Question 1

What is the PV of an annuity due with 5 payments of $7,900 at an interest rate of 5.5%?

Accepted Answer

A)  $41,285.20 
B)  $40,573.38 
C)  $35,590.69 
D)  $43,776.54 
E)  $41,997.01 
A)  $41,285.20 
B)  $40,573.38 
C)  $35,590.69 
D)  $43,776.54 
E)  $41,997.01

Question 2

Disregarding risk,if money has time value,it is impossible for the present value of a given sum to exceed its future value.

Accepted Answer

A) True 
 B)False

Question 3

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 6.8%,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)  2.07% 
B)  2.00% 
C)  1.73% 
D)  1.71% 
E)  2.12% 
A)  2.07% 
B)  2.00% 
C)  1.73% 
D)  1.71% 
E)  2.12%

Question 4

You plan to invest in securities that pay 11.2%,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)  6.36 
B)  5.63 
C)  4.60 
D)  5.85 
E)  5.68 
A)  6.36 
B)  5.63 
C)  4.60 
D)  5.85 
E)  5.68

Question 5

How much would $100,growing at 5% per year,be worth after 10 years?

Accepted Answer

A)  $130.31 
B)  $138.46 
C)  $162.89 
D)  $169.41 
E)  $193.84 
A)  $130.31 
B)  $138.46 
C)  $162.89 
D)  $169.41 
E)  $193.84

Question 6

Suppose Randy Jones plans to invest $1,000.He 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 somewhat less than twice the compounded value of Security A.(Ignore risk,and assume that compounding occurs annually.

Accepted Answer

A) True 
 B)False

Question 7

Your sister turned 35 today,and she is planning to save $60,000 per year for retirement,with the first deposit to be made one year from today.She will invest in a mutual fund that's expected to provide a return of 7.5% per year.She plans to retire 30 years from today,when she turns 65,and she expects to live for 25 years after retirement,to age 90.Under these assumptions,how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

Accepted Answer

A)  $495,339.99 
B)  $601,086.73 
C)  $567,693.03 
D)  $556,561.79 
E)  $539,864.94 
A)  $495,339.99 
B)  $601,086.73 
C)  $567,693.03 
D)  $556,561.79 
E)  $539,864.94

Question 8

At a rate of 10.0%,what is the future value of the following cash flow stream? $$\begin{array} { l c c c c c } 
\text { Years: } & 0 & 1 & 2 & 3 & 4 \
\hline\text { CFs: } & \$ 0 & \$ 75 & \$ 225 & \$ 0 & \$ 300
\end{array}$$
?

Accepted Answer

A)  $544 
B)  $820 
C)  $672 
D)  $746 
E)  $726 
A)  $544 
B)  $820 
C)  $672 
D)  $746 
E)  $726

Question 9

Suppose a State of New York bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 5.0%,how much is the bond worth today?

Accepted Answer

A)  $613.91 
B)  $564.80 
C)  $736.70 
D)  $466.57 
E)  $724.42 
A)  $613.91 
B)  $564.80 
C)  $736.70 
D)  $466.57 
E)  $724.42

Question 10

The 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 smaller the present value of a given lump sum to be received at some future date.

Accepted Answer

A) True 
 B)False

Question 11

Suppose you deposited $26,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

Accepted Answer

A)  $21,271.57 
B)  $25,579.74 
C)  $26,926.04 
D)  $33,119.03 
E)  $26,656.78 
A)  $21,271.57 
B)  $25,579.74 
C)  $26,926.04 
D)  $33,119.03 
E)  $26,656.78

Question 12

You have a chance to buy an annuity that pays $43,000 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)  $197,263.61 
B)  $215,017.33 
C)  $185,427.79 
D)  $244,606.87 
E)  $209,099.42 
A)  $197,263.61 
B)  $215,017.33 
C)  $185,427.79 
D)  $244,606.87 
E)  $209,099.42

