Question 1

At 5 percent interest, how long would it take to triple your money?

Accepted Answer

A)  26.55 years 
B)  25.64 years 
C)  24.87 years 
D)  22.52 years 
E)  20.01 years 
A)  26.55 years 
B)  25.64 years 
C)  24.87 years 
D)  22.52 years 
E)  20.01 years

Question 2

You hope to buy your dream car five years from now. Today, that car costs $62,500. You expect the price to increase by an average of 2.9 percent per year. How much will your dream car cost by the time you are ready to buy it?

Accepted Answer

A)  $73,340.00 
B)  $68,666.67 
C)  $72,103.59 
D)  $66,818.02 
E)  $69,023.16 
A)  $73,340.00 
B)  $68,666.67 
C)  $72,103.59 
D)  $66,818.02 
E)  $69,023.16

Question 3

Theo wants to have $40,000 for a down payment on a house five years from now. He can either deposit one lump sum today or he can wait one year and deposit a lump sum. Assume an annual interest rate of 3.5 percent. How much additional money must he deposit if he waits for one year rather than making the deposit today?

Accepted Answer

A)  $1,001.98 
B)  $986.13 
C)  $1,178.76 
D)  $948.03 
E)  $1,020.18 
A)  $1,001.98 
B)  $986.13 
C)  $1,178.76 
D)  $948.03 
E)  $1,020.18

Question 4

Alex invested $2,550 in an account that pays 5 percent simple interest. How much money will he have at the end of four years?

Accepted Answer

A)  $2,650.00 
B)  $3,100.26 
C)  $3,060.00 
D)  $3,250.00 
E)  $3,099.54 
A)  $2,650.00 
B)  $3,100.26 
C)  $3,060.00 
D)  $3,250.00 
E)  $3,099.54

Question 5

Today, you earn a salary of $31,000. What will be your annual salary ten years from now if you receive annual raises of 2.2 percent?

Accepted Answer

A)  $38,536.36 
B)  $37,414.06 
C)  $38,235.24 
D)  $37,122.08 
E)  $36,736.00 
A)  $38,536.36 
B)  $37,414.06 
C)  $38,235.24 
D)  $37,122.08 
E)  $36,736.00

Question 6

You have a savings account valued at $1,500 today that earns an annual interest rate of 8.7 percent. How much more would this account be worth if you wait to spend the entire balance in 25 years rather than in 20 years?

Accepted Answer

A)  $6,306.16 
B)  $4,658.77 
C)  $3,311.18 
D)  $6,907.17 
E)  $4,117.64 
A)  $6,306.16 
B)  $4,658.77 
C)  $3,311.18 
D)  $6,907.17 
E)  $4,117.64

Question 7

Which one of the following variables is the exponent in the present value formula?

Accepted Answer

A)  Present value 
B)  Future value 
C)  Interest rate 
D)  Number of time periods 
E)  There is no exponent in the present value formula. 
A)  Present value 
B)  Future value 
C)  Interest rate 
D)  Number of time periods 
E)  There is no exponent in the present value formula.

Question 8

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire ________ rather than ________ and earn a ________ rate of interest, then you can deposit a smaller lump sum today.

Accepted Answer

A)  sooner; later; low 
B)  sooner; later; high 
C)  later; sooner; high 
D)  later; sooner; low 
E)  today; later; high 
A)  sooner; later; low 
B)  sooner; later; high 
C)  later; sooner; high 
D)  later; sooner; low 
E)  today; later; high

Question 9

Which one of the following will produce the lowest present value interest factor?

Accepted Answer

A)  6 percent interest for 5 years 
B)  6 percent interest for 8 years 
C)  6 percent interest for 10 years 
D)  8 percent interest for 5 years 
E)  8 percent interest for 10 years 
A)  6 percent interest for 5 years 
B)  6 percent interest for 8 years 
C)  6 percent interest for 10 years 
D)  8 percent interest for 5 years 
E)  8 percent interest for 10 years

Question 10

You will receive $15,000 in two years when you graduate. You plan to invest this at an annual interest rate of 6.5 percent. How much money will you have 8 years from now?

Accepted Answer

A)  $24,824.94 
B)  $19,381.16 
C)  $21,887.13 
D)  $23,209.19 
E)  $20,414.73 
A)  $24,824.94 
B)  $19,381.16 
C)  $21,887.13 
D)  $23,209.19 
E)  $20,414.73

Question 11

You own a classic car currently valued at $64,000. If the value increases by 2.5 percent annually, how much will the car be worth 15 years from now?

Accepted Answer

A)  $94,035.00 
B)  $86,008.17 
C)  $80,013.38 
D)  $92,691.08 
E)  $91,480.18 
A)  $94,035.00 
B)  $86,008.17 
C)  $80,013.38 
D)  $92,691.08 
E)  $91,480.18

Question 12

Sixty years ago, your mother invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment?

Accepted Answer

A)  6.67 percent 
B)  11.71 percent 
C)  7.90 percent 
D)  10.40 percent 
E)  12.02 percent 
A)  6.67 percent 
B)  11.71 percent 
C)  7.90 percent 
D)  10.40 percent 
E)  12.02 percent

Question 13

Duane and Thad plan on retiring 27 years from today and plan to have the same amount saved at that time. In preparation for this, Duane is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Thad's deposit amount vary from Duane's if Thad also makes a deposit today but earns an annual interest rate of 6.2 percent?

Accepted Answer

A)  $4,118.42 more 
B)  $4,333.33 less 
C)  $3,417.09 more 
D)  $4,274.12 less 
E)  $3,381.39 less 
A)  $4,118.42 more 
B)  $4,333.33 less 
C)  $3,417.09 more 
D)  $4,274.12 less 
E)  $3,381.39 less

Question 14

Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam:

Accepted Answer

A)  will earn the same amount of interest each year for four years. 
B)  will earn simple interest on his savings every year for four years. 
C)  could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest. 
D)  has an account currently valued at $5,000. 
E)  could earn more interest on this account if the interest earnings were withdrawn annually. 
A)  will earn the same amount of interest each year for four years. 
B)  will earn simple interest on his savings every year for four years. 
C)  could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest. 
D)  has an account currently valued at $5,000. 
E)  could earn more interest on this account if the interest earnings were withdrawn annually.

Question 15

On your tenth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?

Accepted Answer

A)  Age 20 
B)  Age 31 
C)  Age 30 
D)  Age 23 
E)  Age 21 
A)  Age 20 
B)  Age 31 
C)  Age 30 
D)  Age 23 
E)  Age 21

Question 16

Assume the total cost of a college education will be $245,000 when your child enters college in 15 years. You presently have $108,000 to invest for this purpose. What rate of interest must you earn to cover the cost of your child's college education?

Accepted Answer

A)  5.79 percent 
B)  5.50 percent 
C)  5.61 percent 
D)  6.25 percent 
E)  6.81 percent 
A)  5.79 percent 
B)  5.50 percent 
C)  5.61 percent 
D)  6.25 percent 
E)  6.81 percent

Question 17

Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

Accepted Answer

A)  remain constant. 
B)  increase. 
C)  decrease. 
D)  equal $10,000. 
E)  be less than $10,000. 
A)  remain constant. 
B)  increase. 
C)  decrease. 
D)  equal $10,000. 
E)  be less than $10,000.

Question 18

Phillippe invested $1,000 ten years ago and expected to have $1,800 today He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $1,680 in his account today. Which one of the following must be true?

Accepted Answer

A)  He earned simple interest rather than compound interest. 
B)  He earned a lower interest rate than he expected. 
C)  He did not earn any interest on interest as he expected. 
D)  He ignored the Rule of 72 which caused his account to decrease in value. 
E)  The future value interest factor turned out to be higher than he expected. 
A)  He earned simple interest rather than compound interest. 
B)  He earned a lower interest rate than he expected. 
C)  He did not earn any interest on interest as he expected. 
D)  He ignored the Rule of 72 which caused his account to decrease in value. 
E)  The future value interest factor turned out to be higher than he expected.

Question 19

What is the relationship between the present value and future value interest factors?

Accepted Answer

A)  The present value and future value factors are equal to each other. 
B)  The present value factor is the exponent of the future value factor. 
C)  The future value factor is the exponent of the present value factor. 
D)  The factors are reciprocals of each other. 
E)  There is no relationship between these two factors. 
A)  The present value and future value factors are equal to each other. 
B)  The present value factor is the exponent of the future value factor. 
C)  The future value factor is the exponent of the present value factor. 
D)  The factors are reciprocals of each other. 
E)  There is no relationship between these two factors.

Question 20

Some time ago, Tracie purchased two acres of land costing $67,900. Today, that land is valued at $64,800. How long has she owned this land if the price of the land has been decreasing by 1.5 percent per year?

Accepted Answer

A)  3.33 years 
B)  2.48 years 
C)  3.09 years 
D)  2.97 years 
E)  2.08 years 
A)  3.33 years 
B)  2.48 years 
C)  3.09 years 
D)  2.97 years 
E)  2.08 years

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

At 5 percent interest, how long would it take to triple your money?

You hope to buy your dream car five years from now. Today, that car costs $62,500. You expect the price to increase by an average of 2.9 percent per year. How much will your dream car cost by the time you are ready to buy it?

Alex invested $2,550 in an account that pays 5 percent simple interest. How much money will he have at the end of four years?

Today, you earn a salary of $31,000. What will be your annual salary ten years from now if you receive annual raises of 2.2 percent?

You have a savings account valued at $1,500 today that earns an annual interest rate of 8.7 percent. How much more would this account be worth if you wait to spend the entire balance in 25 years rather than in 20 years?

Which one of the following variables is the exponent in the present value formula?

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire ________ rather than ________ and earn a ________ rate of interest, then you can deposit a smaller lump sum today.

Which one of the following will produce the lowest present value interest factor?

You will receive $15,000 in two years when you graduate. You plan to invest this at an annual interest rate of 6.5 percent. How much money will you have 8 years from now?

You own a classic car currently valued at $64,000. If the value increases by 2.5 percent annually, how much will the car be worth 15 years from now?

Sixty years ago, your mother invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment?

Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam:

On your tenth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?

Assume the total cost of a college education will be $245,000 when your child enters college in 15 years. You presently have $108,000 to invest for this purpose. What rate of interest must you earn to cover the cost of your child's college education?

Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

What is the relationship between the present value and future value interest factors?

Some time ago, Tracie purchased two acres of land costing $67,900. Today, that land is valued at $64,800. How long has she owned this land if the price of the land has been decreasing by 1.5 percent per year?

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

Leasing

Filters

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire rather than and earn a rate of interest, then you can deposit a smaller lump sum today.