Quiz Questions


1	What minimum endowment is required now in order to an award scholarships (beginning One year from now) of $4000 every year in perpetuity? Assume the endowment can earn 6% compounded annually in perpetuity.
		A)	$66,666.67
		B)	$70,666.67
		C)	$62,666.67
		D)	$85,632.00
		E)	$65,655.55


2	What annual scholarship amount (beginning one year from now) can be awarded in perpetuity from a $200,000 fund that earns 8% compounded annually in perpetuity?
		A)	$14,720.00
		B)	$14,815.00
		C)	$16,000.00
		D)	$25,000.00
		E)	$50,000.00


3	A company's common shares pay a quarterly dividend of $1.75. The next dividend will be paid tomorrow. At what purchase price would the shares provide an investor with a rate of return of 10% compounded quarterly?
		A)	$70.00
		B)	$71.75
		C)	$19.25
		D)	$17.50
		E)	$68.25


4	What amount is required to fund a perpetuity that provides semiannual payments of $3000? The funds can be invested to earn 9% compounded semiannually and the first payment is to be paid today.?
		A)	$33,333.33
		B)	$66,666.67
		C)	$36,333.33
		D)	$69,666.67
		E)	$54,285.63


5	How much must be deposited today into a special fund earning 9% compounded annually in order to provide perpetual annual scholarship payments of $2000? Assume the first scholarship will be paid eight years from today.
		A)	$11,152.58
		B)	$180.00
		C)	$24,222.22
		D)	$12,156.32
		E)	$22,222.22


6	$25,000 is deposited today into a special fund to provide perpetual annual scholarship payments. The fund will earn 9% compounded annually. If the first scholarship will be awarded five years from today, what will be the maximum size of the annual scholarship payments?
		A)	$3461.90
		B)	$2250.00
		C)	$3176.06
		D)	$2866.80
		E)	$2047.50


7	A $20,000 bequest is to be used to establish a scholarship fund from which annual scholarship payments will be made in perpetuity. If the fund earns 10% compounded annually and the first payment will be made four years from now, what is the maximum size of the annual scholarship payments?
		A)	$2662.00
		B)	$2000.00
		C)	$1818.18
		D)	$3231.17
		E)	$2928.20


8	What amount is required now to establish a scholarship fund from which annual payments of $3000 will be made in perpetuity? The first annual scholarship payment will be made one year from now, and the fund earns 8% compounded semiannually.
		A)	$75,000.00
		B)	$37,500.00
		C)	$36,764.71
		D)	$40,500.00
		E)	$39,764.71


9	What payment can be made at the end of every year in perpetuity from a $20,000 fund if the fund earns 9% compounded semiannually?
		A)	$1800.00
		B)	$1685.40
		C)	$1952.64
		D)	$1840.50
		E)	$1651.38


10	Sam wants to have $500,000 in RRSP's by the time he retires. He plans to make yearly deposits for the next 20 years to achieve this goal. Sam is basing his calculations on current interest rates which are 5% compounded annually, and has decided to increase his yearly contribution by the rate of inflation which he estimates to be 3% per year. How much will Sam deposit one year from today into his RRSP?
		A)	$9,803.92
		B)	$3,768.89
		C)	$5,536.76
		D)	$9,803.92
		E)	$11,803.78

2003 McGraw-Hill Higher Education
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