Question 1

What annual interest rate would you need to earn if you wanted a $200 per month contribution to grow to $14,700 in five years?

Accepted Answer

A)  6.47 percent 
B)  7.76 percent 
C)  8.01 percent 
D)  14.70 percent 
A)  6.47 percent 
B)  7.76 percent 
C)  8.01 percent 
D)  14.70 percent

Question 2

Compute the future value in year 4 of a $500 deposit in year 1, and another $1,000 deposit at the end of year 3 using a 5 percent interest rate.

Accepted Answer

A)  $1,625.00 
B)  $1,628.81 
C)  $1,800.00 
D)  $1,823.26 
A)  $1,625.00 
B)  $1,628.81 
C)  $1,800.00 
D)  $1,823.26

Question 3

Your current $115,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 7 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by prepaying?

Accepted Answer

A)  $32,764.43 
B)  $30,718.29 
C)  $29,503.14 
D)  $22,008.73 
A)  $32,764.43 
B)  $30,718.29 
C)  $29,503.14 
D)  $22,008.73

Question 4

Which of the following will increase the future value of an annuity?

Accepted Answer

A)  The number of periods increases. 
B)  The amount of the annuity increases. 
C)  The interest rate increases. 
D)  All of these choices are correct. 
A)  The number of periods increases. 
B)  The amount of the annuity increases. 
C)  The interest rate increases. 
D)  All of these choices are correct.

Question 5

Your company borrows $75,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $26,600 at the end of each year. What annual interest rate is your firm paying?

Accepted Answer

A)  15.62 percent 
B)  17.18 percent 
C)  14.74 percent 
D)  16.97 percent 
A)  15.62 percent 
B)  17.18 percent 
C)  14.74 percent 
D)  16.97 percent

Question 6

When you get your credit card bill, if you make a payment larger than the minimum payment

Accepted Answer

A)  you are wasting your current consumption and making TVM not work for you. 
B)  you will reduce the payoff time. 
C)  you will increase the payoff time. 
D)  you will not affect the payoff time. 
A)  you are wasting your current consumption and making TVM not work for you. 
B)  you will reduce the payoff time. 
C)  you will increase the payoff time. 
D)  you will not affect the payoff time.

Question 7

Which of the following statements about annual percentage rate (APR) and effective annual rate (EAR) are not true?

Accepted Answer

A)  The annual percentage rate (APR) is considered a more accurate measurement of what you will actually pay. 
B)  Lenders are legally required to show potential borrowers the effective annual rate (EAR) on any loan offered. 
C)  The difference between APR and EAR is not that large. 
D)  None of the above are untrue statements. 
A)  The annual percentage rate (APR) is considered a more accurate measurement of what you will actually pay. 
B)  Lenders are legally required to show potential borrowers the effective annual rate (EAR) on any loan offered. 
C)  The difference between APR and EAR is not that large. 
D)  None of the above are untrue statements.

Question 8

You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year. You expect to contribute $4,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 8 percent per year. If you plan to retire in 35 years, how big will you expect that retirement account to be?

Accepted Answer

A)  $689,267.21 
B)  $823,147.29 
C)  $1,033,900.82 
D)  $1,308,427.41 
A)  $689,267.21 
B)  $823,147.29 
C)  $1,033,900.82 
D)  $1,308,427.41

Question 9

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

Accepted Answer

A)  Bank A: 7.75 percent, Bank B: 7.23 percent 
B)  Bank A: 7.85 percent, Bank B: 7.23 percent 
C)  Bank A: 7.25 percent, Bank B: 7.5 percent 
D)  Bank A: 7.85 percent, Bank B: 8.15 percent 
A)  Bank A: 7.75 percent, Bank B: 7.23 percent 
B)  Bank A: 7.85 percent, Bank B: 7.23 percent 
C)  Bank A: 7.25 percent, Bank B: 7.5 percent 
D)  Bank A: 7.85 percent, Bank B: 8.15 percent

Question 10

A perpetuity pays $250 per year and interest rates are 8.5 percent. How much would its value change if interest decreased to 5.5 percent? Did the value increase or decrease?

Accepted Answer

A)  $1,604.27; increase 
B)  $1,604.27; decrease 
C)  $1,714.20; increase 
D)  $1,714.20; decrease 
A)  $1,604.27; increase 
B)  $1,604.27; decrease 
C)  $1,714.20; increase 
D)  $1,714.20; decrease

Question 11

Jasmine has decided that she wants to build enough retirement wealth that, if invested at 6 percent per year, will provide her with $3,000 of monthly income for 30 years. To date, she has saved nothing but she still has 25 years until she retires. Jasmine believes that she can earn 6 percent on her investments until she retires. How much money does she need to contribute per month to reach her goal?

Accepted Answer

A)  $512.93 
B)  $616.27 
C)  $722.05 
D)  $863.49 
A)  $512.93 
B)  $616.27 
C)  $722.05 
D)  $863.49

Question 12

Sally saves $500 per month in her retirement plan. She plans on making monthly contributions for 35 years. If her account earns a 12 percent annual interest rate, how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

Accepted Answer

A)  $1,113,879.14; 43.72 percent 
B)  $2,452,905.33; 12.07 percent 
C)  $3,215,479.74; 6.53 percent 
D)  $3,691,003.27; 8.28 percent 
A)  $1,113,879.14; 43.72 percent 
B)  $2,452,905.33; 12.07 percent 
C)  $3,215,479.74; 6.53 percent 
D)  $3,691,003.27; 8.28 percent

Question 13

Your client has been given a trust fund valued at $1 million. She cannot access the money until she turns 68 years old, which is in 12 years. At that time, she can withdraw $30,000 per month. If the trust fund is invested at a 7 percent interest rate, how many months will it last your client once she starts to withdraw the money?

