Exam 3: The Time Value of Money Private

You wish to have $100,000 after ten years for a major purchase such as a boat. How much must you invest at the end of each year if you earn 8 percent annually on your funds

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Question 1

Correct Answer:

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X(14.486) = $100,000
X = $100,000/14.486 = $6,903.22
(PV = 0; N = 10; I = 8; FV = 100000; PMT = ? = -6903.)

The present value of an annuity due is not affected by the frequency of compounding.

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Question 2

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False

A state lotto awarded a prize of $560,000 a year for the next 20 years starting today. If the state sold $21,900,000 in lotto tickets, what proportion of the sales will the state distribute if it earns 8% annually on invested funds

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Question 3

Correct Answer:

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This problem illustrates that when time value of money is considered, states distribute a small proportion of the funds they receive through the sale of lotto tickets.
As stated, the problem is an example of the present value of an annuity due. The present value of the promised payments is
$560,000(9.818)(1.08) = $5,937,930.

AIR National's capacity is 120 passengers per flight. It currently carries 74 passengers per flight. Growth in passengers is expected to be 6 percent annually. New plans will have to be ordered when the company is carrying 90 percent of capacity. How long will it be before the firm must order new planes

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Question 4

EEM, INC has a $1,000,000 debt outstanding that is due after 15 years. The contract required that after five years, the firm must set aside annually an amount so the debt is retired in full at maturity. If EEM can earn 8 percent on invested funds, how much must the company set aside each year

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Question 5

If you open an IRA and invest $3,000 a year (at the end of the year), how much will be in the account after twenty five years if the funds earn 5 percent annually How much would be in the account if payments were made at the beginning of the year

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Question 6

Which is the smallest if the interest rate is8 percent

(Multiple Choice)

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Question 7

Time value concepts may not be used to determine

(Multiple Choice)

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Question 8

The future value of a dollar1. increases with higher interest rates2. decreases with higher interest rates3. increases as the time period increases4. decreases as the time period increases

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Question 9

An investor expects the price of a stock to double after eight years. What is the expected annual rate of growth

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Question 10

A firm has a $1,000,000 debt (e.g., a bond) outstanding that matures after 10 years. The sinking fund requires the firm to set aside annually an amount so the debt may be retired at maturity. If the firm can earn 10% annually on these funds, how much must it invest annually to meet the sinking fund

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Question 11

Which is the largest if the interest rate is7 percent

(Multiple Choice)

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Question 12

The concept of the time value of money is a meansto bring together the present and the future.

(True/False)

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Question 13

A firm currently earns $1.00 per share. A financial analyst believes that earnings will grow annually at the rate of 10 percent for five years and then decline to 5 percent. What are the expected earnings after ten years

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Question 14

The future value of an annuity of $100 at 3 percentfor ten years exceeds $1,000.

(True/False)

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Question 15

If the first payment made by an annuity is today, that is an "ordinary annuity" and not an "annuity due."

(True/False)

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Question 16

Compounding refers to the earning of interest on interest earned previously.

(True/False)

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Question 17

A piece of rental property will generate $10,000 a year for five years, $12,000 for the next five years, and then be sold at the end of the tenth year for $100,000. If you can earn 10 percent on your funds, what is the maximum you should pay for the property

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Question 18

You purchase a building for $10,000,000 and lease it for $2,000,000 a year for four years (i.e., collect annual rent payments). At the end of the four years, you plan to sell the building. If you want to earn 10 percent on your investment, how much must you receive from the sale SOLUTIONS TO PROBLEMS

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Question 19

The larger the rate of interest, the smaller is thefuture value of a dollar.

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Question 20

Showing 1 - 20 of 42

You wish to have $100,000 after ten years for a major purchase such as a boat. How much must you invest at the end of each year if you earn 8 percent annually on your funds

The present value of an annuity due is not affected by the frequency of compounding.

A state lotto awarded a prize of $560,000 a year for the next 20 years starting today. If the state sold $21,900,000 in lotto tickets, what proportion of the sales will the state distribute if it earns 8% annually on invested funds

EEM, INC has a $1,000,000 debt outstanding that is due after 15 years. The contract required that after five years, the firm must set aside annually an amount so the debt is retired in full at maturity. If EEM can earn 8 percent on invested funds, how much must the company set aside each year

If you open an IRA and invest $3,000 a year (at the end of the year), how much will be in the account after twenty five years if the funds earn 5 percent annually How much would be in the account if payments were made at the beginning of the year

Which is the smallest if the interest rate is8 percent

Time value concepts may not be used to determine

The future value of a dollar1. increases with higher interest rates2. decreases with higher interest rates3. increases as the time period increases4. decreases as the time period increases

An investor expects the price of a stock to double after eight years. What is the expected annual rate of growth

A firm has a $1,000,000 debt (e.g., a bond) outstanding that matures after 10 years. The sinking fund requires the firm to set aside annually an amount so the debt may be retired at maturity. If the firm can earn 10% annually on these funds, how much must it invest annually to meet the sinking fund

Which is the largest if the interest rate is7 percent

The concept of the time value of money is a meansto bring together the present and the future.

A firm currently earns $1.00 per share. A financial analyst believes that earnings will grow annually at the rate of 10 percent for five years and then decline to 5 percent. What are the expected earnings after ten years

The future value of an annuity of $100 at 3 percentfor ten years exceeds $1,000.

If the first payment made by an annuity is today, that is an "ordinary annuity" and not an "annuity due."

Compounding refers to the earning of interest on interest earned previously.

A piece of rental property will generate $10,000 a year for five years, $12,000 for the next five years, and then be sold at the end of the tenth year for $100,000. If you can earn 10 percent on your funds, what is the maximum you should pay for the property

The larger the rate of interest, the smaller is thefuture value of a dollar.

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Securities Markets

Financial Planning, Taxation, and the Efficiency of Financial Markets

Risk and Portfolio Management

Investment Companies: Mutual Funds Private

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs Private

Stock Private

The Valuation of Stock Private

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment

Behavioral Finance and Technical Analysis

The Bond Market Private

The Valuation of Fixed Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategies Private

Commodity and Financial Futures Private

Financial Planning and Investing in an Efficient Market Context

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