Question 13

You just inherited some money,and a broker offers to sell you an annuity that pays $18,200 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

Accepted Answer

A)  $251,761.57 
B)  $269,906.55 
C)  $226,812.23 
D)  $190,522.27 
E)  $222,275.98 
A)  $251,761.57 
B)  $269,906.55 
C)  $226,812.23 
D)  $190,522.27 
E)  $222,275.98

Question 14

Sue now has $320.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Accepted Answer

A)  $614.59 
B)  $731.37 
C)  $510.11 
D)  $590.01 
E)  $602.30 
A)  $614.59 
B)  $731.37 
C)  $510.11 
D)  $590.01 
E)  $602.30

Question 15

Suppose you inherited $1,135,000 and invested it at 8.25% per year.How much could you withdraw at the beginning of each of the next 20 years?

Accepted Answer

A)  $93,556.25 
B)  $87,029.07 
C)  $82,677.62 
D)  $108,786.34 
E)  $126,192.16 
A)  $93,556.25 
B)  $87,029.07 
C)  $82,677.62 
D)  $108,786.34 
E)  $126,192.16

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)  If you have a series of cash flows,each of which is positive,you can solve for I,where the solution value of I causes the PV of the cash flows will be more than the cash flow at Time 0. 
B)  If you have a series of cash flows,and CF0 is negative but each of the following CFs is positive,you can solve for I,but only if the sum of the undiscounted cash flows exceeds the cost. 
C)  To solve for I,one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs.It is impossible to find the value of I without a computer or financial calculator. 
D)  If you solve for I and get a negative number,then you must have made a mistake. 
E)  If CF0 is positive and all the other CFs are negative,then you can still solve for I. 
A)  If you have a series of cash flows,each of which is positive,you can solve for I,where the solution value of I causes the PV of the cash flows will be more than the cash flow at Time 0. 
B)  If you have a series of cash flows,and CF0 is negative but each of the following CFs is positive,you can solve for I,but only if the sum of the undiscounted cash flows exceeds the cost. 
C)  To solve for I,one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs.It is impossible to find the value of I without a computer or financial calculator. 
D)  If you solve for I and get a negative number,then you must have made a mistake. 
E)  If CF0 is positive and all the other CFs are negative,then you can still solve for I.

Question 17

What's the present value of $1,025 discounted back 5 years if the appropriate interest rate is 6%,compounded monthly?

Accepted Answer

A)  $767.51 
B)  $759.91 
C)  $721.91 
D)  $691.51 
E)  $729.51 
A)  $767.51 
B)  $759.91 
C)  $721.91 
D)  $691.51 
E)  $729.51

Question 18

You want to quit your job and go back to school for a law degree 4 years from now,and you plan to save $8,800 per year,beginning immediately.You will make 4 deposits in an account that pays 5.7% interest.Under these assumptions,how much will you have 4 years from today?

Accepted Answer

A)  $32,408.12 
B)  $35,243.83 
C)  $34,838.73 
D)  $40,510.15 
E)  $48,207.08 
A)  $32,408.12 
B)  $35,243.83 
C)  $34,838.73 
D)  $40,510.15 
E)  $48,207.08

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)  The cash flows for an ordinary (or deferred)annuity all occur at the beginning of the periods. 
B)  If a series of unequal cash flows occurs at regular intervals,such as once a year,then the series is by definition an annuity. 
C)  The cash flows for an annuity due must all occur at the beginning of the periods. 
D)  The cash flows for an annuity may vary from period to period,but they must occur at regular intervals,such as once a year or once a month. 
E)  If some cash flows occur at the beginning of the periods while others occur at the ends,then we have what the textbook defines as a variable annuity. 
A)  The cash flows for an ordinary (or deferred)annuity all occur at the beginning of the periods. 
B)  If a series of unequal cash flows occurs at regular intervals,such as once a year,then the series is by definition an annuity. 
C)  The cash flows for an annuity due must all occur at the beginning of the periods. 
D)  The cash flows for an annuity may vary from period to period,but they must occur at regular intervals,such as once a year or once a month. 
E)  If some cash flows occur at the beginning of the periods while others occur at the ends,then we have what the textbook defines as a variable annuity.

