Question 1

Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

Accepted Answer

A) True 
 B)False  False

Question 2

In future value or present value problems, unless stated otherwise, cash flows are assumed to be

Accepted Answer

A)  at the end of a time period. 
B)  in the middle of a time period. 
C)  spread out evenly over a time period. 
D)  at the beginning of a time period. 
A)  at the end of a time period. 
B)  in the middle of a time period. 
C)  spread out evenly over a time period. 
D)  at the beginning of a time period. A

Question 3

Entertainer's Aid plans five annual colossal concerts, each in a different nation's capital. The concerts will raise funds for an endowment which would provide the World Wide Hunger Fund with $3,000,000 per year into perpetuity. The endowment will be given at the end of the sixth year. The rate of interest is expected to be 9 percent in all future periods. How much must Entertainer's Aid deposit each year to accumulate to the required amount?

Accepted Answer

A)  $5,569,500 
B)  $8,569,000 
C)  $1,830,300 
D)  $3,333,300 
A)  $5,569,500 
B)  $8,569,000 
C)  $1,830,300 
D)  $3,333,300 A

Question 4

The effective annual rate increases with increasing compounding frequency.

Accepted Answer

A) True 
 B)False

Question 5

The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is  ________.

Accepted Answer

A)  $699 
B)  $75 
C)  $236 
D)  $42 
A)  $699 
B)  $75 
C)  $236 
D)  $42

Question 6

The future value interest factor is the future value of $1 per period compounded at i percent for nperiods.

Accepted Answer

A) True 
 B)False

Question 7

An 8% per annum investment of $2,000 grows to $68,485 in 25 years.

Accepted Answer

A) True 
 B)False

Question 8

The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is  ________.

Accepted Answer

A)  $518 
B)  $200 
C)  $77 
D)  $50 
A)  $518 
B)  $200 
C)  $77 
D)  $50

Question 9

Darlene wishes to accumulate $50,000 by the end of 10 years by making equal annual end-of-yeardeposits over the next 10 years. If Darlene can earn 5 percent on her investments, how much mustshe deposit at the end of each year?

Accepted Answer

A)  $3,975 
B)  $4,513 
C)  $6,475 
D)  $5,000 
A)  $3,975 
B)  $4,513 
C)  $6,475 
D)  $5,000

Question 10

Everything else being equal, the longer the period of time, the lower the present value.

Accepted Answer

A) True 
 B)False

Question 11

Everything else being equal, the higher the interest rate, the higher the future value.

Accepted Answer

A) True 
 B)False

Question 12

Annuity due is an amount that occurs at the beginning of each period.

Accepted Answer

A) True 
 B)False

Question 13

A beach house in southern California now costs $350,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Louis and Kate retire from successful careers in commercial art. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement?

Accepted Answer

A)  $79,977 
B)  $17,350 
C)  $4,323 
D)  $11,471 
A)  $79,977 
B)  $17,350 
C)  $4,323 
D)  $11,471

Question 14

David wishes to accumulate $1 million by the end of 20 years by making equal annual end-of-yeardeposits over the next 20 years. If David can earn 10 percent on his investments, how much must hedeposit at the end of each year?

Accepted Answer

A)  $117,453 
B)  $14,900 
C)  $17,460 
D)  $50,000 
A)  $117,453 
B)  $14,900 
C)  $17,460 
D)  $50,000

Question 15

For a given interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.

Accepted Answer

A) True 
 B)False

Question 16

Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book.What is the present value of her royalty income if the opportunity cost is 12 percent?

Accepted Answer

A)  $67,800 
B)  $38,640 
C)  $120,000 
D)  none of the above 
A)  $67,800 
B)  $38,640 
C)  $120,000 
D)  none of the above

Question 17

What is the yield-to-maturity on a 15-year, $1,000, zero-coupon bond, selling for $375.39?

Accepted Answer

A)  5.97% 
B)  5.60% 
C)  7.32% 
D)  6.75% 
A)  5.97% 
B)  5.60% 
C)  7.32% 
D)  6.75%

Question 18

Chris is planning for her son's college education to begin five years from today. She estimates the yearly tuition, books, and living expenses to be $5,000 per year for a four year degree. How much must Chris deposit today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college?

Accepted Answer

A)  $13,620 
B)  $39,520 
C)  $20,000 
D)  $12,172 
A)  $13,620 
B)  $39,520 
C)  $20,000 
D)  $12,172

Question 19

Dan plans to fund his registered retirement savings plan (RRSP) with a contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Accepted Answer

A)  $12,290 
B)  $20,000 
C)  $51,880 
D)  $31,874 
A)  $12,290 
B)  $20,000 
C)  $51,880 
D)  $31,874

Question 20

The greater the potential return on an investment and the longer the period of time, the higher thepresent value.

Accepted Answer

A) True 
 B)False

Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

In future value or present value problems, unless stated otherwise, cash flows are assumed to be

The effective annual rate increases with increasing compounding frequency.

The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is ________.

The future value interest factor is the future value of $1 per period compounded at i percent for nperiods.

An 8% per annum investment of $2,000 grows to $68,485 in 25 years.

The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is ________.

Darlene wishes to accumulate $50,000 by the end of 10 years by making equal annual end-of-yeardeposits over the next 10 years. If Darlene can earn 5 percent on her investments, how much mustshe deposit at the end of each year?

Everything else being equal, the longer the period of time, the lower the present value.

Everything else being equal, the higher the interest rate, the higher the future value.

Annuity due is an amount that occurs at the beginning of each period.

David wishes to accumulate $1 million by the end of 20 years by making equal annual end-of-yeardeposits over the next 20 years. If David can earn 10 percent on his investments, how much must hedeposit at the end of each year?

For a given interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.

Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book.What is the present value of her royalty income if the opportunity cost is 12 percent?

What is the yield-to-maturity on a 15-year, $1,000, zero-coupon bond, selling for $375.39?

Dan plans to fund his registered retirement savings plan (RRSP) with a contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

The greater the potential return on an investment and the longer the period of time, the higher thepresent value.

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

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Exam 6: Time Value of Money

Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

In future value or present value problems, unless stated otherwise, cash flows are assumed to be

The effective annual rate increases with increasing compounding frequency.

The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is ________.

The future value interest factor is the future value of $1 per period compounded at i percent for nperiods.

An 8% per annum investment of $2,000 grows to $68,485 in 25 years.

The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is ________.

Darlene wishes to accumulate $50,000 by the end of 10 years by making equal annual end-of-yeardeposits over the next 10 years. If Darlene can earn 5 percent on her investments, how much mustshe deposit at the end of each year?

Everything else being equal, the longer the period of time, the lower the present value.

Everything else being equal, the higher the interest rate, the higher the future value.

Annuity due is an amount that occurs at the beginning of each period.

David wishes to accumulate $1 million by the end of 20 years by making equal annual end-of-yeardeposits over the next 20 years. If David can earn 10 percent on his investments, how much must hedeposit at the end of each year?

For a given interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.

Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book.What is the present value of her royalty income if the opportunity cost is 12 percent?

What is the yield-to-maturity on a 15-year, $1,000, zero-coupon bond, selling for $375.39?

Dan plans to fund his registered retirement savings plan (RRSP) with a contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

The greater the potential return on an investment and the longer the period of time, the higher thepresent value.

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters