Question 1

Given a constant future value and discount rate, an increase in the number of time periods will _____ the present value.

Accepted Answer

A)  Decrease 
B)  Either not affect or decrease 
C)  Not affect 
D)  Either increase or not affect 
E)  Increase 
A)  Decrease 
B)  Either not affect or decrease 
C)  Not affect 
D)  Either increase or not affect 
E)  Increase

Question 2

An investor deposited $10,500 in an account. At the end of year four, the account had accumulated $5,728.88. Over the first four years, the account earned ________ compounded annually.

Accepted Answer

A)  11.5% 
B)  12.8% 
C)  14.6% 
D)  15.6% 
E)  23.1% 
A)  11.5% 
B)  12.8% 
C)  14.6% 
D)  15.6% 
E)  23.1%

Question 3

Five friends all open investment accounts today. Which one will withdraw the largest amount of money from their account assuming that they each withdraw their funds at the end of their initial investment period?

Accepted Answer

A)  John, who invests $1,000 for eight years at 6% simple interest. 
B)  Terry, who invests $1,000 for four years at 9% with interest compounded annually. 
C)  Alicia, who invests $800 for ten years at 11% with interest compounded annually. 
D)  Kristi, who invests $1,200 for six years at 8% simple interest. 
E)  Roger, who invests $900 for nine years at 9% with interest compounded annually. 
A)  John, who invests $1,000 for eight years at 6% simple interest. 
B)  Terry, who invests $1,000 for four years at 9% with interest compounded annually. 
C)  Alicia, who invests $800 for ten years at 11% with interest compounded annually. 
D)  Kristi, who invests $1,200 for six years at 8% simple interest. 
E)  Roger, who invests $900 for nine years at 9% with interest compounded annually.

Question 4

Present value is the value today of future cash flows discounted at the appropriate discount rate.

Accepted Answer

A) True 
 B)False

Question 5

Margaret invests at 6% simple interest for six years. Pete invests at 6%, compounded annually, for eight years. Sylvia invests for eight years at 6% simple interest. Which one of the following statements is correct if all three individuals invested the same amount of money on the same day?

Accepted Answer

A)  Margaret will have more money than Sylvia at the end of three years. 
B)  Pete will have more money than either Margaret or Sylvia at the end of four years. 
C)  Sylvia will have more money than either Margaret or Pete at the end of six years. 
D)  Margaret will have less money than Pete but more money than Sylvia at the end of five years. 
E)  Sylvia and Margaret will have more money than Pete at the end of six years. 
A)  Margaret will have more money than Sylvia at the end of three years. 
B)  Pete will have more money than either Margaret or Sylvia at the end of four years. 
C)  Sylvia will have more money than either Margaret or Pete at the end of six years. 
D)  Margaret will have less money than Pete but more money than Sylvia at the end of five years. 
E)  Sylvia and Margaret will have more money than Pete at the end of six years.

Question 6

What is the rate needed (compounded monthly) for $10,000 to mature to $25,000 in 15 years?

Accepted Answer

The required rate of

Question 7

You collect old model trains. One particular model increases in value at a rate of 6.5% per year. Today, the model is worth $1,670. How much additional money can you make if you wait 4 years to sell the model rather than selling it 2 years from now?

Accepted Answer

A)  $196.67 
B)  $208.04 
C)  $241.79 
D)  $254.24 
E)  $280.15 
A)  $196.67 
B)  $208.04 
C)  $241.79 
D)  $254.24 
E)  $280.15

Question 8

What is the difference in future value if $40,000 is invested at 5% over twenty years, with one option compounding interest annually, while the other is based on monthly compounding?

Accepted Answer

Annual compounding provides a

Question 9

Future value is best defined as:

Accepted Answer

A)  An amount of money received each period for a stated number of periods. 
B)  The amount an investment is worth in today's dollars. 
C)  The dollar amount invested today at a stated rate of interest for some period of time. 
D)  The amount an investment is worth at the end of some stated period of time. 
E)  The cash value of an investment in today's dollars based on a stated rate of interest. 
A)  An amount of money received each period for a stated number of periods. 
B)  The amount an investment is worth in today's dollars. 
C)  The dollar amount invested today at a stated rate of interest for some period of time. 
D)  The amount an investment is worth at the end of some stated period of time. 
E)  The cash value of an investment in today's dollars based on a stated rate of interest.

Question 10

Frank invests $2,500 in an account that pays 6% simple interest. How much money will he have at the end of four years?

Accepted Answer

A)  $2,650 
B)  $3,100 
C)  $3,156 
D)  $3,163 
E)  $10,600 
A)  $2,650 
B)  $3,100 
C)  $3,156 
D)  $3,163 
E)  $10,600

Question 11

Provide a definition of future value (FV).