Question 20

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Accepted Answer

A)  The annual payments would be larger if the interest rate were lower. 
B)  If the loan were amortized over 10 years rather than 7 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 7-year amortization plan. 
C)  The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower. 
D)  The last payment would have a higher proportion of interest than the first payment. 
E)  The proportion of interest versus principal repayment would be the same for each of the 7 payments. 
A)  The annual payments would be larger if the interest rate were lower. 
B)  If the loan were amortized over 10 years rather than 7 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 7-year amortization plan. 
C)  The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower. 
D)  The last payment would have a higher proportion of interest than the first payment. 
E)  The proportion of interest versus principal repayment would be the same for each of the 7 payments.

What is the PV of an annuity due with 5 payments of $7,900 at an interest rate of 5.5%?

Disregarding risk,if money has time value,it is impossible for the present value of a given sum to exceed its future value.

You plan to invest in securities that pay 11.2%,compounded annually.If you invest $5,000 today,how many years will it take for your investment to grow to $9,140.20?

How much would $100,growing at 5% per year,be worth after 10 years?

At a rate of 10.0%,what is the future value of the following cash flow stream? Years: 0 1 2 3 4 CFs: \ 0 \ 75 \ 225 \ 0 \ 300 ?

Suppose a State of New York bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 5.0%,how much is the bond worth today?

The 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 smaller the present value of a given lump sum to be received at some future date.

Suppose you deposited $26,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

You have a chance to buy an annuity that pays $43,000 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?

You just inherited some money,and a broker offers to sell you an annuity that pays $18,200 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

Sue now has $320.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Suppose you inherited $1,135,000 and invested it at 8.25% per year.How much could you withdraw at the beginning of each of the next 20 years?

Which of the following statements is CORRECT?

What's the present value of $1,025 discounted back 5 years if the appropriate interest rate is 6%,compounded monthly?

You want to quit your job and go back to school for a law degree 4 years from now,and you plan to save $8,800 per year,beginning immediately.You will make 4 deposits in an account that pays 5.7% interest.Under these assumptions,how much will you have 4 years from today?

Which of the following statements is CORRECT?

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles

Mergers and Acquisitions

Filters

Exam 5: Time Value of Money

What is the PV of an annuity due with 5 payments of $7,900 at an interest rate of 5.5%?

Disregarding risk,if money has time value,it is impossible for the present value of a given sum to exceed its future value.

You plan to invest in securities that pay 11.2%,compounded annually.If you invest $5,000 today,how many years will it take for your investment to grow to $9,140.20?

How much would $100,growing at 5% per year,be worth after 10 years?

At a rate of 10.0%,what is the future value of the following cash flow stream? Years: 0 1 2 3 4 CFs: \ 0 \ 75 \ 225 \ 0 \ 300 ?

Suppose a State of New York bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 5.0%,how much is the bond worth today?

The 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 smaller the present value of a given lump sum to be received at some future date.

Suppose you deposited $26,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

You have a chance to buy an annuity that pays $43,000 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?

You just inherited some money,and a broker offers to sell you an annuity that pays $18,200 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

Sue now has $320.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Suppose you inherited $1,135,000 and invested it at 8.25% per year.How much could you withdraw at the beginning of each of the next 20 years?

Which of the following statements is CORRECT?

What's the present value of $1,025 discounted back 5 years if the appropriate interest rate is 6%,compounded monthly?

You want to quit your job and go back to school for a law degree 4 years from now,and you plan to save $8,800 per year,beginning immediately.You will make 4 deposits in an account that pays 5.7% interest.Under these assumptions,how much will you have 4 years from today?

Which of the following statements is CORRECT?

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles

Mergers and Acquisitions

Filters