Question 1

The term to convert a future value amount into its present value is:

Accepted Answer

A)  Annuitize 
B)  Compound 
C)  Discount 
D)  Multiply 
E)  Amortize 
A)  Annuitize 
B)  Compound 
C)  Discount 
D)  Multiply 
E)  Amortize C

Question 2

The future value of a single sum will increase more rapidly when the frequency of compounding
decreases.

Accepted Answer

A) True 
 B)False  False

Question 3

The present value equation is:

Accepted Answer

A)  PV = FVt + (1 + r)t. 
B)  PV = FVt - (1 + r)t. 
C)  PV = FVt/[1/(1 + r)t]. 
D)  PV = FVt/(1 + r)t. 
E)  PV = FVt * (1 + r)t. 
A)  PV = FVt + (1 + r)t. 
B)  PV = FVt - (1 + r)t. 
C)  PV = FVt/[1/(1 + r)t]. 
D)  PV = FVt/(1 + r)t. 
E)  PV = FVt * (1 + r)t. D

Question 4

Provide a graphical illustration of present value over a twenty year time span given rates of return of
0%, 5%, 10%, 15% and 20%.

Accepted Answer

The answer of Provide a graphical illustration of present value...

Question 5

If you leave the money of $950 in the account for ﬁve years and the account earns 8% compounded annually, what will the balance in the account grow to?

Accepted Answer

A)  $1,341.05 
B)  $1,347.82 
C)  $1,395.86 
D)  $1,406.23 
E)  $1,491.15 
A)  $1,341.05 
B)  $1,347.82 
C)  $1,395.86 
D)  $1,406.23 
E)  $1,491.15

Question 6

You have just been awarded a $200,000 insurance settlement. The insurance company has offered to invest this amount at a guaranteed interest rate of 4.5% for ten years. You think you can invest
This money yourself and earn an average return of 8%. If you are able to do that, how much more
Will your settlement be worth ten years from now than if you had left the funds with the insurance
Company?

Accepted Answer

A)  $78,829.69 
B)  $86,991.91 
C)  $118,009.42 
D)  $121,191.12 
E)  $137,188.23 
A)  $78,829.69 
B)  $86,991.91 
C)  $118,009.42 
D)  $121,191.12 
E)  $137,188.23

Question 7

An investor is considering depositing $10,000 and making $400 semi-annual contributions for the
next ﬁve years. If one investment provides 5% compounded monthly and another investment
provides 5.2% compounded semi-annually, determine the difference between the two investments.

Accepted Answer

The investment earning 5% will

Question 8

The formula for a present value calculation using Excel is:

Accepted Answer

A)  PV (rate, nper, pmt, pv). 
B)  PV (nper, pmt, fv). 
C)  PV (rate, pmt, pv, fv). 
D)  PV (rate, nper, pmt, fv). 
E)  PV (rate, nper, pmt). 
A)  PV (rate, nper, pmt, pv). 
B)  PV (nper, pmt, fv). 
C)  PV (rate, pmt, pv, fv). 
D)  PV (rate, nper, pmt, fv). 
E)  PV (rate, nper, pmt).

Question 9

Discount rate is the interest rate used to calculate the present value of future cash ﬂows.

Accepted Answer

A) True 
 B)False

Question 10

Given a constant future value and discount rate, an increase in the number of time periods will _____ the present value.

Accepted Answer

A)  Decrease 
B)  Either not affect or decrease 
C)  Not affect 
D)  Either increase or not affect 
E)  Increase 
A)  Decrease 
B)  Either not affect or decrease 
C)  Not affect 
D)  Either increase or not affect 
E)  Increase

Question 11

What is the difference in future value if $20,000 is invested at 5% over ten years, with one option
compounding interest semi-annually, while the other is based on quarterly compounding?

Accepted Answer

Semi-annual compounding provid

Question 12

What is the present value of $2,800 to be received three years from now if the discount rate is 9.5%?

Accepted Answer

A)  $2,114.48 
B)  $2,132.63 
C)  $2,361.48 
D)  $2,734.54 
E)  $3,676.21 
A)  $2,114.48 
B)  $2,132.63 
C)  $2,361.48 
D)  $2,734.54 
E)  $3,676.21

Question 13

Today Richard is investing $1,000 at 5% interest for ﬁve years. One year ago, Richard invested $1,000 at 6.25% for six years. How much money will Richard have saved in total ﬁve years from now
If both investments compound interest annually?

Accepted Answer

A)  $2,543.77 
B)  $2,641.98 
C)  $2,678.81 
D)  $2,630.36 
E)  $2,714.99 
A)  $2,543.77 
B)  $2,641.98 
C)  $2,678.81 
D)  $2,630.36 
E)  $2,714.99

Question 14

Twenty years from now, you would like to purchase a cottage located on the shores of your favourite lake. You expect that you will have $250,000 available at that time for this purchase. You
Could afford a home that is currently selling for ____ if the homes increase in value by 3% annually,
But if the homes increase in value by 5% annually, you can only afford a home priced at _____
Today.

