Question 1

deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually.How much will your account be worth at the end of 25 years?

Accepted Answer

A) $2,245.08 
B) $2,363.24 
C) $2,481.41 
D) $2,605.48 
E) $2,735.75 
A) $2,245.08 
B) $2,363.24 
C) $2,481.41 
D) $2,605.48 
E) $2,735.75 B

Question 2

Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today.You need money today to start a new business, and your uncle offers to give you $120,000 for the annuity.If you sell it, what rate of return would your uncle earn on his investment?

Accepted Answer

A) 6.85% 
B) 7.21% 
C) 7.59% 
D) 7.99% 
E) 8.41% 
A) 6.85% 
B) 7.21% 
C) 7.59% 
D) 7.99% 
E) 8.41% E

Question 3

Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

Accepted Answer

A) Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments). 
B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments). 
C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). 
D) Investment D pays $2,500 at the end of 10 years (just one payment). 
E) Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments). 
A) Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments). 
B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments). 
C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). 
D) Investment D pays $2,500 at the end of 10 years (just one payment). 
E) Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments). A

Question 4

sold a car and accepted a note with the following cash flow stream as your payment.What was the effective price you received for the car assuming an interest rate of 6.0%?

Accepted Answer

A) $5,987 
B) $6,286 
C) $6,600 
D) $6,930 
E) $7,277 
A) $5,987 
B) $6,286 
C) $6,600 
D) $6,930 
E) $7,277

Question 5

uncle has $300,000 invested at 7.5%, and he now wants to retire.He wants to withdraw $35,000 at the end of each year, beginning at the end of this year.He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account.What is the maximum number of $35,000 withdrawals that he can make and still have at least $25,000 left in the account? (Hint: If your solution for N is not an integer, round down to the nearest whole number.)

Accepted Answer

A) 12 
B) 13 
C) 14 
D) 15 
E) 16 
A) 12 
B) 13 
C) 14 
D) 15 
E) 16

Question 6

are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?

Accepted Answer

A) 4.93% 
B) 5.19% 
C) 5.46% 
D) 5.75% 
E) 6.05% 
A) 4.93% 
B) 5.19% 
C) 5.46% 
D) 5.75% 
E) 6.05%

Question 7

have a chance to buy an annuity that pays $5,000 at the beginning of each year for 5 years.You could earn 4.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

Accepted Answer

A) 20,701 
B) $21,791 
C) $22,938 
D) $24,085 
E) $25,289 
A) 20,701 
B) $21,791 
C) $22,938 
D) $24,085 
E) $25,289

Question 8

of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.

Accepted Answer

A) True 
 B)False

Question 9

year Ellis Inc's earnings per share were $3.50, and its growth rate during the prior 5 years was 9.0% per year.If that growth rate were maintained, how many years would it take for Ellis' EPS to triple?

Accepted Answer

A) 9.29 
B) 10.33 
C) 11.47 
D) 12.75 
E) 14.02 
A) 9.29 
B) 10.33 
C) 11.47 
D) 12.75 
E) 14.02

Question 10

What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?

Accepted Answer

A) $1,537.69 
B) $1,618.62 
C) $1,699.55 
D) $1,784.53 
E) $1,873.76 
A) $1,537.69 
B) $1,618.62 
C) $1,699.55 
D) $1,784.53 
E) $1,873.76

Question 11

greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the greater the present value of a given lump sum to be received at some future date.

Accepted Answer

A) True 
 B)False

Question 12

lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A) A time line is not meaningful unless all cash flows occur annually. 
B) Time lines are not useful for visualizing complex problems prior to doing actual calculations. 
C) Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. 
D) Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. 
E) Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity. 
A) A time line is not meaningful unless all cash flows occur annually. 
B) Time lines are not useful for visualizing complex problems prior to doing actual calculations. 
C) Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. 
D) Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. 
E) Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

Question 14

other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

Accepted Answer

A) True 
 B)False

Question 15

plan to invest in securities that pay 8.0%, compounded annually.If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20?

