Question 1

To decrease the amount required today to fund a $10,000 debt due two years from now, you could _____ on your savings.

Accepted Answer

A)  Increase the rate of interest earned 
B)  Decrease the number of compounding periods per year 
C)  Earn simple interest rather than compound interest 
D)  Both decrease the rate of interest and the number of compounding periods per year 
E)  Either decrease the rate of interest or decrease the number of compounding periods per year 
A)  Increase the rate of interest earned 
B)  Decrease the number of compounding periods per year 
C)  Earn simple interest rather than compound interest 
D)  Both decrease the rate of interest and the number of compounding periods per year 
E)  Either decrease the rate of interest or decrease the number of compounding periods per year

Question 2

Ito invested $4,350. After seven years he had an account value of $6,980.58. Maria invested $5,920. After six years she had an account value of $8,834.62. Which one of the following statements is correct?

Accepted Answer

A)  Maria earned a rate of interest that was 0.9% higher than Ito's rate. 
B)  Maria earned a rate of interest of 5.89%. 
C)  Ito earned a rate of interest that was 0.09% higher than Maria's rate. 
D)  Ito earned a rate of interest of 6.90%. 
E)  Both Ito and Maria earned the same rate of interest. 
A)  Maria earned a rate of interest that was 0.9% higher than Ito's rate. 
B)  Maria earned a rate of interest of 5.89%. 
C)  Ito earned a rate of interest that was 0.09% higher than Maria's rate. 
D)  Ito earned a rate of interest of 6.90%. 
E)  Both Ito and Maria earned the same rate of interest.

Question 3

The longer the time period, the higher the present value.

Accepted Answer

A) True 
 B)False

Question 4

Omar has an investment valued at $12,345 today. He made a one-time investment at 6.5% four years ago. Leon has an investment that is also valued at $12,345 today. Leon invested four years ago at 7.5%. Omar originally invested _____ and Leon invested _____.

Accepted Answer

A)  $9,568.24; $9,199.16 
B)  $9,596.05; $9,243.94 
C)  $9,608.14; $9,267.67 
D)  $9,633.33; $9,304.06 
E)  $9,652.18; $9,389.00 
A)  $9,568.24; $9,199.16 
B)  $9,596.05; $9,243.94 
C)  $9,608.14; $9,267.67 
D)  $9,633.33; $9,304.06 
E)  $9,652.18; $9,389.00

Question 5

Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment?

Accepted Answer

A)  8.50% 
B)  9.33% 
C)  9.50% 
D)  9.87% 
E)  9.99% 
A)  8.50% 
B)  9.33% 
C)  9.50% 
D)  9.87% 
E)  9.99%

Question 6

Why do you think the concept known as the time value of money plays such a critical role in finance?

Accepted Answer

Student answers will vary. However, each

Question 7

Provide a definition of present value (PV).

Accepted Answer

The current value of

Question 8

The concept that a dollar received today is worth more than a dollar received tomorrow is referred to as the:

Accepted Answer

A)  Present value. 
B)  Simple interest value. 
C)  Compound value. 
D)  Time value of money. 
E)  Future value of money. 
A)  Present value. 
B)  Simple interest value. 
C)  Compound value. 
D)  Time value of money. 
E)  Future value of money.

Question 9

Thirty years ago, an average house cost $120,000 in Vancouver. Now the average house price is $950,000. Determine the annual rate of growth in Vancouver's housing prices.

Accepted Answer

A)  8.31% 
B)  7.14% 
C)  6.25% 
D)  5.58% 
E)  4.63% 
A)  8.31% 
B)  7.14% 
C)  6.25% 
D)  5.58% 
E)  4.63%

Question 10

A customer makes two offers to settle a disputed account. He will either pay you $500 today or pay you $650 in three years. Which one of the following is correct if your company earns 10.5% on its surplus funds?

Accepted Answer

A)  The company should accept the $650 offer as it pays $150 more. 
B)  The company should accept the $650 offer as it is worth more today. 
C)  The company should accept the $650 offer as it is worth $12.42 more today. 
D)  The company should accept the $500 offer as it is worth $18.24 more today. 
E)  The company should accept the $500 offer as it is worth $512.42 today. 
A)  The company should accept the $650 offer as it pays $150 more. 
B)  The company should accept the $650 offer as it is worth more today. 
C)  The company should accept the $650 offer as it is worth $12.42 more today. 
D)  The company should accept the $500 offer as it is worth $18.24 more today. 
E)  The company should accept the $500 offer as it is worth $512.42 today.

Question 11

Interest earned only on the original principal amount invested is called _____ interest.

Accepted Answer

A)  Free. 
B)  Annual. 
C)  Simple. 
D)  Interest on. 
E)  Compound. 
A)  Free. 
B)  Annual. 
C)  Simple. 
D)  Interest on. 
E)  Compound.

Question 12

Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account?

Accepted Answer

A)  16 years 
B)  17 years 
C)  18 years 
D)  19 years 
E)  20 years 
A)  16 years 
B)  17 years 
C)  18 years 
D)  19 years 
E)  20 years

Question 13

Your grandmother invested one lump sum 17 years ago at 4.25% interest. Today, she gave you the proceeds of that investment which totaled $5,539.92. How much did your grandmother originally invest?