Accepted Answer

A)  77.05 months 
B)  81.05 months 
C)  99.05 months 
D)  119.05 months 
A)  77.05 months 
B)  81.05 months 
C)  99.05 months 
D)  119.05 months

Question 14

Given an 8 percent interest rate, compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3, respectively, and a withdrawal of $2,000 is made in year 5.

Accepted Answer

A)  $1,909.42 
B)  $3,272.41 
C)  $3,433.60 
D)  $5,656.34 
A)  $1,909.42 
B)  $3,272.41 
C)  $3,433.60 
D)  $5,656.34

Question 15

Ross has decided that he wants to build enough retirement wealth that, if invested at 6 percent per year, will provide him with $2,500 monthly income for 30 years. To date, he has saved nothing, but he still has 20 years until he retires. How much money does he need to contribute per month to reach his goal?

Accepted Answer

A)  $895.95 
B)  $902.47 
C)  $1,947.88 
D)  $2,500.00 
A)  $895.95 
B)  $902.47 
C)  $1,947.88 
D)  $2,500.00

Question 16

Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

Accepted Answer

A)  $4,360.32 
B)  $4,665.65 
C)  $5,047.62 
D)  $5,305.00 
A)  $4,360.32 
B)  $4,665.65 
C)  $5,047.62 
D)  $5,305.00

Question 17

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?

Accepted Answer

A)  121.5 months 
B)  148.50 months 
C)  162.5 months 
D)  Ricky never pays off the card. 
A)  121.5 months 
B)  148.50 months 
C)  162.5 months 
D)  Ricky never pays off the card.

Question 18

Your credit rating and current economic conditions will determine

Accepted Answer

A)  whether you get simple or compound interest. 
B)  how long compounding will affect you. 
C)  how long discounting will affect you. 
D)  the interest rate that a lender will offer. 
A)  whether you get simple or compound interest. 
B)  how long compounding will affect you. 
C)  how long discounting will affect you. 
D)  the interest rate that a lender will offer.

Question 19

A mortgage broker is offering a $225,000 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 2.5 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 8.5 percent APR. What are the mortgage payments in the first two years? What are the mortgage payments after the second year?

Accepted Answer

A)  $790.25; $1,512.93 
B)  $790.25; $1,309.13 
C)  $889.02; $1,650.61 
D)  $889.02; $1,677.09 
A)  $790.25; $1,512.93 
B)  $790.25; $1,309.13 
C)  $889.02; $1,650.61 
D)  $889.02; $1,677.09

Question 20

Bethany purchased a $35,000 car three years ago using a 6 percent, 5-year loan. She has decided that she would sell the car now, if she could get a price that would pay off the balance of her loan. What is the minimum price Bethany would need to receive for her car?

Accepted Answer

A)  $9,680,67 
B)  $15,267.12 
C)  $22,242.11 
D)  $23,429.19 
A)  $9,680,67 
B)  $15,267.12 
C)  $22,242.11 
D)  $23,429.19

What annual interest rate would you need to earn if you wanted a $200 per month contribution to grow to $14,700 in five years?

Compute the future value in year 4 of a $500 deposit in year 1, and another $1,000 deposit at the end of year 3 using a 5 percent interest rate.

Your current $115,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 7 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by prepaying?

Which of the following will increase the future value of an annuity?

Your company borrows $75,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $26,600 at the end of each year. What annual interest rate is your firm paying?

When you get your credit card bill, if you make a payment larger than the minimum payment

Which of the following statements about annual percentage rate (APR) and effective annual rate (EAR) are not true?

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

A perpetuity pays $250 per year and interest rates are 8.5 percent. How much would its value change if interest decreased to 5.5 percent? Did the value increase or decrease?

Sally saves $500 per month in her retirement plan. She plans on making monthly contributions for 35 years. If her account earns a 12 percent annual interest rate, how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

Given an 8 percent interest rate, compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3, respectively, and a withdrawal of $2,000 is made in year 5.

Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?

Your credit rating and current economic conditions will determine

Bethany purchased a $35,000 car three years ago using a 6 percent, 5-year loan. She has decided that she would sell the car now, if she could get a price that would pay off the balance of her loan. What is the minimum price Bethany would need to receive for her car?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

What annual interest rate would you need to earn if you wanted a $200 per month contribution to grow to $14,700 in five years?

Compute the future value in year 4 of a $500 deposit in year 1, and another $1,000 deposit at the end of year 3 using a 5 percent interest rate.

Your current $115,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 7 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by prepaying?

Which of the following will increase the future value of an annuity?

Your company borrows $75,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $26,600 at the end of each year. What annual interest rate is your firm paying?

When you get your credit card bill, if you make a payment larger than the minimum payment

Which of the following statements about annual percentage rate (APR) and effective annual rate (EAR) are not true?

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

A perpetuity pays $250 per year and interest rates are 8.5 percent. How much would its value change if interest decreased to 5.5 percent? Did the value increase or decrease?

Sally saves $500 per month in her retirement plan. She plans on making monthly contributions for 35 years. If her account earns a 12 percent annual interest rate, how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

Given an 8 percent interest rate, compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3, respectively, and a withdrawal of $2,000 is made in year 5.

Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?

Your credit rating and current economic conditions will determine

Bethany purchased a $35,000 car three years ago using a 6 percent, 5-year loan. She has decided that she would sell the car now, if she could get a price that would pay off the balance of her loan. What is the minimum price Bethany would need to receive for her car?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters