Question 1

Use the following timeline to answer the question(s)below.  
-At an annual interest rate of 7%,the future value of the cash flows in this timeline in year 2 is closest to:

Accepted Answer

A) $3080. 
B) $3525. 
C) $3771. 
D) $4035. 
A) $3080. 
B) $3525. 
C) $3771. 
D) $4035.

Question 2

Use the information for the question(s)below.
Suppose that a young couple has just had their first baby,a daughter,and they wish to ensure that enough money will be available to pay for her college education.Currently,college tuition,books,fees,and other costs,average $12,500 per year.On average,tuition and other costs have historically increased at a rate of 4% per year.
-Suppose that a young couple has just had their first baby,a daughter,and they wish to ensure that enough money will be available to pay for her college education.They decide to make deposits into an educational savings account on each of their daughter's birthdays,starting with her first birthday.Assume that the educational savings account will return a constant 7%.The parents deposit $2000 on their daughter's first birthday and plan to increase the size of their deposits by 5% each year.Draw a timeline that details the amount that would be available for their child's college expenses on her 18th birthday.

Accepted Answer

The answer of Use the information for the question(s)below.
Suppose that...

Question 3

If the current rate of interest is 8%,then the future value 20 years from now of an investment that pays $1000 per year and lasts 20 years is closest to:

Accepted Answer

A) $45,762. 
B) $36,725. 
C) $9818. 
D) $93,219. 
A) $45,762. 
B) $36,725. 
C) $9818. 
D) $93,219.

Question 4

If the current rate of interest is 8%,then the present value of an investment that pays $1000 per year and lasts 20 years is closest to:

Accepted Answer

A) $18,519. 
B) $45,761. 
C) $9818. 
D) $20,000. 
A) $18,519. 
B) $45,761. 
C) $9818. 
D) $20,000.

Question 5

Suppose that you are considering an investment that will pay you $4000 per year for the next five years.The appropriate rate of interest is 5%.You want to know the present value of the cash flows from this investment.To solve this problem in Microsoft Excel,you would use which of the following excel formulas?

Accepted Answer

A) =PV(.05,5,4000,0,0) 
B) =PV(.05,5,4000,0,1) 
C) =PV(5,.05,4000,0) 
D) =PV(5,5,4000,0) 
A) =PV(.05,5,4000,0,0) 
B) =PV(.05,5,4000,0,1) 
C) =PV(5,.05,4000,0) 
D) =PV(5,5,4000,0)

Question 6

Use the following timeline to answer the question(s)below.  
-At an annual interest rate of 7%,the future value of this timeline in year 3 is closest to:

Accepted Answer

A) $3295. 
B) $3600. 
C) $3771. 
D) $4035. 
A) $3295. 
B) $3600. 
C) $3771. 
D) $4035.

Question 7

You have been offered the following investment opportunity,if you pay $2500 today,you will receive $1000 at the end of each of the next three years.Draw a timeline detailing this investment opportunity.

Accepted Answer

The answer of You have been offered the following investment...

Question 8

The British government has a consol bond outstanding that pays ₤100 in interest each year.Assuming that the current interest rate in Great Britain is 5% and that you will receive your first interest payment one year from now,then the value of the consol bond is closest to:

Accepted Answer

A) ₤1000. 
B) ₤1100. 
C) ₤2100. 
D) ₤2000. 
A) ₤1000. 
B) ₤1100. 
C) ₤2100. 
D) ₤2000.

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) The process of moving a value or cash flow backward in time is known as discounting. 
B) FV =   
C) The process of moving a value or cash flow forward in time is known as compounding. 
D) The value of a cash flow that is moved forward in time is known as its future value. 
A) The process of moving a value or cash flow backward in time is known as discounting. 
B) FV =   
C) The process of moving a value or cash flow forward in time is known as compounding. 
D) The value of a cash flow that is moved forward in time is known as its future value.

Question 10

You are considering investing in a zero coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the IRR for investing in this bond is closest to:

Accepted Answer

A) 12%. 
B) 8.0%. 
C) 7.5%. 
D) 10%. 
A) 12%. 
B) 8.0%. 
C) 7.5%. 
D) 10%.

Question 11

Suppose that you deposit $10,000 in an account that pays 6% interest and you want to know how much will be in your account at the end of 10 years.To solve this problem in Microsoft Excel,you would use which of the following Excel formulas?

Accepted Answer

A) =FV(.06,10000,0,10) 
B) =PV(.06,10000,0,10) 
C) =FV(.06,10,0,10000) 
D) =PV(.06,10,0,10000) 
A) =FV(.06,10000,0,10) 
B) =PV(.06,10000,0,10) 
C) =FV(.06,10,0,10000) 
D) =PV(.06,10,0,10000)

Question 12

Use the information for the question(s)below.
Assume that you are 30 years old today and that you are planning on retirement at age 65.Your current salary is $45,000 and you expect your salary to increase at a rate of 5% per year as long as you work.To save for your retirement,you plan on making annual contributions to a retirement account.Your first contribution will be made on your 31st birthday and will be 8% of this year's salary.Likewise,you expect to deposit 8% of your salary each year until you reach age 65.Assume that the rate of interest is 7%.
-If the appropriate interest rate is 8%,then present value of $500 paid at the beginning of each of the next 40 years is closest to:

Accepted Answer

A) $23. 
B) $5962. 
C) $6439. 
D) $20,000. 
A) $23. 
B) $5962. 
C) $6439. 
D) $20,000.

