Question 1

As the discount rate increases, the present value of $500 to be received six years from now:

Accepted Answer

A)  Remains constant. 
B)  Also increases. 
C)  Decreases. 
D)  Becomes negative. 
E)  Will vary but the direction of the change is unknown. 
A)  Remains constant. 
B)  Also increases. 
C)  Decreases. 
D)  Becomes negative. 
E)  Will vary but the direction of the change is unknown. C

Question 2

Jennifer invested $2,000 in an account that pays 3% simple interest. How much more could she have earned over a six-year period if the interest had compounded annually?

Accepted Answer

A)  $28.10 
B)  $29.18 
C)  $31.50 
D)  $33.33 
E)  $34.67 
A)  $28.10 
B)  $29.18 
C)  $31.50 
D)  $33.33 
E)  $34.67 A

Question 3

A deposit of $10,000 increased to $12,500 in 5 years. Determine the annual rate of interest used and calculate the balance at the end of year four.

Accepted Answer

A)  $11,954 
B)  $12,254 
C)  $13,954 
D)  $14,254 
E)  $15,954 
A)  $11,954 
B)  $12,254 
C)  $13,954 
D)  $14,254 
E)  $15,954 A

Question 4

On your tenth birthday, you received $100 which you invested at 4.5% interest, compounded annually. That investment is now worth $3,000. How old are you today?

Accepted Answer

A)  age 77 
B)  age 82 
C)  age 84 
D)  age 86 
E)  age 87 
A)  age 77 
B)  age 82 
C)  age 84 
D)  age 86 
E)  age 87

Question 5

You just received $278,000 from an insurance settlement. You have decided to set this money aside and invest it for your retirement. Currently, your goal is to retire 38 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 9.5% rather than just 9.0%?

Accepted Answer

A)  $794,014 
B)  $1,396,036 
C)  $1,611,408 
D)  $1,818,342 
E)  $2,033,333 
A)  $794,014 
B)  $1,396,036 
C)  $1,611,408 
D)  $1,818,342 
E)  $2,033,333

Question 6

Courtney invests $1,200 today. If she can earn a 13.25% rate of return for the next two years, how much money will she have at the end of the two years?

Accepted Answer

A)  $1,203.18 
B)  $1,232.01 
C)  $1,359.00 
D)  $1,539.07 
E)  $1,742.99 
A)  $1,203.18 
B)  $1,232.01 
C)  $1,359.00 
D)  $1,539.07 
E)  $1,742.99

Question 7

In 1889, Vincent Van Gogh's painting, "Sunflowers," sold for $125. One hundred years later it sold for $36 million. Had the painting been purchased by your great-grandfather and passed on to you, what annual return on investment would your family have earned on the painting?

Accepted Answer

A)  9.11% 
B)  10.09% 
C)  11.88% 
D)  11.99% 
E)  13.40% 
A)  9.11% 
B)  10.09% 
C)  11.88% 
D)  11.99% 
E)  13.40%

Question 8

Alex and Courtney are each investing $1,200 today in a savings account. Alex will earn 4% interest compounded annually. Courtney will earn 4% simple interest. After five years Alex will have ____ more than Courtney.

Accepted Answer

A)  $19.98 
B)  $20.13 
C)  $20.17 
D)  $20.21 
E)  $20.28 
A)  $19.98 
B)  $20.13 
C)  $20.17 
D)  $20.21 
E)  $20.28

Question 9

Cooper invests $6,500 in a savings account at his local bank. The bank pays 2.75% simple interest. Cooper does not make any additional withdrawals or deposits to this account. How much will his account be worth after 12 years?

Accepted Answer

A)  $2,145 
B)  $2,655 
C)  $6,679 
D)  $8,645 
E)  $9,001 
A)  $2,145 
B)  $2,655 
C)  $6,679 
D)  $8,645 
E)  $9,001

Question 10

The formula for a present value calculation using Excel is:

Accepted Answer

A)  PV (rate, nper, pmt, pv). 
B)  PV (nper, pmt, fv). 
C)  PV (rate, pmt, pv, fv). 
D)  PV (rate, nper, pmt, fv). 
E)  PV (rate, nper, pmt). 
A)  PV (rate, nper, pmt, pv). 
B)  PV (nper, pmt, fv). 
C)  PV (rate, pmt, pv, fv). 
D)  PV (rate, nper, pmt, fv). 
E)  PV (rate, nper, pmt).

Question 11

The process of finding the present value of some future amount is often called:

Accepted Answer

A)  Growth. 
B)  Discounting. 
C)  Accumulation. 
D)  Compounding. 
E)  Reduction. 
A)  Growth. 
B)  Discounting. 
C)  Accumulation. 
D)  Compounding. 
E)  Reduction.

Question 12

The interest rate used to calculate the present value of future cash flows is called the _____ rate.

Accepted Answer

A)  Free. 
B)  Annual. 
C)  Compound. 
D)  Simple. 
E)  Discount. 
A)  Free. 
B)  Annual. 
C)  Compound. 
D)  Simple. 
E)  Discount.

