Question 1

The present value of a $20,000 perpetuity at a 7 percent discount rate is: (Round to the nearest dollar)

Accepted Answer

A) $186,915 
B) $285,714 
C) $140,000 
D) $325,000 
A) $186,915 
B) $285,714 
C) $140,000 
D) $325,000

Question 2

Your uncle offers you a stream of payments whose present value, today, is $62,000. There are 15 equal annual payments in the stream. The first payment in the stream occurs seven years from today. If the interest rate is 14%, then what is the value of each payment?

Accepted Answer

A) $22,156.40 
B) $19,435.43 
C) $25,258.29 
D) $28,794.45 
E) $10,094.16 
A) $22,156.40 
B) $19,435.43 
C) $25,258.29 
D) $28,794.45 
E) $10,094.16

Question 3

A perpetuity pays $550 at the end of every month. The PV of the perpetuity is $36,000. What is the nominal annual rate (APR)on the perpetuity?

Accepted Answer

A) 18.33% 
B) 9.17% 
C) 19.96% 
D) 13.42% 
E) 15.15% 
A) 18.33% 
B) 9.17% 
C) 19.96% 
D) 13.42% 
E) 15.15%

Question 4

Starting one month from now, you would like to withdraw $200 per month from your bank account to pay for your university education. You expect the education (and the withdrawals)to last for the next four years. If the account pays 0.3% interest per month, how much money must you have in your bank account today to support your future needs?

Accepted Answer

A) $8,928.37 
B) $7,157.02 
C) $6,711.11 
D) $8,794.50 
E) $7,263.00 
A) $8,928.37 
B) $7,157.02 
C) $6,711.11 
D) $8,794.50 
E) $7,263.00

Question 5

An investor is considering the purchase of 20 acres of land. An analysis indicates that if the land is used for cattle grazing, it will produce a cash flow of $1,000 per year indefinitely. If the investor requires a return of 10% on investments of this type, what is the most he or she should be willing to pay for the land?

Accepted Answer

A) $1,000 
B) $10,000 
C) $100,000 
D) $150,000 
E) $1,000,000 
A) $1,000 
B) $10,000 
C) $100,000 
D) $150,000 
E) $1,000,000

Question 6

What is the present value of a $50 perpetuity if interest rates are 7%?

Accepted Answer

A) $1.21 
B) $18.12 
C) $714.29 
D) $3.50 
E) $593.23 
A) $1.21 
B) $18.12 
C) $714.29 
D) $3.50 
E) $593.23

Question 7

You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5%. Consider the final loan payment. How much principal do you pay in the final payment?

Accepted Answer

A) $3,506.09 
B) $2,529.29 
C) $2,820.16 
D) $3,144.48 
E) $3,909.29 
A) $3,506.09 
B) $2,529.29 
C) $2,820.16 
D) $3,144.48 
E) $3,909.29

Question 8

Actively managed mutual funds charge higher management fees than passive funds. Assume that the net return to an active fund (after fees)is 9.5% (0.79% per month)and the net return to a passive fund is 10.5% (0.875% per month). Assume that an investor saves $600 per month (end-of-month)over thirty years. What is the difference in the future value of savings between investing in an active fund and a passive fund?

Accepted Answer

A) $295,152.00 
B) $120,519.40 
C) $247,352.36 
D) $301,732.21 
A) $295,152.00 
B) $120,519.40 
C) $247,352.36 
D) $301,732.21

Question 9

Your pension plan has two alternative payout methods. The first is a lump sum of $300,000 on your 65th birthday. The second is ordinary annuity with the first payment on your 66th birthday and the last payment on your 85th birthday. If the interest rate is 10.5%, then what size annuity payment would equate the value of the two alternatives?

Accepted Answer

A) $36,447.98 
B) $35,911.96 
C) $37,059.21 
D) $35,237.89 
E) $34,687.32 
A) $36,447.98 
B) $35,911.96 
C) $37,059.21 
D) $35,237.89 
E) $34,687.32

Question 10

Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents to cruise? (Round to the nearest whole dollar)

Accepted Answer

A) $1,862 
B) $2,457 
C) $3,000 
D) $2,234 
E) $2,135 
A) $1,862 
B) $2,457 
C) $3,000 
D) $2,234 
E) $2,135

Question 11

What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?

Accepted Answer

A) $670.43 
B) $842.41 
C) $1,169.56 
D) $1,348.48 
E) $1,522.64 
A) $670.43 
B) $842.41 
C) $1,169.56 
D) $1,348.48 
E) $1,522.64

Question 12

Joe expects to start working immediately after graduation and he is already planning to retire. He wants to retire in twenty-five years and hopes that he will be able to do so comfortably by investing $2,000 at the end of each year throughout this period. If he earns 5% compounded annually, how much will be in his retirement fund in twenty-five years?

Accepted Answer

A) $95,454.20 
B) $54,000.00 
C) $169,317.75 
D) $102,226.00 
E) $76,345.93 
A) $95,454.20 
B) $54,000.00 
C) $169,317.75 
D) $102,226.00 
E) $76,345.93

Question 13

A 10-year ordinary annuity that provides a return of 7% has a present value of $15,000. What are the annual annuity payments?

Accepted Answer

A) $2,135.66 
B) $2,038.02 
C) $2,235.44 
D) $1,500.00 
E) $2,232.84 
A) $2,135.66 
B) $2,038.02 
C) $2,235.44 
D) $1,500.00 
E) $2,232.84

Question 14

Mary will receive $12,000 per year for the next ten years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? (Round to the nearest whole dollar)

Accepted Answer

A) $120,114 
B) $67,803 
C) $65,640 
D) $56,793 
A) $120,114 
B) $67,803 
C) $65,640 
D) $56,793

Question 15

Joan is diligent and, starting on her 19th Birthday, she deposits $1,000 in a bank account that pays an interest rate of 10%. She continues to save for six more years culminating on her 25th birthday. After that birthday she stops saving but leaves her accumulated savings in a bank account for 40 years (to age 65). Roseanne is a partier and doesn't start saving until her 26th birthday, at which time she starts saving $1,000 a year until her 65th birthday. (Assume that Roseanne also earns a rate of 10%.)Who has more at age 65?

