Question 1

The present value interest factor for i percent and n periods is the inverse of the future value interest factor for k percent and n periods.

Accepted Answer

A) True 
 B)False

Question 2

A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?

Accepted Answer

A)  $750,000 
B)  $3,000,000 
C)  $300,000 
D)  $1,428,571 
A)  $750,000 
B)  $3,000,000 
C)  $300,000 
D)  $1,428,571

Question 3

You have a choice between two investments. Investment A provides your with $1,000 today; investment B provides you with $10,000 in 10 years. Assuming a discount rate of 10%, you would be better off with investment B.

Accepted Answer

A) True 
 B)False

Question 4

The rate of interest actually paid or earned is the ________interest rate.

Accepted Answer

A)  discounted 
B)  continuous 
C)  effective 
D)  nominal 
A)  discounted 
B)  continuous 
C)  effective 
D)  nominal

Question 5

Carol borrows $20,000 from the bank. For a five year loan, the bank requires annual end-of-year payments of $4,878.05. The annual interest rate on the loan is

Accepted Answer

A)  6 percent. 
B)  7 percent. 
C)  9 percent. 
D)  8 percent. 
A)  6 percent. 
B)  7 percent. 
C)  9 percent. 
D)  8 percent.

Question 6

Marion makes annual end-of-year payments of $6,260.96 on a five year loan with an 8 percent interest rate. The original principal amount was  _________.

Accepted Answer

A)  $31,000 
B)  $25,000 
C)  $20,000 
D)  $30,000 
A)  $31,000 
B)  $25,000 
C)  $20,000 
D)  $30,000

Question 7

A perpetuity is a cash flow stream that

Accepted Answer

A)  continues forever. 
B)  has a fixed number of years than stops. 
C)  continues for 1,000 years than stops. 
D)  none of the above; a perpetuity is a term used in marketing, not finance 
A)  continues forever. 
B)  has a fixed number of years than stops. 
C)  continues for 1,000 years than stops. 
D)  none of the above; a perpetuity is a term used in marketing, not finance

Question 8

James plans to fund his individual retirement account, beginning today, with 20 annual deposits of$2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8percent on his deposits, the amount in the account upon retirement will be________ .

Accepted Answer

A)  $21,207 
B)  $91,524 
C)  $98,846 
D)  $19,636 
A)  $21,207 
B)  $91,524 
C)  $98,846 
D)  $19,636

Question 9

The future value of a dollar  ________as the interest rate increases and ________ the farther in the future an initial deposit is to be received.

Accepted Answer

A)  decreases; increases 
B)  decreases; decreases 
C)  increases; decreases 
D)  increases; increases 
A)  decreases; increases 
B)  decreases; decreases 
C)  increases; decreases 
D)  increases; increases

Question 10

The present value of a $20,000 perpetuity at a 7 percent discount rate is ________

Accepted Answer

A)  $140,000 
B)  $186,915 
C)  $285,714 
D)  $325,000 
A)  $140,000 
B)  $186,915 
C)  $285,714 
D)  $325,000

Question 11

A ski chalet in Aspen now costs $250,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Barbara and Phil retire from successful investment banking careers. 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 ski chalet upon retirement?

Accepted Answer

A)  $25,005 
B)  $22,109 
C)  $8,333 
D)  $13,572 
A)  $25,005 
B)  $22,109 
C)  $8,333 
D)  $13,572

Question 12

Given a discount rate of zero percent and n periods of time, the present value interest factor and future value interest factor are equal.

Accepted Answer

A) True 
 B)False

Question 13

Interest earned on a given deposit that has become part of the principal at the end of a specified period is called compound interest.

Accepted Answer

A) True 
 B)False

Question 14

When the amount earned on a deposit has become part of the principal at the end of a specified time period, the concept is called

Accepted Answer

A)  future value. 
B)  primary interest. 
C)  discount interest. 
D)  compound interest. 
A)  future value. 
B)  primary interest. 
C)  discount interest. 
D)  compound interest.

Question 15

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is ________theinterest rate.

Accepted Answer

A)  nominal 
B)  discounted 
C)  continuous 
D)  effective 
A)  nominal 
B)  discounted 
C)  continuous 
D)  effective

Question 16

What is the rate of return on an investment of $124,090 if the company expects to receive $10,000 per year for the next 30 years?

Accepted Answer

A)  7 percent 
B)  0 percent 
C)  4 percent 
D)  1 percent 
A)  7 percent 
B)  0 percent 
C)  4 percent 
D)  1 percent

Question 17

The effective rate of interest differs from the nominal rate of interest in that it reflects the impact ofcompounding frequency.