Question 13

Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from now. She can earn 7% on her savings. How much more will she have to deposit if she waits one more year before investing versus if she deposits one lump sum today?

Accepted Answer

A)  $466.44 
B)  $469.15 
C)  $470.23 
D)  $471.08 
E)  $471.54 
A)  $466.44 
B)  $469.15 
C)  $470.23 
D)  $471.08 
E)  $471.54

Question 14

Present values increase as the discount rate increases.

Accepted Answer

A) True 
 B)False

Question 15

Jeanette needs $15,000 as a down payment for a house six years from now. She earns 3.5% on her savings. Jeanette can either deposit one lump sum today for this purpose or she can wait a year and deposit a lump sum. How much additional money must Jeanette deposit if she waits for one year rather than making the deposit today?

Accepted Answer

A)  $121.03 
B)  $166.67 
C)  $307.00 
D)  $333.33 
E)  $427.09 
A)  $121.03 
B)  $166.67 
C)  $307.00 
D)  $333.33 
E)  $427.09

Question 16

Andy promises Opie that he will give him $5,000 upon his graduation from college at Mayberry U. How much must Andy invest today to make good on his promise, if Opie is expected to graduate in 12 years and Andy can earn 5% on his money?

Accepted Answer

A)  $2,135.32 
B)  $2,784.19 
C)  $2,881.11 
D)  $3,012.88 
E)  $8,979.28 
A)  $2,135.32 
B)  $2,784.19 
C)  $2,881.11 
D)  $3,012.88 
E)  $8,979.28

Question 17

Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for eight years from now. How much additional money will they have eight years from now if they can earn 9% rather than 7% on this money?

Accepted Answer

A)  $58,829.69 
B)  $86,991.91 
C)  $118,009.42 
D)  $126,745.19 
E)  $137,188.23 
A)  $58,829.69 
B)  $86,991.91 
C)  $118,009.42 
D)  $126,745.19 
E)  $137,188.23

Question 18

You collect model cars. One particular model increases in value at a rate of 5% per year. Today, the model is worth $29.50. How much additional money can you make if you wait ten years to sell the model rather than selling it five years from now?

Accepted Answer

A)  $9.98 
B)  $10.40 
C)  $10.86 
D)  $11.03 
E)  $11.24 
A)  $9.98 
B)  $10.40 
C)  $10.86 
D)  $11.03 
E)  $11.24

Question 19

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned over the same time period?

Accepted Answer

A)  $86.20 
B)  $92.47 
C)  $413.80 
D)  $436.29 
E)  $500.00 
A)  $86.20 
B)  $92.47 
C)  $413.80 
D)  $436.29 
E)  $500.00

Question 20

The present value will increase the lower the rate of interest.

Accepted Answer

A) True 
 B)False

Exam 5: Introduction to Valuation: the Time Value of Money

As the discount rate increases, the present value of $500 to be received six years from now:

Jennifer invested $2,000 in an account that pays 3% simple interest. How much more could she have earned over a six-year period if the interest had compounded annually?

A deposit of $10,000 increased to $12,500 in 5 years. Determine the annual rate of interest used and calculate the balance at the end of year four.

On your tenth birthday, you received $100 which you invested at 4.5% interest, compounded annually. That investment is now worth $3,000. How old are you today?

Courtney invests $1,200 today. If she can earn a 13.25% rate of return for the next two years, how much money will she have at the end of the two years?

In 1889, Vincent Van Gogh's painting, "Sunflowers," sold for $125. One hundred years later it sold for $36 million. Had the painting been purchased by your great-grandfather and passed on to you, what annual return on investment would your family have earned on the painting?

Alex and Courtney are each investing $1,200 today in a savings account. Alex will earn 4% interest compounded annually. Courtney will earn 4% simple interest. After five years Alex will have ____ more than Courtney.

Cooper invests $6,500 in a savings account at his local bank. The bank pays 2.75% simple interest. Cooper does not make any additional withdrawals or deposits to this account. How much will his account be worth after 12 years?

The formula for a present value calculation using Excel is:

The process of finding the present value of some future amount is often called:

The interest rate used to calculate the present value of future cash flows is called the _____ rate.

Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from now. She can earn 7% on her savings. How much more will she have to deposit if she waits one more year before investing versus if she deposits one lump sum today?

Present values increase as the discount rate increases.

Andy promises Opie that he will give him $5,000 upon his graduation from college at Mayberry U. How much must Andy invest today to make good on his promise, if Opie is expected to graduate in 12 years and Andy can earn 5% on his money?

Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for eight years from now. How much additional money will they have eight years from now if they can earn 9% rather than 7% on this money?

You collect model cars. One particular model increases in value at a rate of 5% per year. Today, the model is worth $29.50. How much additional money can you make if you wait ten years to sell the model rather than selling it five years from now?

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned over the same time period?

The present value will increase the lower the rate of interest.

Introduction to Corporate Finance

Financial Statements, Cash Flow, and Taxes

Working With Financial Statements

Long-Term Financial Planning and Corporate Growth

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Dividend Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Enterprise Risk Management

Options and Corporate Securities

Behavioural Finance: Implications for Financial Management

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