Question 1

Increasing the number of periods will increase all of the following except:

Accepted Answer

A)  the present value of an annuity. 
B)  the present value of $1. 
C)  the future value of $1. 
D)  the future value of an annuity. 
A)  the present value of an annuity. 
B)  the present value of $1. 
C)  the future value of $1. 
D)  the future value of an annuity.

Question 2

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $250,000 to your credit in the plan. The plan anticipates earning 9% interest compounded monthly. How much will your monthly benefits be, paid at the end of each month?

Accepted Answer

A)  $2,249.31 
B)  $1,024.59 
C)  $1,555.69 
D)  $1,894.24 
A)  $2,249.31 
B)  $1,024.59 
C)  $1,555.69 
D)  $1,894.24

Question 3

Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of the three years?

Accepted Answer

The answer of Gary Kiraly wants to buy a new...

Question 4

You can lease a vehicle today for 36 months. The dealer will guarantee a residual value of $10,000. If the cash price of the car is $38,000, and the financing is priced at 8.75%, what would be your monthly payment?

Accepted Answer

A)  $1,204 
B)  $602 
C)  $960 
D)  $782 
A)  $1,204 
B)  $602 
C)  $960 
D)  $782

Question 5

As the interest rate increases, the present value of an amount to be received at the end of a fixed period:

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  not enough information to tell. 
A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  not enough information to tell.

Question 6

The higher the discount rate used in determining the future value of a $1 annuity:

Accepted Answer

A)  the greater the future value at the end of a period. 
B)  the smaller the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  none of the other answers are correct: the interest has no effect on the future value of an annuity. 
A)  the greater the future value at the end of a period. 
B)  the smaller the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  none of the other answers are correct: the interest has no effect on the future value of an annuity.

Question 7

As the interest rate decreases, the present value of an amount to be received at the end of a fixed period:

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  not enough information to tell. 
A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  not enough information to tell.

Question 8

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

Accepted Answer

A)  A period of recession 
B)  When idle money can earn a positive return 
C)  When there is no risk of nonpayment in the future 
D)  When current interest rates are different from expected future rates 
A)  A period of recession 
B)  When idle money can earn a positive return 
C)  When there is no risk of nonpayment in the future 
D)  When current interest rates are different from expected future rates

Question 9

The interest factor for a future value (FVIF) is equal to (1 + i)n.

Accepted Answer

A) True 
 B)False

Question 10

Lou Lewis borrows $10,000 to be repaid over 10 years with equal annual payments at 9 percent. Repayment of principal in the first year is:

Accepted Answer

A)  $1,558.20. 
B)  $1,000.00. 
C)  $900.00. 
D)  $658.20. 
A)  $1,558.20. 
B)  $1,000.00. 
C)  $900.00. 
D)  $658.20.

Question 11

You can purchase a strip bond at $888 that has a term to maturity of 7 years. What would be the Yield-to-Maturity on this bond?

Accepted Answer

A)  5.71% 
B)  3.25% 
C)  1.71% 
D)  2.89% 
A)  5.71% 
B)  3.25% 
C)  1.71% 
D)  2.89%

Question 12

Yield is defined as the interest rate that equates a future value of an annuity to a given present value.

Accepted Answer

A) True 
 B)False

Question 13

The concept of time value of money is not important to financial decision making because:

Accepted Answer

A)  it emphasizes earning a return on invested capital. 
B)  it recognizes that earning a return makes $1 worth more today than $1 received in the future. 
C)  it can be applied to future cash flows in order to compare different streams of income. 
D)  it emphasizes the historic interest paid. 
A)  it emphasizes earning a return on invested capital. 
B)  it recognizes that earning a return makes $1 worth more today than $1 received in the future. 
C)  it can be applied to future cash flows in order to compare different streams of income. 
D)  it emphasizes the historic interest paid.

Question 14

The time value of money concept becomes less critical as the prime rate increases.

Accepted Answer

A) True 
 B)False

Question 15

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $73,425 to your credit in the plan. The plan anticipates earning 9% interest. How much will your annual benefits be?

Accepted Answer

A)  $1,435 
B)  $3,671 
C)  $6,608 
D)  $8,043 
A)  $1,435 
B)  $3,671 
C)  $6,608 
D)  $8,043

Question 16

Ruth H. wants to build a house in 12 years. She estimates that the total cost will be $350,000. If she can put aside $20,000 at the end of each year, what rate of return must she earn in order to have the amount needed, assuming annual compounding?

Accepted Answer

A)  Between 11% and 12% 
B)  Between 8% and 9% 
C)  17% 
D)  6.63% 
A)  Between 11% and 12% 
B)  Between 8% and 9% 
C)  17% 
D)  6.63%

Question 17

Debby Robinson borrows $10,000 to be repaid over 10 years with equal annual payments at 9%. Repayment of principal in the second year is:

Accepted Answer

A)  $1,558.20. 
B)  $1,000.00. 
C)  $717.44. 
D)  $658.20. 
A)  $1,558.20. 
B)  $1,000.00. 
C)  $717.44. 
D)  $658.20.

Question 18

In determining the PVIF for the present value of $1, one could use the reciprocal of the FVIF for the future value of $1 at the same rate and time period.

Accepted Answer

A) True 
 B)False

Question 19

Inflation is the most important reason that a dollar today is worth more than a dollar in the future.

Accepted Answer

A) True 
 B)False

Question 20

If we wish to accumulate $8,000 by the end of 4 years, how much should the annual payments be if we receive an interest rate of 10% on our investments? The first payment is made at the end of each year.

Accepted Answer

A)  $1,379.24 
B)  $1,567.06 
C)  $1,723.77 
D)  $2,000.00 
A)  $1,379.24 
B)  $1,567.06 
C)  $1,723.77 
D)  $2,000.00

Increasing the number of periods will increase all of the following except:

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $250,000 to your credit in the plan. The plan anticipates earning 9% interest compounded monthly. How much will your monthly benefits be, paid at the end of each month?

You can lease a vehicle today for 36 months. The dealer will guarantee a residual value of $10,000. If the cash price of the car is $38,000, and the financing is priced at 8.75%, what would be your monthly payment?

As the interest rate increases, the present value of an amount to be received at the end of a fixed period:

The higher the discount rate used in determining the future value of a $1 annuity:

As the interest rate decreases, the present value of an amount to be received at the end of a fixed period:

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

The interest factor for a future value (FV_IF) is equal to (1 + i)ⁿ.

Lou Lewis borrows $10,000 to be repaid over 10 years with equal annual payments at 9 percent. Repayment of principal in the first year is:

You can purchase a strip bond at $888 that has a term to maturity of 7 years. What would be the Yield-to-Maturity on this bond?

Yield is defined as the interest rate that equates a future value of an annuity to a given present value.

The concept of time value of money is not important to financial decision making because:

The time value of money concept becomes less critical as the prime rate increases.

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $73,425 to your credit in the plan. The plan anticipates earning 9% interest. How much will your annual benefits be?

Ruth H. wants to build a house in 12 years. She estimates that the total cost will be $350,000. If she can put aside $20,000 at the end of each year, what rate of return must she earn in order to have the amount needed, assuming annual compounding?

Debby Robinson borrows $10,000 to be repaid over 10 years with equal annual payments at 9%. Repayment of principal in the second year is:

In determining the PV_IF for the present value of $1, one could use the reciprocal of the FV_IF for the future value of $1 at the same rate and time period.

Inflation is the most important reason that a dollar today is worth more than a dollar in the future.

If we wish to accumulate $8,000 by the end of 4 years, how much should the annual payments be if we receive an interest rate of 10% on our investments? The first payment is made at the end of each year.

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Underwriting

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Derivative Securities

External Growth Through Mergers

International Financial Management

Filters

Exam 9: The Time Value of Money

Increasing the number of periods will increase all of the following except:

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $250,000 to your credit in the plan. The plan anticipates earning 9% interest compounded monthly. How much will your monthly benefits be, paid at the end of each month?

You can lease a vehicle today for 36 months. The dealer will guarantee a residual value of $10,000. If the cash price of the car is $38,000, and the financing is priced at 8.75%, what would be your monthly payment?

As the interest rate increases, the present value of an amount to be received at the end of a fixed period:

The higher the discount rate used in determining the future value of a $1 annuity:

As the interest rate decreases, the present value of an amount to be received at the end of a fixed period:

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

The interest factor for a future value (FVIF) is equal to (1 + i)n.

Lou Lewis borrows $10,000 to be repaid over 10 years with equal annual payments at 9 percent. Repayment of principal in the first year is:

You can purchase a strip bond at $888 that has a term to maturity of 7 years. What would be the Yield-to-Maturity on this bond?

Yield is defined as the interest rate that equates a future value of an annuity to a given present value.

The concept of time value of money is not important to financial decision making because:

The time value of money concept becomes less critical as the prime rate increases.

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $73,425 to your credit in the plan. The plan anticipates earning 9% interest. How much will your annual benefits be?

Ruth H. wants to build a house in 12 years. She estimates that the total cost will be $350,000. If she can put aside $20,000 at the end of each year, what rate of return must she earn in order to have the amount needed, assuming annual compounding?

Debby Robinson borrows $10,000 to be repaid over 10 years with equal annual payments at 9%. Repayment of principal in the second year is:

In determining the PVIF for the present value of $1, one could use the reciprocal of the FVIF for the future value of $1 at the same rate and time period.

Inflation is the most important reason that a dollar today is worth more than a dollar in the future.

If we wish to accumulate $8,000 by the end of 4 years, how much should the annual payments be if we receive an interest rate of 10% on our investments? The first payment is made at the end of each year.

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Underwriting

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Derivative Securities

External Growth Through Mergers

International Financial Management

Filters

The interest factor for a future value (FV_IF) is equal to (1 + i)ⁿ.

In determining the PV_IF for the present value of $1, one could use the reciprocal of the FV_IF for the future value of $1 at the same rate and time period.