Accepted Answer

The amount an invest

Question 12

How much would you have to invest today at 8% compounded annually to have $25,000 available for the purchase of a car four years from now?

Accepted Answer

A)  $18,267.26 
B)  $18,375.75 
C)  $19,147.25 
D)  $21,370.10 
E)  $22,149.57 
A)  $18,267.26 
B)  $18,375.75 
C)  $19,147.25 
D)  $21,370.10 
E)  $22,149.57

Question 13

If $10,000 was invested at 4% over ten years, determine the difference if this investment was based on simple interest versus interest that was compounded annually.

Accepted Answer

Simple interest prov

Question 14

You will receive a $100,000 inheritance in 20 years. You can invest that money today at 6% compounded annually. What is the present value of your inheritance?

Accepted Answer

A)  $27,491.53 
B)  $29,767.15 
C)  $31,180.47 
D)  $35,492.34 
E)  $100,000.00 
A)  $27,491.53 
B)  $29,767.15 
C)  $31,180.47 
D)  $35,492.34 
E)  $100,000.00

Question 15

Twenty years from now, you would like to purchase a cottage located on the shores of your favourite lake. You expect that you will have $250,000 available at that time for this purchase. You could afford a home that is currently selling for ____ if the homes increase in value by 3% annually, but if the homes increase in value by 5% annually, you can only afford a home priced at _____ today.

Accepted Answer

A)  $127,023; $92,687 
B)  $138,419; $94,222 
C)  $138,419; $114,097 
D)  $144,676; $100,469 
E)  $144,676; $111,068 
A)  $127,023; $92,687 
B)  $138,419; $94,222 
C)  $138,419; $114,097 
D)  $144,676; $100,469 
E)  $144,676; $111,068

Question 16

You wish to have $200,000 at the end of twenty years. In the last five years, you withdraw $1,000 annually at a rate of 3.8% compounded quarterly. During the middle ten years, you contribute $500 monthly at a rate of 2.8% compounded semi-annually. Given this information, determine the initial deposit that has to be made at the start of the first five years at a rate of 4% compounded monthly.

Accepted Answer

The initia

Question 17

Write a sentence explaining why present values decrease as the discount rate increases.

Accepted Answer

Student answers will vary. Her

Question 18

Define and explain the relationship between the present value and the discount rate. Graphically illustrate this relationship.

Accepted Answer

The present value is inversely related t

Question 19

You just won the lottery and want to put some money away for your child's college education. College will cost $65,000 in 18 years. You can earn 8% compounded annually. How much do you need to invest today?

Accepted Answer

A)  $9,828.18 
B)  $11,763.07 
C)  $13,690.82 
D)  $15,258.17 
E)  $16,266.19 
A)  $9,828.18 
B)  $11,763.07 
C)  $13,690.82 
D)  $15,258.17 
E)  $16,266.19

Question 20

The future value will increase the shorter the period of time.

Accepted Answer

A) True 
 B)False

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

Given a constant future value and discount rate, an increase in the number of time periods will _____ the present value.

An investor deposited $10,500 in an account. At the end of year four, the account had accumulated $5,728.88. Over the first four years, the account earned ________ compounded annually.

Five friends all open investment accounts today. Which one will withdraw the largest amount of money from their account assuming that they each withdraw their funds at the end of their initial investment period?

Present value is the value today of future cash flows discounted at the appropriate discount rate.

Margaret invests at 6% simple interest for six years. Pete invests at 6%, compounded annually, for eight years. Sylvia invests for eight years at 6% simple interest. Which one of the following statements is correct if all three individuals invested the same amount of money on the same day?

What is the rate needed (compounded monthly) for $10,000 to mature to $25,000 in 15 years?

You collect old model trains. One particular model increases in value at a rate of 6.5% per year. Today, the model is worth $1,670. How much additional money can you make if you wait 4 years to sell the model rather than selling it 2 years from now?

What is the difference in future value if $40,000 is invested at 5% over twenty years, with one option compounding interest annually, while the other is based on monthly compounding?

Future value is best defined as:

Frank invests $2,500 in an account that pays 6% simple interest. How much money will he have at the end of four years?

Provide a definition of future value (FV).

How much would you have to invest today at 8% compounded annually to have $25,000 available for the purchase of a car four years from now?

If $10,000 was invested at 4% over ten years, determine the difference if this investment was based on simple interest versus interest that was compounded annually.

You will receive a $100,000 inheritance in 20 years. You can invest that money today at 6% compounded annually. What is the present value of your inheritance?

Write a sentence explaining why present values decrease as the discount rate increases.

Define and explain the relationship between the present value and the discount rate. Graphically illustrate this relationship.

You just won the lottery and want to put some money away for your child's college education. College will cost $65,000 in 18 years. You can earn 8% compounded annually. How much do you need to invest today?

The future value will increase the shorter the period of time.

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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