Accepted Answer

A) 5.14 
B) 5.71 
C) 6.35 
D) 7.05 
E) 7.84 
A) 5.14 
B) 5.71 
C) 6.35 
D) 7.05 
E) 7.84

Question 16

Suppose you are buying your first condo for $145,000, and you will make a $15,000 down payment.You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month.What will your monthly payments be?

Accepted Answer

A) $741.57 
B) $780.60 
C) $821.69 
D) $862.77 
E) $905.91 
A) $741.57 
B) $780.60 
C) $821.69 
D) $862.77 
E) $905.91

Question 17

Suppose a State of California bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

Accepted Answer

A) $651.60 
B) $684.18 
C) $718.39 
D) $754.31 
E) $792.02 
A) $651.60 
B) $684.18 
C) $718.39 
D) $754.31 
E) $792.02

Question 18

was injured in an accident, and the insurance company has offered him the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum.If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?

Accepted Answer

A) $225,367 
B) $237,229 
C) $249,090 
D) $261,545 
E) $274,622 
A) $225,367 
B) $237,229 
C) $249,090 
D) $261,545 
E) $274,622

Question 19

What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semiannually?

Accepted Answer

A) $3,089 
B) $3,251 
C) $3,422 
D) $3,602 
E) $3,782 
A) $3,089 
B) $3,251 
C) $3,422 
D) $3,602 
E) $3,782

Question 20

and Daphne are saving for their daughter Ellen's college education.Ellen just turned 10 at Their long-run financial plan is to add an additional $5,000 in each of the next 4 years Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7.They expect their investment account to earn 9%.How large must the annual payments at t = 5, 6, and 7 be to cover Ellen's anticipated college costs?

Accepted Answer

A) $1,965.21 
B) $2,068.64 
C) $2,177.51 
D) $2,292.12 
E) $2,412.76 
A) $1,965.21 
B) $2,068.64 
C) $2,177.51 
D) $2,292.12 
E) $2,412.76

deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually.How much will your account be worth at the end of 25 years?

Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

sold a car and accepted a note with the following cash flow stream as your payment.What was the effective price you received for the car assuming an interest rate of 6.0%?

are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?

have a chance to buy an annuity that pays $5,000 at the beginning of each year for 5 years.You could earn 4.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.

year Ellis Inc's earnings per share were $3.50, and its growth rate during the prior 5 years was 9.0% per year.If that growth rate were maintained, how many years would it take for Ellis' EPS to triple?

What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?

greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the greater the present value of a given lump sum to be received at some future date.

lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

Which of the following statements is CORRECT?

other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

plan to invest in securities that pay 8.0%, compounded annually.If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20?

Suppose you are buying your first condo for $145,000, and you will make a $15,000 down payment.You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month.What will your monthly payments be?

Suppose a State of California bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

was injured in an accident, and the insurance company has offered him the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum.If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?

What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semiannually?

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Exam 4: Time Value of Money

deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually.How much will your account be worth at the end of 25 years?

Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

sold a car and accepted a note with the following cash flow stream as your payment.What was the effective price you received for the car assuming an interest rate of 6.0%?

are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4.What rate of return would you earn if you bought this asset?

have a chance to buy an annuity that pays $5,000 at the beginning of each year for 5 years.You could earn 4.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.

year Ellis Inc's earnings per share were $3.50, and its growth rate during the prior 5 years was 9.0% per year.If that growth rate were maintained, how many years would it take for Ellis' EPS to triple?

What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?

greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the greater the present value of a given lump sum to be received at some future date.

lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

Which of the following statements is CORRECT?

other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

plan to invest in securities that pay 8.0%, compounded annually.If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20?

Suppose you are buying your first condo for $145,000, and you will make a $15,000 down payment.You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month.What will your monthly payments be?

Suppose a State of California bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

was injured in an accident, and the insurance company has offered him the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum.If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?

What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semiannually?

Overview

Statements, CF, Taxes

Financial Analysis

Bonds

Risk and Return

Stocks

Financial Options

Cost of Capital

Capital Budgeting

Cash Flow and Risk

Forecasting

Valuation, Governanc

Dividends

CAP Structure

Working Capital

Multinational

Filters