Accepted Answer

A)  $2,700.00 
B)  $2,730.30 
C)  $2,750.00 
D)  $2,768.40 
E)  $2,774.90 
A)  $2,700.00 
B)  $2,730.30 
C)  $2,750.00 
D)  $2,768.40 
E)  $2,774.90

Question 14

Nadine invests $1,000 at 8% when she is 25 years old. Neal invests $1,000 at 8% when he is 40 years old. Both investments compound interest annually. Both Nadine and Neal retire at age 60. Which one of the following statements is correct?

Accepted Answer

A)  Nadine will have less money when she retires than Neal. 
B)  Neal will earn more interest on interest than Nadine. 
C)  Neal will earn more compound interest than Nadine. 
D)  If Neal waits to age 70 to retire, then he will have just as much money as Nadine. 
E)  Nadine will have more money when she retires than Neal. 
A)  Nadine will have less money when she retires than Neal. 
B)  Neal will earn more interest on interest than Nadine. 
C)  Neal will earn more compound interest than Nadine. 
D)  If Neal waits to age 70 to retire, then he will have just as much money as Nadine. 
E)  Nadine will have more money when she retires than Neal.

Question 15

As the discount rate increases, the future value of $500 to be received four years from now will decrease:

Accepted Answer

A) True 
 B)False

Question 16

If the rate at which you can invest is 0%, the value today of $1 to be received in the future is less than $1.

Accepted Answer

A) True 
 B)False

Question 17

One year ago, you invested $2,500. Today it is worth $2,789.50. What rate of interest did you earn?

Accepted Answer

A)  8.67% 
B)  9.89% 
C)  10.67% 
D)  11.42% 
E)  11.58% 
A)  8.67% 
B)  9.89% 
C)  10.67% 
D)  11.42% 
E)  11.58%

Question 18

The discounted value of money is called the:

Accepted Answer

A)  Compound value. 
B)  Simple value. 
C)  Future value. 
D)  Complex value. 
E)  Present value. 
A)  Compound value. 
B)  Simple value. 
C)  Future value. 
D)  Complex value. 
E)  Present value.

Question 19

The larger the present value factor, the larger the present value.

Accepted Answer

A) True 
 B)False

Question 20

Monika has $6,000 in her investment account. She wants to withdraw her funds when her account reaches $10,000. A decrease in the rate of return she earns will:

Accepted Answer

A)  Increase the value of her account faster. 
B)  Cause her to wait longer before withdrawing her money. 
C)  Cause the present value of her account to decrease. 
D)  Allow her to withdraw more money sooner. 
E)  Cause the compounding effect to increase. 
A)  Increase the value of her account faster. 
B)  Cause her to wait longer before withdrawing her money. 
C)  Cause the present value of her account to decrease. 
D)  Allow her to withdraw more money sooner. 
E)  Cause the compounding effect to increase.

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

To decrease the amount required today to fund a $10,000 debt due two years from now, you could _____ on your savings.

Ito invested $4,350. After seven years he had an account value of $6,980.58. Maria invested $5,920. After six years she had an account value of $8,834.62. Which one of the following statements is correct?

The longer the time period, the higher the present value.

Omar has an investment valued at $12,345 today. He made a one-time investment at 6.5% four years ago. Leon has an investment that is also valued at $12,345 today. Leon invested four years ago at 7.5%. Omar originally invested _____ and Leon invested _____.

Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment?

Why do you think the concept known as the time value of money plays such a critical role in finance?

Provide a definition of present value (PV).

The concept that a dollar received today is worth more than a dollar received tomorrow is referred to as the:

Thirty years ago, an average house cost $120,000 in Vancouver. Now the average house price is $950,000. Determine the annual rate of growth in Vancouver's housing prices.

A customer makes two offers to settle a disputed account. He will either pay you $500 today or pay you $650 in three years. Which one of the following is correct if your company earns 10.5% on its surplus funds?

Interest earned only on the original principal amount invested is called _____ interest.

Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account?

Your grandmother invested one lump sum 17 years ago at 4.25% interest. Today, she gave you the proceeds of that investment which totaled $5,539.92. How much did your grandmother originally invest?

Nadine invests $1,000 at 8% when she is 25 years old. Neal invests $1,000 at 8% when he is 40 years old. Both investments compound interest annually. Both Nadine and Neal retire at age 60. Which one of the following statements is correct?

As the discount rate increases, the future value of $500 to be received four years from now will decrease:

If the rate at which you can invest is 0%, the value today of $1 to be received in the future is less than $1.

One year ago, you invested $2,500. Today it is worth $2,789.50. What rate of interest did you earn?

The discounted value of money is called the:

The larger the present value factor, the larger the present value.

Monika has $6,000 in her investment account. She wants to withdraw her funds when her account reaches $10,000. A decrease in the rate of return she earns will:

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

Filters

Omar has an investment valued at $12,345 today. He made a one-time investment at 6.5% four years ago. Leon has an investment that is also valued at $12,345 today. Leon invested four years ago at 7.5%. Omar originally invested _ and Leon invested _.