Question 1

State the future value formula and explain the effect that time has on the future value of an investment.

Accepted Answer

FV = PV(1 + r)^t Time is the exponential f

Question 2

You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw your funds. Given this information calculate the balance at the end of year two.

Accepted Answer

A)  $665,202 
B)  $632,804 
C)  $636,549 
D)  $687,702 
E)  $693,303 
A)  $665,202 
B)  $632,804 
C)  $636,549 
D)  $687,702 
E)  $693,303

Question 3

You have $500 in an account which pays 5% compound interest. How much additional interest would you earn over four years if you moved the money to an account earning 6%?

Accepted Answer

A)  $21.89 
B)  $23.49 
C)  $24.93 
D)  $25.88 
E)  $29.94 
A)  $21.89 
B)  $23.49 
C)  $24.93 
D)  $25.88 
E)  $29.94

Question 4

Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase in the price of automobiles, how much will a new Suburban cost you five years from now, if today's price is $48,000?

Accepted Answer

A)  $41,405 
B)  $48,000 
C)  $54,024 
D)  $55,200 
E)  $55,645 
A)  $41,405 
B)  $48,000 
C)  $54,024 
D)  $55,200 
E)  $55,645

Question 5

The future value of a single sum will increase more rapidly when the frequency of compounding decreases.

Accepted Answer

A) True 
 B)False

Question 6

An account was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the account paid interest compounded annually, how much interest on interest was earned?

Accepted Answer

A)  $86.20 
B)  $93.10 
C)  $102.39 
D)  $130.28 
E)  $500.00 
A)  $86.20 
B)  $93.10 
C)  $102.39 
D)  $130.28 
E)  $500.00

Question 7

Many financial calculators require that:

Accepted Answer

A)  The interest rate be input as a decimal, such as.07. 
B)  Interest be compounded on an annual basis. 
C)  The present value be input as a negative number when solving for the interest rate. 
D)  Interest be computed on a monthly basis. 
E)  Either the present value or the future value be input as a negative number when solving for the number of periods. 
A)  The interest rate be input as a decimal, such as.07. 
B)  Interest be compounded on an annual basis. 
C)  The present value be input as a negative number when solving for the interest rate. 
D)  Interest be computed on a monthly basis. 
E)  Either the present value or the future value be input as a negative number when solving for the number of periods.

Question 8

You would like to invest some money today such that your investment will be worth $100,000 fifteen years from now. Your broker gives you two options. First, you can invest at a guaranteed annual rate of 4%. Or, you can invest in stocks and hopefully earn an average of 7% per year. How much more will you have to invest today if you opt for the fixed rate rather than the stocks?

Accepted Answer

A)  $18,145.45 
B)  $18,419.02 
C)  $18,623.18 
D)  $18,904.21 
E)  $19,281.85 
A)  $18,145.45 
B)  $18,419.02 
C)  $18,623.18 
D)  $18,904.21 
E)  $19,281.85

Question 9

Provide a definition of discount.

Accepted Answer

To calculate the pre

Question 10

Gretchen Enterprises borrowed $149,500 for two years from the bank. At the end of the two years, they repaid the loan with one payment of $176,590. What was the interest rate on the loan?

Accepted Answer

A)  8.68% 
B)  9.06% 
C)  10.00% 
D)  10.42% 
E)  18.12% 
A)  8.68% 
B)  9.06% 
C)  10.00% 
D)  10.42% 
E)  18.12%

Question 11

Explain intuitively why it is that present values decrease as the discount rate increases.

Accepted Answer

Intuitively, a dollar today is

Question 12

Sun Lee has $500 today. Which one of the following statements is correct if she invests this money at a positive rate of interest for five years?

Accepted Answer

A)  The higher the interest rate she earns, the less money she will have in the future. 
B)  The higher the interest rate, the longer she has to wait for her money to grow to $1,000 in value. 
C)  If Sun Lee can earn 7%, she will have to wait about six years to have $1,000 total. 
D)  At the end of the five years Sun Lee will have less money if she invests at 5% rather than at 7%. 
E)  At 10% interest Sun Lee should expect to have $1,000 in her account at the end of the five years. 
A)  The higher the interest rate she earns, the less money she will have in the future. 
B)  The higher the interest rate, the longer she has to wait for her money to grow to $1,000 in value. 
C)  If Sun Lee can earn 7%, she will have to wait about six years to have $1,000 total. 
D)  At the end of the five years Sun Lee will have less money if she invests at 5% rather than at 7%. 
E)  At 10% interest Sun Lee should expect to have $1,000 in her account at the end of the five years.

Question 13

Provide a definition of interest on interest.

Accepted Answer

Interest earned on t

Question 14

You own a classic automobile that is currently valued at $39,500. If the value increases by 6% annually, how much will the auto be worth ten years from now?

