SOLVED

11) When Pickton Furniture offers customers two years to pay for a $4,500 bedroom suite, it uses an implicit interest rate of 16%. Furniture paid in cash is priced net of financing. How much would a couple save if they borrowed against their credit line so they could pay cash for the suite and then paid off the line in a lump sum at the end of two years? The credit line carries an interest rate of 9% per year compounded annually. A) $1,234 B) $1,156 C) $629 D) $526 E) $598 12) An accelerated monthly mortgage is one where the payments are made at the beginning of the month. This form of payment is called A) An ordinary annuity B) A general annuity C) An annuity due D) A pre-paid annuity E) A post-paid annuity 13) A large Ontario municipality signed a four-year lease on paving equipment where payments of $71,698 are made at the beginning of each year with an interest rate of 10% per year, compounded annually. By the end of the contract, what will be the total cost to the city? A) $366,025 B) $332,750 C) $337,697 D) $371,467 E) $383,550 14) Tuscarora Transportation recently signed a seven-year loan of $350,000 with annual payments at the end of each year on four warehouses and the adjacent paved acreage at a 9% interest rate compounded annually. What is the total interest that will be paid by the end of the seven-year term? A) $136,792 B) $668,450 C) $754,950 D) $1,761,550 E) $2,450,000 15) Tuscarora Transportation is expected to require $450,000 to replace part of their fleet trucks in six years time. What yearly contribution at the end of each year will the company have to make to an investment paying 12% per annum to have sufficient money to purchase the trucks? A) $55,453 B) $71,603 C) $227,964 D) $905,400 E) $759,150 16) Galhadi Telecommunications Ltd. can finance the purchase of $650,000 worth of electronic infrastructure by a bank loan where both principal and interest are paid at the end of the term. The interest rate being offered is 10%, compounded annually, maturing in 5 years. Alternatively, the company can enter into a lease to buy arrangement, where the interest rate is also 10% per year, compounded annually and payments of $158,442 are made at the beginning of each year for five years. Which is the better financial alternative and by how much? A) The lease to buy saves a $68,189 in total interest paid. B) The bank loan saves $153,054 in total interest paid. C) The lease to buy saves $153,054 in total interest paid. D) The bank loan has a lower present value cost by $49,378. E) The bank loan has a lower present value cost of $10,687. 17) CapiCal Industries is issuing bonds at 7% interest but would be willing to buy back the debt at any time after the first 12 months. CapiCal Industries is looking to issue A) A Retractable bond B) A Debenture C) A Redeemable bond D) An Open bond E) A convertible debenture 18) Rekka Resin Moulding Inc purchases a building and equipment for $2 million. It puts $500,000 down and finances the rest over five years making quarterly payments starting one quarter from now. Interest is 8% per year, compounded quarterly. What is the quarterly payment? A) $318,241 B) $375,686 C) $122,314 D) $152,779 E) $91,735 19) Ambidex is considering a bank loan of $1,800,000 to update its information system technology. It is expecting to finance the loan over five years, with annual payments, at an interest rate of 12%, compounded annually. Which of the following would provide the least cost alternative to Ambidex? A) Maintain the current terms. B) Make a down payment of 5% of the principle. C) Spread the payments over eight years instead of five years. D) Pay at the beginning, instead of at the end of the year. E) Make quarterly payments instead of annual ones. 20) 2,500 bonds with a term of five years, and a coupon rate of 7%, compounded annually, with payments once a year, and a face value of $1000, were issued November 1. What is the total amount that the company will have paid out at the bonds maturity? A) $5,032,125 B) $3,375,000 C) $1,623,866 D) $3,587,675 E) $1,232,125