Accepted Answer

A) Roseanne 
B) Joan 
C) They will have the same amount of money. 
A) Roseanne 
B) Joan 
C) They will have the same amount of money.

Question 16

You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5%. What is your total interest expense in the first year of the loan?

Accepted Answer

A) $1,380.00 
B) $1,089.13 
C) $764.81 
D) $403.20 
E) $2,529.29 
A) $1,380.00 
B) $1,089.13 
C) $764.81 
D) $403.20 
E) $2,529.29

Question 17

You are considering the purchase of a BMW M5. You will borrow the money from BMW Financial Services. The terms of the deal are outlined below. BMW M5
RWD, 500hp, 0-100 in 4.7s
PRICE = $80,000
Term = 36 months
I = 4.0%
Down Payment = $0
Monthly Payments (end-of-month)= $2,361.92
How much interest does the borrower pay over the term of the loan? In other words, how much of the blended loan payments is interest?

Accepted Answer

A) $5,029.08 
B) $3,401.17 
C) $3,200.00 
D) $5,561.92 
E) $5,763.09 
A) $5,029.08 
B) $3,401.17 
C) $3,200.00 
D) $5,561.92 
E) $5,763.09

Question 18

Ty was seriously injured in a planking accident. He successfully sued the railway company and was awarded $700,000. The railway cannot afford to pay the lump sum immediately and would prefer to make ten annual payments (at the end of each of the next ten years). If the interest rate is 10%, then what size of payment makes Ty indifferent between the lump-sum and the payments?

Accepted Answer

A) $113,921.78 
B) $70,000.00 
C) $73,907.45 
D) $109,074.06 
E) $102,862.66 
A) $113,921.78 
B) $70,000.00 
C) $73,907.45 
D) $109,074.06 
E) $102,862.66

Question 19

James plans to fund his individual retirement account, beginning today, with annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement would be: (Round to the nearest whole dollar)

Accepted Answer

A) $19,636 
B) $91,524 
C) $98,846 
D) $21,207 
A) $19,636 
B) $91,524 
C) $98,846 
D) $21,207

Question 20

Your company is planning to borrow $1,000,000 on a 5-year, 15%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?

Accepted Answer

A) 29.83% 
B) 57.18% 
C) 35.02% 
D) 64.45% 
E) 72.36% 
A) 29.83% 
B) 57.18% 
C) 35.02% 
D) 64.45% 
E) 72.36%

The present value of a $20,000 perpetuity at a 7 percent discount rate is: (Round to the nearest dollar)

Your uncle offers you a stream of payments whose present value, today, is $62,000. There are 15 equal annual payments in the stream. The first payment in the stream occurs seven years from today. If the interest rate is 14%, then what is the value of each payment?

A perpetuity pays $550 at the end of every month. The PV of the perpetuity is $36,000. What is the nominal annual rate (APR)on the perpetuity?

What is the present value of a $50 perpetuity if interest rates are 7%?

You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5%. Consider the final loan payment. How much principal do you pay in the final payment?

What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?

A 10-year ordinary annuity that provides a return of 7% has a present value of $15,000. What are the annual annuity payments?

Mary will receive $12,000 per year for the next ten years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? (Round to the nearest whole dollar)

You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5%. What is your total interest expense in the first year of the loan?

Your company is planning to borrow $1,000,000 on a 5-year, 15%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?

Overview of Finance

Financial Statements and Ratio Analysis

Time Value of Money - Introduction

Risk and Return - Introduction

Portfolio Theory

Interest Rates and Bond Valuation

Stock Valuation and Market Efficiency

Capital Budgeting Techniques

Capital Budgeting - Cash Flows

Cost of Capital

Capital Structure

Dividends, Repurchases, and Splits

Financial Planning

The Management of Working Capital

International Finance

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Exam 4: Time Value of Money - Streams and Valuations

The present value of a $20,000 perpetuity at a 7 percent discount rate is: (Round to the nearest dollar)

Your uncle offers you a stream of payments whose present value, today, is $62,000. There are 15 equal annual payments in the stream. The first payment in the stream occurs seven years from today. If the interest rate is 14%, then what is the value of each payment?

A perpetuity pays $550 at the end of every month. The PV of the perpetuity is $36,000. What is the nominal annual rate (APR)on the perpetuity?

What is the present value of a $50 perpetuity if interest rates are 7%?

You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5%. Consider the final loan payment. How much principal do you pay in the final payment?

What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?

A 10-year ordinary annuity that provides a return of 7% has a present value of $15,000. What are the annual annuity payments?

Mary will receive $12,000 per year for the next ten years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? (Round to the nearest whole dollar)

You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 11.5%. What is your total interest expense in the first year of the loan?

Your company is planning to borrow $1,000,000 on a 5-year, 15%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?

Overview of Finance

Financial Statements and Ratio Analysis

Time Value of Money - Introduction

Risk and Return - Introduction

Portfolio Theory

Interest Rates and Bond Valuation

Stock Valuation and Market Efficiency

Capital Budgeting Techniques

Capital Budgeting - Cash Flows

Cost of Capital

Capital Structure

Dividends, Repurchases, and Splits

Financial Planning

The Management of Working Capital

International Finance

Filters