Question 13

Use the following timeline to answer the question(s)below.  
-At an annual interest rate of 7%,the present value of this timeline in year 0 is closest to:

Accepted Answer

A) $3080. 
B) $3600. 
C) $3771. 
D) $4035. 
A) $3080. 
B) $3600. 
C) $3771. 
D) $4035.

Question 14

Use the information for the question(s)below.
Assume that you are 30 years old today and that you are planning on retirement at age 65.Your current salary is $45,000 and you expect your salary to increase at a rate of 5% per year as long as you work.To save for your retirement,you plan on making annual contributions to a retirement account.Your first contribution will be made on your 31st birthday and will be 8% of this year's salary.Likewise,you expect to deposit 8% of your salary each year until you reach age 65.Assume that the rate of interest is 7%.
-The future value at retirement (age 65)of your savings is:

Accepted Answer

First deposit = .08

Question 15

Which of the following is NOT a valid time value of money function in Excel?

Accepted Answer

A) PMT 
B) NPER 
C) I 
D) FV 
A) PMT 
B) NPER 
C) I 
D) FV

Question 16

If the current rate of interest is 8% APR,then the present value of an investment that pays $250 per quarter and lasts 20 years is closest to:

Accepted Answer

A) $18,519. 
B) $48,443. 
C) $9936. 
D) $20,000. 
A) $18,519. 
B) $48,443. 
C) $9936. 
D) $20,000.

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) FV =   
B) PV =   
C) FV =   
D) Most investment opportunities have multiple cash flows that occur at different points in time. 
A) FV =   
B) PV =   
C) FV =   
D) Most investment opportunities have multiple cash flows that occur at different points in time.

Question 18

Use the figure for the question(s) below.
 
-Which of the following statements regarding the timeline is FALSE?

Accepted Answer

A) Date 1 is the end of the first year. 
B) Date 0 is the beginning of the first year. 
C) The space between date 0 and date 1 represents the time period between two specific dates. 
D) You will find the timeline most useful in tracking cash flows if you interpret each point on the timeline as a period or interval of time. 
A) Date 1 is the end of the first year. 
B) Date 0 is the beginning of the first year. 
C) The space between date 0 and date 1 represents the time period between two specific dates. 
D) You will find the timeline most useful in tracking cash flows if you interpret each point on the timeline as a period or interval of time.

Question 19

Which of the following statements regarding growing annuities is FALSE?

Accepted Answer

A) A growing annuity is a stream of N growing cash flows,paid at regular intervals. 
B) We assume that g < r when using the growing annuity formula. 
C) PV of a growing annuity = C ×     
D) A growing annuity is like a growing perpetuity that never comes to an end. 
A) A growing annuity is a stream of N growing cash flows,paid at regular intervals. 
B) We assume that g < r when using the growing annuity formula. 
C) PV of a growing annuity = C ×     
D) A growing annuity is like a growing perpetuity that never comes to an end.

Question 20

Use the table for the question(s)below.  
-Draw a timeline detailing the cash flows from investment "A."

Accepted Answer

The answer of Use the table for the question(s)below. ...

Exam 4: The Time Value of Money

Use the following timeline to answer the question(s)below. -At an annual interest rate of 7%,the future value of the cash flows in this timeline in year 2 is closest to:

If the current rate of interest is 8%,then the future value 20 years from now of an investment that pays $1000 per year and lasts 20 years is closest to:

If the current rate of interest is 8%,then the present value of an investment that pays $1000 per year and lasts 20 years is closest to:

Use the following timeline to answer the question(s)below. -At an annual interest rate of 7%,the future value of this timeline in year 3 is closest to:

You have been offered the following investment opportunity,if you pay $2500 today,you will receive $1000 at the end of each of the next three years.Draw a timeline detailing this investment opportunity.

The British government has a consol bond outstanding that pays ₤100 in interest each year.Assuming that the current interest rate in Great Britain is 5% and that you will receive your first interest payment one year from now,then the value of the consol bond is closest to:

Which of the following statements is FALSE?

You are considering investing in a zero coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the IRR for investing in this bond is closest to:

Suppose that you deposit $10,000 in an account that pays 6% interest and you want to know how much will be in your account at the end of 10 years.To solve this problem in Microsoft Excel,you would use which of the following Excel formulas?

Use the following timeline to answer the question(s)below. -At an annual interest rate of 7%,the present value of this timeline in year 0 is closest to:

Which of the following is NOT a valid time value of money function in Excel?

If the current rate of interest is 8% APR,then the present value of an investment that pays $250 per quarter and lasts 20 years is closest to:

Which of the following statements is FALSE?

Use the figure for the question(s) below. -Which of the following statements regarding the timeline is FALSE?

Which of the following statements regarding growing annuities is FALSE?

Use the table for the question(s)below. -Draw a timeline detailing the cash flows from investment "A."

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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