to earn 7.7% per year (APR). If they plan to make annual contributions (starting one year from today) into the account, how much must they deposit, every year, in order to reach their goal (assuming equal deposits)? Show your work/calculator inputs for partial credit. (5) 6. An account pays 5.5% (APR) interest, compounded monthly. What is the effective annual rate of interest this account earns? Show your work and round your final answer to three decimal places. (4) Page 2 of 3  FINAL EXAM – GEB 5879 7. Allison and Leslie are twins. Each just received a gift of $20,000 today on their 21st birthday. Each plans to use this money to save for retirement. Additionally, Leslie is going to begin placing $8,000 per year, every year into her account, starting one year from today, with the goal of having $1,000,000. Allison’s savings are going to grow at a rate of 11% (APR) compounded annually while Leslie’s savings are going to grow at a rate of 14% (APR) compounded annually. If Allison invests only the same $8,000 per year as Leslie, it will (of course) take her longer to become a millionaire than Leslie. If, however, Allison decides that she wants to keep investing in her 11% APR account, but also wants to become a millionaire at the exact same time as Leslie, then how much must Allison invest at the end of every year (equal, end-of-year amounts)? Show work/calculator inputs for partial credit. (7) 8. It’s now December 31, 2023 (t = 0), and a jury just today found in favor of a woman who sued the city for injuries sustained in a January 2022 accident. She requested and won recovery of lost wages plus $200,000 for pain and suffering plus $175,000 for legal expenses. Her doctor testified that she is unable to work, that she has been since the accident, and that she will not be able to work again. She is now 62 and the jury has decided she would have continued to work for another 3 years past today (until she’s 65). She was scheduled to earn $81,000 in 2022 (to simplify, assume annual salary amounts will be received as one lump sum at the end of the year. e.g., $81,000 would have been received for 2022 wages on December 31, 2022). The woman’s employer testified she would have likely earned raises of 3%, per year, every year. The judge agrees to grant the city some time to come up with the lump sum necessary, so the actual payment for the jury award will be made on December 31, 2024. The judge decrees that all dollar amounts should be adjusted based on an 8% (APR) rate with annual compounding. He also ruled that the pain and suffering and legal expenses should be based on today’s date. How large a check must the city write the woman on December 31, 2024? Show work/inputs for partial credit. (8) Page 3 of 3