Accepted Answer

A)  $127,023; $92,687 
B)  $138,419; $94,222 
C)  $138,419; $114,097 
D)  $144,676; $100,469 
E)  $144,676; $111,068 
A)  $127,023; $92,687 
B)  $138,419; $94,222 
C)  $138,419; $114,097 
D)  $144,676; $100,469 
E)  $144,676; $111,068

Question 15

Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits
$1,000 into an account that pays 4% simple interest. Both deposits were made today. All else equal,
Jamie made the better investment.

Accepted Answer

A) True 
 B)False

Question 16

Jessica invests $3,000 in an account that pays 5% simple interest. How much more could she have earned over a 7-year period if the interest had compounded annually?

Accepted Answer

A)  $122.20 
B)  $129.20 
C)  $147.80 
D)  $171.30 
E)  $221.30 
A)  $122.20 
B)  $129.20 
C)  $147.80 
D)  $171.30 
E)  $221.30

Question 17

Provide a deﬁnition of compound interest.

Accepted Answer

Interest earned on b

Question 18

Your goal is to have two separate investments that will be worth $10,000 each ten years from today. Investment A will pay 6% interest. Investment B will pay 6.5% interest. You will make a one-time
Deposit into each account today. What is the difference between the amount you must invest today
In Investment A as compared to the amount you must invest today in Investment B if you are to
Reach your goal in ten years?

Accepted Answer

A)  $241.92 
B)  $245.45 
C)  $256.69 
D)  $261.08 
E)  $263.47 
A)  $241.92 
B)  $245.45 
C)  $256.69 
D)  $261.08 
E)  $263.47

Question 19

Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account?

Accepted Answer

A)  16 years 
B)  17 years 
C)  18 years 
D)  19 years 
E)  20 years 
A)  16 years 
B)  17 years 
C)  18 years 
D)  19 years 
E)  20 years

Question 20

Margaret invests at 6% simple interest for six years. Pete invests at 6%, compounded annually, for eight years. Sylvia invests for eight years at 6% simple interest. Which one of the following
Statements is correct if all three individuals invested the same amount of money on the same day?

Accepted Answer

A)  Margaret will have more money than Sylvia at the end of three years. 
B)  Pete will have more money than either Margaret or Sylvia at the end of four years. 
C)  Sylvia will have more money than either Margaret or Pete at the end of six years. 
D)  Margaret will have less money than Pete but more money than Sylvia at the end of ﬁve years. 
E)  Sylvia and Margaret will have more money than Pete at the end of six years. 
A)  Margaret will have more money than Sylvia at the end of three years. 
B)  Pete will have more money than either Margaret or Sylvia at the end of four years. 
C)  Sylvia will have more money than either Margaret or Pete at the end of six years. 
D)  Margaret will have less money than Pete but more money than Sylvia at the end of ﬁve years. 
E)  Sylvia and Margaret will have more money than Pete at the end of six years.

Exam 5: Introduction to Valuation: the Time Value of Money

The term to convert a future value amount into its present value is:

The future value of a single sum will increase more rapidly when the frequency of compounding decreases.

The present value equation is:

Provide a graphical illustration of present value over a twenty year time span given rates of return of 0%, 5%, 10%, 15% and 20%.

If you leave the money of $950 in the account for ﬁve years and the account earns 8% compounded annually, what will the balance in the account grow to?

An investor is considering depositing $10,000 and making $400 semi-annual contributions for the next ﬁve years. If one investment provides 5% compounded monthly and another investment provides 5.2% compounded semi-annually, determine the difference between the two investments.

The formula for a present value calculation using Excel is:

Discount rate is the interest rate used to calculate the present value of future cash ﬂows.

Given a constant future value and discount rate, an increase in the number of time periods will _____ the present value.

What is the difference in future value if $20,000 is invested at 5% over ten years, with one option compounding interest semi-annually, while the other is based on quarterly compounding?

What is the present value of $2,800 to be received three years from now if the discount rate is 9.5%?

Today Richard is investing $1,000 at 5% interest for ﬁve years. One year ago, Richard invested $1,000 at 6.25% for six years. How much money will Richard have saved in total ﬁve years from now If both investments compound interest annually?

Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits $1,000 into an account that pays 4% simple interest. Both deposits were made today. All else equal, Jamie made the better investment.

Jessica invests $3,000 in an account that pays 5% simple interest. How much more could she have earned over a 7-year period if the interest had compounded annually?

Provide a deﬁnition of compound interest.

Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account?

Margaret invests at 6% simple interest for six years. Pete invests at 6%, compounded annually, for eight years. Sylvia invests for eight years at 6% simple interest. Which one of the following Statements is correct if all three individuals invested the same amount of money on the same day?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Filters