QUESTION: 649

What monthly payment, beginning next month, would repay a $25,000 car loan over 60 months, assuming your loan has an interest rate of 6.9% per year, compounded monthly?

$1,757.07
$493.85
$843.95
$1,789.14
$650.58

Answer(s): B

Explanation:

On the BAII Plus, press 60 N, 6.9 divide 12 = I/Y, 25000 PV, 0 FV, CPT PMT. On the HP12C, press 60 n, 6.9 ENTER 12 divide i, 25000 PV, 0 FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

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QUESTION: 650

A new extended life light bulb has an average service life of 750 hours, with a standard deviation of 50 hours. If the service life of these light bulbs approximates a normal distribution, about what percent of the distribution will be between 600 hours and 900 hours?

95%
68%
None of these answers
34%
99.7%

Answer(s): E

Explanation:

z = (X-u)/sigma. z1 = (600 - 750)/50 = -3.0. z2 = (900 - 750)/50 = 3.0. from the z tables, z = 3 is 0.4987.
Therefore the area between z1 and z2 is 0.4987*2 = 0.9974

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QUESTION: 651

An employee had the following percentage increases in salary over the last 5 years: 4%, 7%, 10%, 15%, 12%.
The geometric mean of his salary increases equals ________.

9.60%
9.22%
9.53%
8.72%

Answer(s): D

Explanation:

The straight geometric mean of the increases is (0.04*0.07*0.1*0.15*0.12)^(1/5) = 8.72%. Note that this is different from geometric rate of change, which in this case would be (1.04*1.07*1.1*1.15*1.12)^(1/5) - 1 = 9.53%. You should be very careful about this point since the Mason & Lind textbook is quite ambiguous on this point. Finally, note that the geometric mean may not be defined if some of the salary changes are negative.

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QUESTION: 652

Suppose that stocks A, B, C, and D are independent with respect to their price movement, and have probabilities of increasing of 0.25, 0.50, 0.40, and 0.30. What is the probability that stocks A and C will increase in price? In other words, find P(AC).

3.5%.
11%.
10%.
1.0%.

Answer(s): C

Explanation:

If events are independent, then the joint probability of them occurring together is just the product of the individual probabilities. So P(AC) = 0.25 * 0.40 = 10%. Note that we did not state whether the other stocks, B and D, increased in value or not.

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QUESTION: 649

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QUESTION: 650

Explanation:

QUESTION: 651

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QUESTION: 652

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