Question 1

Starting to invest early for retirement increases the benefits of compound interest.

Accepted Answer

A) True 
 B)False

Question 2

is the present value of the following cash flow stream at a rate of 6.25%?

Accepted Answer

A) $411.57 
B) $433.23 
C) $456.03 
D) $480.03 
E) $505.30 
A) $411.57 
B) $433.23 
C) $456.03 
D) $480.03 
E) $505.30

Question 3

uncle has $375,000 and wants to retire.He expects to live for another 25 years and to earn 7.5% on his invested funds.How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?

Accepted Answer

A) $28,843.38 
B) $30,361.46 
C) $31,959.43 
D) $33,641.50 
E) $35,323.58 
A) $28,843.38 
B) $30,361.46 
C) $31,959.43 
D) $33,641.50 
E) $35,323.58

Question 4

Farmers Bank offers to lend you $50,000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly.Merchants Bank offers to lend you the $50,000, but it will charge 6.0%, simple interest, with interest paid at the end of the year.What's the difference in the effective annual rates charged by the two banks?

Accepted Answer

A) 1.56% 
B) 1.30% 
C) 1.09% 
D) 0.91% 
E) 0.72% 
A) 1.56% 
B) 1.30% 
C) 1.09% 
D) 0.91% 
E) 0.72%

Question 5

Pacific Bank pays a 4.50% nominal rate on deposits, with monthly compounding.What effective annual rate (EFF%) does the bank pay?

Accepted Answer

A) 3.72% 
B) 4.13% 
C) 4.59% 
D) 5.05% 
E) 5.56% 
A) 3.72% 
B) 4.13% 
C) 4.59% 
D) 5.05% 
E) 5.56%

Question 6

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year, after you have made the first payment?

Accepted Answer

A) $10,155.68 
B) $10,690.19 
C) $11,252.83 
D) $11,845.09 
E) $12,468.51 
A) $10,155.68 
B) $10,690.19 
C) $11,252.83 
D) $11,845.09 
E) $12,468.51

Question 7

Suppose Sally Smith plans to invest $1,000.She can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%.After 11 years, the compounded value of Security B should be more than twice the compounded value of Security A.(Ignore risk, and assume that compounding occurs annually.)

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

Accepted Answer

A) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years. 
B) Because the outstanding balance declines over time, the monthly payments will also decline over time. 
C) Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant. 
D) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year. 
E) The outstanding balance declines at a faster rate in the later years of the loan's life. 
A) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years. 
B) Because the outstanding balance declines over time, the monthly payments will also decline over time. 
C) Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant. 
D) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year. 
E) The outstanding balance declines at a faster rate in the later years of the loan's life.

Question 9

Suppose a U.S.treasury bond will pay $2,500 five years from now.If the going interest rate on 5-year treasury bonds is 4.25%, how much is the bond worth today?

Accepted Answer

A) $1,928.78 
B) $2,030.30 
C) $2,131.81 
D) $2,238.40 
E) $2,350.32 
A) $1,928.78 
B) $2,030.30 
C) $2,131.81 
D) $2,238.40 
E) $2,350.32

Question 10

aunt has $500,000 invested at 5.5%, and she now wants to retire.She wants to withdraw $45,000 at the beginning of each year, beginning immediately.She also wants to have $50,000 left to give you when she ceases to withdraw funds from the account.What is the maximum number of $45,000 withdrawals that she can make and still have at least $50,000 left in the account? (Hint: If your solution for N is not an integer, round down to the nearest whole number.)

Accepted Answer

A) 13 
B) 14 
C) 15 
D) 16 
E) 17 
A) 13 
B) 14 
C) 15 
D) 16 
E) 17

Question 11

father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a year for 25 years, with the first payment coming immediately.The going rate on such annuities is 5.15%.How much would it cost him to buy the annuity today?

Accepted Answer

A) $1,063,968 
B) $1,119,966 
C) $1,178,912 
D) $1,240,960 
E) $1,303,008 
A) $1,063,968 
B) $1,119,966 
C) $1,178,912 
D) $1,240,960 
E) $1,303,008

Question 12

bank account pays a 6% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

Accepted Answer

A) The periodic rate of interest is 1.5% and the effective rate of interest is 3%. 
B) The periodic rate of interest is 6% and the effective rate of interest is greater than 6%. 
C) The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%. 
D) The periodic rate of interest is 3% and the effective rate of interest is 6%. 
E) The periodic rate of interest is 6% and the effective rate of interest is also 6%. 
A) The periodic rate of interest is 1.5% and the effective rate of interest is 3%. 
B) The periodic rate of interest is 6% and the effective rate of interest is greater than 6%. 
C) The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%. 
D) The periodic rate of interest is 3% and the effective rate of interest is 6%. 
E) The periodic rate of interest is 6% and the effective rate of interest is also 6%.