Accepted Answer

A)  $64,341.34 
B)  $44,734.42 
C)  $69,843.06 
D)  $70,738.48 
E)  $74,146.93 
A)  $64,341.34 
B)  $44,734.42 
C)  $69,843.06 
D)  $70,738.48 
E)  $74,146.93

Question 15

Your goal is to build your first home seven years from now. The home that you desire currently costs $215,900. New home prices are increasing by 4.2% annually. If home prices continue rising at that pace, how much will your home cost when you are ready to build seven years from now?

Accepted Answer

A)  $281,113.21 
B)  $284,109.67 
C)  $287,956.36 
D)  $292,001.06 
E)  $295,474.06 
A)  $281,113.21 
B)  $284,109.67 
C)  $287,956.36 
D)  $292,001.06 
E)  $295,474.06

Question 16

Approximately 13,500 students enrolled at Kwantlen University five years ago. Today, enrolment reached 18,800 students. Determine the annual growth rate in student enrolment.

Accepted Answer

A)  5.55% 
B)  6.85% 
C)  7.65% 
D)  8.25% 
E)  9.55% 
A)  5.55% 
B)  6.85% 
C)  7.65% 
D)  8.25% 
E)  9.55%

Question 17

You want to have $10,000 saved ten years from now. How much less do you have to deposit today to reach this goal if you can earn 6% rather than 5% on your savings?

Accepted Answer

A)  $555.18 
B)  $609.81 
C)  $615.48 
D)  $928.73 
E)  $1,046.22 
A)  $555.18 
B)  $609.81 
C)  $615.48 
D)  $928.73 
E)  $1,046.22

Question 18

Martha is going to receive $6,000 in two years from Tom. She will receive an additional $4,000 in three years from Tom. She earns 7.15% on her investments. How much is this money from Tom worth to Martha today?

Accepted Answer

A)  $7,893.46 
B)  $8,477.47 
C)  $8,891.74 
D)  $9,225.97 
E)  $9,251.50 
A)  $7,893.46 
B)  $8,477.47 
C)  $8,891.74 
D)  $9,225.97 
E)  $9,251.50

Question 19

Marie needs $26,000 as a down payment for a house 4 years from now. She earns 5.25% on her savings. Marie 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 Marie deposit if she waits for one year rather than making the deposit today?

Accepted Answer

A)  $878.98 
B)  $911.13 
C)  $1,112.36 
D)  $1,348.03 
E)  $1,420.18 
A)  $878.98 
B)  $911.13 
C)  $1,112.36 
D)  $1,348.03 
E)  $1,420.18

Question 20

All County Insurance, Inc. promises to pay Ted $1 million on his 65thbirthday in return for a one-time payment of $75,000 today. (Ted just turned 25) At what rate of interest would Ted be indifferent between accepting the company's offer and investing the premium on his own?

Accepted Answer

A)  2.4% 
B)  5.5% 
C)  6.1% 
D)  6.7% 
E)  7.2% 
A)  2.4% 
B)  5.5% 
C)  6.1% 
D)  6.7% 
E)  7.2%

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

State the future value formula and explain the effect that time has on the future value of an investment.

You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw your funds. Given this information calculate the balance at the end of year two.

You have $500 in an account which pays 5% compound interest. How much additional interest would you earn over four years if you moved the money to an account earning 6%?

Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase in the price of automobiles, how much will a new Suburban cost you five years from now, if today's price is $48,000?

The future value of a single sum will increase more rapidly when the frequency of compounding decreases.

An account was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the account paid interest compounded annually, how much interest on interest was earned?

Many financial calculators require that:

Provide a definition of discount.

Gretchen Enterprises borrowed $149,500 for two years from the bank. At the end of the two years, they repaid the loan with one payment of $176,590. What was the interest rate on the loan?

Explain intuitively why it is that present values decrease as the discount rate increases.

Sun Lee has $500 today. Which one of the following statements is correct if she invests this money at a positive rate of interest for five years?

Provide a definition of interest on interest.

You own a classic automobile that is currently valued at $39,500. If the value increases by 6% annually, how much will the auto be worth ten years from now?

Your goal is to build your first home seven years from now. The home that you desire currently costs $215,900. New home prices are increasing by 4.2% annually. If home prices continue rising at that pace, how much will your home cost when you are ready to build seven years from now?

Approximately 13,500 students enrolled at Kwantlen University five years ago. Today, enrolment reached 18,800 students. Determine the annual growth rate in student enrolment.

You want to have $10,000 saved ten years from now. How much less do you have to deposit today to reach this goal if you can earn 6% rather than 5% on your savings?

Martha is going to receive $6,000 in two years from Tom. She will receive an additional $4,000 in three years from Tom. She earns 7.15% on her investments. How much is this money from Tom worth to Martha today?

All County Insurance, Inc. promises to pay Ted $1 million on his 65thbirthday in return for a one-time payment of $75,000 today. (Ted just turned 25) At what rate of interest would Ted be indifferent between accepting the company's offer and investing the premium on his own?

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

All County Insurance, Inc. promises to pay Ted $1 million on his 65^thbirthday in return for a one-time payment of $75,000 today. (Ted just turned 25) At what rate of interest would Ted be indifferent between accepting the company's offer and investing the premium on his own?