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15. Forever Furniture has a “Don’t Pay For One Year” event on right now at the store, so you purchase an Italian
hand-stitched leather sofa. You will pay $1,369 for the sofa in one year. Forever Furniture charges 18.0%
annual interest compounded monthly on overdue payments. If you forget and don’t pay for the sofa until 6
months after payment is due, how much will you pay for the sofa at that time if interest charges begin on the
first day after the year is over?
A. $1,436
B. $1,475
C. $1,492
D. $1,497
E. $1,505
16. Four years ago, Penny invested $7,500 and locked in a 4.25 percent annual interest rate for 24 years (end 20
years from now). Leonard can make a twenty year investment today and lock in a 5.65 percent interest rate.
How much money should he invest now in order to have the same amount of money in 20 years as Penny?
A. $6,728
B. $6,784
C. $6,816
D. $7,072
E. $7,351
17. Your current investment will mature in 2 years for $20,000, at which time you will reinvest the funds for 12
more years at 5.85% per year. What will be the value of your investment at the end of the 14th year?
A. $35,313
B. $37,154
C $39,566
D. $41,986
E. $44,330
18. $1,500 is received at the beginning of year 1, $2,200 is received at the beginning of year 2, and $3,300 is
received at the beginning of year 3. If these cash flows are deposited at 9.75 percent, their combined future
value at the end of year 3 is:
A. $8,255
B. $8,348
C. $8,432
D. $8,659
E. $9,254
19. You are scheduled to receive a $7,500 cash flow in two years, pay a $2,500 payment in three years receive
a $12,750 cash flow in four years, and pay a $4,250 payment in five years. If interest rates are 4.75% per
year, what is the combined present value of these cash flows?
A. $10,263
B. $11,880
C. $11,997
D. $12,175
E. $12,444
20 How many years will it take $100,000 to grow to $350,000 with an annual interest rate of 7.25 percent?
(Hint: See Footnote 4 on page 94; ln = natural log)
A. 15 years, 3 months
B. 15 years, 8 months
C. 16 years, 4 months
D. 17 years, 2 months
E. 17 years, 11 months
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