13) Suppose that you wish to save for your child\'s college education by opening

Question

13) Suppose that you wish to save for your child's college education by opening up an educational IRA. You plan to deposit $100 per month into the IRA for the next 18 years. Assume that you will be able to earn 10%, compounded monthly, on your investment. How much will you have accumulated at the end of 18 years?

A. $21,600
B. $54,719
C. $85,920
D. $60,056
E. $33,548



14) Northwest Bank pays a quoted annual (nominal) interest rate of 4.75%. However, it pays interest (compouned) daily using a 365-day year. What is the effective annual rate of return (APY)?

A. 4.75%
B. 5.02%
C. 4.86%
D. 3.61%



15) Edward Johnson decided to open up a Roth IRA. He will invest $1,800 per year for the next 35 years. Deposits to the Roth IRA will be made via a $150 payroll deduction at the end of each month. Assume that Edward will earn 8.75% over the life of the IRA. How much will he have at the end of 35 years?

A. $125,250
B. $250,321
C. $414,405
D. $363,000



16) All of the following are found in the cash budget EXCEPT:

A. a net change in cash for the period.
B. inventory.
C. new financing needed.
D. cash disbursements.



17) The primary purpose of a cash budget is to:

A. determine the level of investment in current and fixed assets.
B. determine accounts payable.
C. determine the estimated income tax for the year.
D. provide a detailed plan of future cash flows.



18) Which of the following statements about the percent-of-sales method of financial forecasting is true?

A. It is the least commonly used method of financial forecasting.
B. It is a much more precise method of financial forecasting than a cash budget would be.
C. It projects all liabilities as a fixed percentage of sales.
D. It involves estimating the level of an expense, asset, or liability for a future period as a percent of the forecast for sales revenues

Explanation / Answer

13) FV = 100((1+0.1/12)^(18*12)-1)/(1+0.1/12)= 60056.32 ($) So, ANSWER : OPTION D . 14) Effective annual rate = (1+0.0475/365)^365 -1 = 0.04862 = 4.86% approx. So, ANSWER : OPTION C 15) 1.0875 = (1+k/12)^12 k, nominal interest = 0.0841753 FV = 1800(1.0841753)^35/0.0841753 = 362,000 approx. ANSWER: OPTION D 16) ANSWER : OPTION B 17) ANSWER : OPTION D 18) ANSWER : OPTION A

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