Knowledge is of two kinds. We know a subject ourselves,

or we know where we can find information on it.I like this quote-

Stro

ngly A

gree

Agre

e

Neu

tral

Dis

agre

e

Stro

ngly D

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17%

43%

0%4%

35%1. Strongly Agree

2. Agree

3. Neutral

4. Disagree

5. Strongly Disagree

You tell your sister, “If you move out today, I will buy you a car valued at $10,000 when you turn 18."  Your sister is 16 years old.  If you receive a 10% annual return, how much money do you have to set aside today to be able to buy your sister a car when she is 18?

$8,264.46 $9,264.46.43 $7,264.46 $11,264.46

68%

18%14%

0%

1. $8,264.46

2. $9,264.46.43

3. $7,264.46

4. $11,264.46

You are using outdated equipment in the plant that costs $12,000 per machine per year to maintain.  You could buy new equipment for $30,000 per machine.  The new machines would cost $5,000 per year to maintain.  If both old and new machines have a remaining life of 10 years, should you replace the machines?  You would like a 9% annual return. 

Yes, pvbenefit

$54,923,60

No,$24,923.60

No,$34,923.60

Yes,$44,923.60

0%

100%

0%0%

1. Yes, pv benefit $54,923,60

2. No, $24,923.60

3. No, $34,923.60

4. Yes, $44,923.60

You are using outdated equipment in the plant that costs $12,000 per machine per year to maintain.  You could buy new equipment for $30,000 per machine.  The new machines would cost $5,000 per year to maintain.  If both old and new machines have a remaining life of 10 years, should you replace the machines?  You would like a 9% annual return. 

94%

6%0%0%

1. Yes, 19.36%

2. No, 9.36%

3. Yes, 17.36%

4. No, 7.36%

Your rich aunt will be giving you $336,740.  Unfortunately, she thinks that you are not mature enough to receive the money today, so the $336,740 will be given to you in eight years.  Assume a 9% discount rate.  What is the value of the gift today?

$158,998.45 $168,998.45 $178,998.45 $188,998.45

0% 0%0%0%

1. $158,998.45

2. $168,998.45

3. $178,998.45

4. $188,998.45

Your property taxes have just increased by $800 per year (payable at the end of the year).  You make it a point to have the present value of the property taxes for the next three years set aside in an account.  The account returns 5% annually.  How much should be added to the account to assure that the property taxes for the next three years are paid?

$2,178.60 $2,278.60 $2,378.60 $2,478.60

0% 0%0%0%

1. $2,178.60

2. $2,278.60

3. $2,378.60

4. $2,478.60

Seven years ago you bought shares of Cisco Systems for $12.00 per share today you sold the shares for $36.00.  What was your annual rate of return (assume no dividends, no commissions)?

0% 0%0%0%

1. 14.99%

2. 15.99%

3. 16.99%

4. 18.00%

Fourteen years ago, you bought a Barry Bonds baseball card for 40 cents.  You expect to sell the card next year for $1,000.  What would be your annual rate of return? 

0% 0%0%0%

1. 58.47%

2. 63.47%

3. 68.47%

4. 73.47%

The past five years you have been managing the family fortune that was left to you by your grandparents-- value $10,000,000 (10 years ago).  Unfortunately, the assets have been decreasing at a rate of 6% per year.  You promised your family that you would let someone else manage the assets if the investments ever fell to one-half the original value.  If you keep losing money at 6% per year, how many years do you have left before you give up your money management position? 

0% 0%0%0%

1. 1.20 years

2. 1.40 years

3. 1.60 years

4. 1.80 years

Assume you are just starting an MBA program that will take two years to complete.  You read that an MBA will earn you about $10,000 per year (ordinary annuity) more than just an undergraduate degree.  Using a discount rate of 8.0%, what is the value today of the extra income if you decide to work 40 years after receiving your MBA?

$92,657 $102,234 $119,246 $124,246

0% 0%0%0%

1. $92,657

2. $102,234

3. $119,246

4. $124,246