Accepted Answer

A) True 
 B)False

Question 18

At 10% per annum, $100 to be received in one year and $200 to be received in two years is worth$288 today.

Accepted Answer

A) True 
 B)False

Question 19

If you desire to have $1,000,000 in 25 years, you need to save $309 at the end of each month toachieve your goal assuming a 1.25% per month rate of return.

Accepted Answer

A) True 
 B)False

Question 20

You currently have $100,000 in the stock market.per annum return. You estimate that you will need $250,000 from this investment before you canretire. How many years are you from retirement?

Accepted Answer

A)  21.0 years 
B)  4.9 years 
C)  15.3 years 
D)  8.1 years 
A)  21.0 years 
B)  4.9 years 
C)  15.3 years 
D)  8.1 years

The present value interest factor for i percent and n periods is the inverse of the future value interest factor for k percent and n periods.

A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?

You have a choice between two investments. Investment A provides your with $1,000 today; investment B provides you with $10,000 in 10 years. Assuming a discount rate of 10%, you would be better off with investment B.

The rate of interest actually paid or earned is the ________interest rate.

Carol borrows $20,000 from the bank. For a five year loan, the bank requires annual end-of-year payments of $4,878.05. The annual interest rate on the loan is

Marion makes annual end-of-year payments of $6,260.96 on a five year loan with an 8 percent interest rate. The original principal amount was _________.

A perpetuity is a cash flow stream that

James plans to fund his individual retirement account, beginning today, with 20 annual deposits of$2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8percent on his deposits, the amount in the account upon retirement will be________ .

The future value of a dollar as the interest rate increases and the farther in the future an initial deposit is to be received.

The present value of a $20,000 perpetuity at a 7 percent discount rate is ________

Given a discount rate of zero percent and n periods of time, the present value interest factor and future value interest factor are equal.

Interest earned on a given deposit that has become part of the principal at the end of a specified period is called compound interest.

When the amount earned on a deposit has become part of the principal at the end of a specified time period, the concept is called

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is ________theinterest rate.

What is the rate of return on an investment of $124,090 if the company expects to receive $10,000 per year for the next 30 years?

The effective rate of interest differs from the nominal rate of interest in that it reflects the impact ofcompounding frequency.

At 10% per annum, $100 to be received in one year and $200 to be received in two years is worth$288 today.

If you desire to have $1,000,000 in 25 years, you need to save $309 at the end of each month toachieve your goal assuming a 1.25% per month rate of return.

You currently have $100,000 in the stock market.per annum return. You estimate that you will need $250,000 from this investment before you canretire. How many years are you from retirement?

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

Exam 6: Time Value of Money

The present value interest factor for i percent and n periods is the inverse of the future value interest factor for k percent and n periods.

A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?

You have a choice between two investments. Investment A provides your with $1,000 today; investment B provides you with $10,000 in 10 years. Assuming a discount rate of 10%, you would be better off with investment B.

The rate of interest actually paid or earned is the ________interest rate.

Carol borrows $20,000 from the bank. For a five year loan, the bank requires annual end-of-year payments of $4,878.05. The annual interest rate on the loan is

Marion makes annual end-of-year payments of $6,260.96 on a five year loan with an 8 percent interest rate. The original principal amount was _________.

A perpetuity is a cash flow stream that

James plans to fund his individual retirement account, beginning today, with 20 annual deposits of$2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8percent on his deposits, the amount in the account upon retirement will be________ .

The future value of a dollar ________as the interest rate increases and ________ the farther in the future an initial deposit is to be received.

The present value of a $20,000 perpetuity at a 7 percent discount rate is ________

Given a discount rate of zero percent and n periods of time, the present value interest factor and future value interest factor are equal.

Interest earned on a given deposit that has become part of the principal at the end of a specified period is called compound interest.

When the amount earned on a deposit has become part of the principal at the end of a specified time period, the concept is called

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is ________theinterest rate.

What is the rate of return on an investment of $124,090 if the company expects to receive $10,000 per year for the next 30 years?

The effective rate of interest differs from the nominal rate of interest in that it reflects the impact ofcompounding frequency.

At 10% per annum, $100 to be received in one year and $200 to be received in two years is worth$288 today.

If you desire to have $1,000,000 in 25 years, you need to save $309 at the end of each month toachieve your goal assuming a 1.25% per month rate of return.

You currently have $100,000 in the stock market.per annum return. You estimate that you will need $250,000 from this investment before you canretire. How many years are you from retirement?

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

The future value of a dollar as the interest rate increases and the farther in the future an initial deposit is to be received.