Question 13

a bank compounds savings accounts quarterly, the effective annual rate will exceed the nominal rate.

Accepted Answer

A) True 
 B)False

Question 14

just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly.If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?

Accepted Answer

A) $15,234.08 
B) $16,035.88 
C) $16,837.67 
D) $17,679.55 
E) $18,563.53 
A) $15,234.08 
B) $16,035.88 
C) $16,837.67 
D) $17,679.55 
E) $18,563.53

Question 15

borrowed $50,000 which you must repay in 10 years.You plan to make an initial deposit today, then make 9 more deposits at the beginning of each the next 9 years, but with the deposits increasing at the inflation rate.You expect to earn 5% on your funds, and you expect a 3% inflation rate.To the nearest dollar, how large must your initial deposit be to enable you to reach your $50,000 target?

Accepted Answer

A) $3,008 
B) $3,342 
C) $3,676 
D) $4,044 
E) $4,448 
A) $3,008 
B) $3,342 
C) $3,676 
D) $4,044 
E) $4,448

Question 16

time line is not meaningful unless all cash flows occur annually.

Accepted Answer

A) True 
 B)False

Question 17

much would $1, growing at 3.5% per year, be worth after 75 years?

Accepted Answer

A) $12.54 
B) $13.20 
C) $13.86 
D) $14.55 
E) $15.28 
A) $12.54 
B) $13.20 
C) $13.86 
D) $14.55 
E) $15.28

Question 18

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Accepted Answer

A) $969 
B) $1,020 
C) $1,074 
D) $1,131 
E) $1,187 
A) $969 
B) $1,020 
C) $1,074 
D) $1,131 
E) $1,187

Question 19

time line is meaningful even if all cash flows do not occur annually.

Accepted Answer

A) True 
 B)False

Question 20

U)S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%, semiannual compounding.Which of the following statements is CORRECT?

Accepted Answer

A) The periodic interest rate is greater than 3%. 
B) The periodic rate is less than 3%. 
C) The present value would be greater if the lump sum were discounted back for more periods. 
D) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually. 
E) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity. 
A) The periodic interest rate is greater than 3%. 
B) The periodic rate is less than 3%. 
C) The present value would be greater if the lump sum were discounted back for more periods. 
D) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually. 
E) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.

Starting to invest early for retirement increases the benefits of compound interest.

is the present value of the following cash flow stream at a rate of 6.25%?

uncle has $375,000 and wants to retire.He expects to live for another 25 years and to earn 7.5% on his invested funds.How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?

Pacific Bank pays a 4.50% nominal rate on deposits, with monthly compounding.What effective annual rate (EFF%) does the bank pay?

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year, after you have made the first payment?

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

Suppose a U.S.treasury bond will pay $2,500 five years from now.If the going interest rate on 5-year treasury bonds is 4.25%, how much is the bond worth today?

father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a year for 25 years, with the first payment coming immediately.The going rate on such annuities is 5.15%.How much would it cost him to buy the annuity today?

bank account pays a 6% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

a bank compounds savings accounts quarterly, the effective annual rate will exceed the nominal rate.

time line is not meaningful unless all cash flows occur annually.

much would $1, growing at 3.5% per year, be worth after 75 years?

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

time line is meaningful even if all cash flows do not occur annually.

U)S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%, semiannual compounding.Which of the following statements is CORRECT?

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Exam 4: Time Value of Money

Starting to invest early for retirement increases the benefits of compound interest.

is the present value of the following cash flow stream at a rate of 6.25%?

uncle has $375,000 and wants to retire.He expects to live for another 25 years and to earn 7.5% on his invested funds.How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?

Pacific Bank pays a 4.50% nominal rate on deposits, with monthly compounding.What effective annual rate (EFF%) does the bank pay?

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year, after you have made the first payment?

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

Suppose a U.S.treasury bond will pay $2,500 five years from now.If the going interest rate on 5-year treasury bonds is 4.25%, how much is the bond worth today?

father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a year for 25 years, with the first payment coming immediately.The going rate on such annuities is 5.15%.How much would it cost him to buy the annuity today?

bank account pays a 6% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

a bank compounds savings accounts quarterly, the effective annual rate will exceed the nominal rate.

time line is not meaningful unless all cash flows occur annually.

much would $1, growing at 3.5% per year, be worth after 75 years?

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

time line is meaningful even if all cash flows do not occur annually.

U)S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%, semiannual compounding.Which of the following statements is CORRECT?

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