Question 1

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

Accepted Answer

A) True 
 B)False  True

Question 2

The present value of an annuity of $5,000 to be received at the end of every six months for over 6 years at a 4% annual rate would be:

Accepted Answer

A)  $26,210 
B)  $52,875 
C)  $3,950 
D)  none of the above 
A)  $26,210 
B)  $52,875 
C)  $3,950 
D)  none of the above B

Question 3

Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose?

Accepted Answer

A)  the ordinary annuity 
B)  the annuity due 
C)  either one because the annuities have the same present value 
D)  without information about the appropriate interest rate, we cannot tell which annuity is better 
A)  the ordinary annuity 
B)  the annuity due 
C)  either one because the annuities have the same present value 
D)  without information about the appropriate interest rate, we cannot tell which annuity is better B

Question 4

The return provided by a $100 annuity deposited for 10 years that results in a future value of $614.46 is 11.45%.

Accepted Answer

A) True 
 B)False

Question 5

The amount earned on a deposit becomes part of the principal at the end of a period and can earn a return in future periods is called

Accepted Answer

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

Question 6

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

Accepted Answer

A)  $26,210 
B)  $27,258 
C)  $3,950 
D)  none of the above 
A)  $26,210 
B)  $27,258 
C)  $3,950 
D)  none of the above

Question 7

The future value of a $100 annuity deposited for 10 years at 10% is $1,593.74.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is most correct?

Accepted Answer

A)  There is an inverse relation between the present value interest factor of an annuity and the future value interest factor of an annuity, i.e., one is the reciprocal of the other. 
B)  The future value of an ordinary annuity can be determined as the product of the annual payment and the appropriate future value interest factor for an ordinary annuity. 
C)  If a bank uses daily compounding for a savings account, the nominal rate (or APR) will be less than the effective annual rate. 
D)  If the bank uses monthly compounding the nominal rate (or APR) will be greater than if it compounded daily. 
A)  There is an inverse relation between the present value interest factor of an annuity and the future value interest factor of an annuity, i.e., one is the reciprocal of the other. 
B)  The future value of an ordinary annuity can be determined as the product of the annual payment and the appropriate future value interest factor for an ordinary annuity. 
C)  If a bank uses daily compounding for a savings account, the nominal rate (or APR) will be less than the effective annual rate. 
D)  If the bank uses monthly compounding the nominal rate (or APR) will be greater than if it compounded daily.

Question 9

Simple interest is interest earned on the investment's principal and subsequently-earned interest.

Accepted Answer

A) True 
 B)False

Question 10

As the interest rate increases, present value decreases.

Accepted Answer

A) True 
 B)False

Question 11

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years. To determine what lump sum has the same value as the contract today, you would need to use:

Accepted Answer

A)  present value factors 
B)  future value factors 
C)  present value factors of an annuity 
D)  future value factors of an annuity 
A)  present value factors 
B)  future value factors 
C)  present value factors of an annuity 
D)  future value factors of an annuity

Question 12

An investment will mature in 20 years. Its maturity value is $1,000. If the discount rate is 7%, what is the present value of the investment?

Accepted Answer

A)  $178 
B)  $258 
C)  $276 
D)  $362 
A)  $178 
B)  $258 
C)  $276 
D)  $362

Question 13

Which of the following statements is false?

Accepted Answer

A)  The present value of a future sum decreases as the discount rate increases. 
B)  If the present value of a sum is equal to its future value, the interest rate must be zero. 
C)  If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series. 
D)  For a given APR, the present value of a future sum decreases as the number of discounting periods per year decreases. 
A)  The present value of a future sum decreases as the discount rate increases. 
B)  If the present value of a sum is equal to its future value, the interest rate must be zero. 
C)  If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series. 
D)  For a given APR, the present value of a future sum decreases as the number of discounting periods per year decreases.

Question 14

You want to buy a Volvo in seven years. The car is currently selling for $50,000, and the price will increase at a compound rate of 10% per year. You can presently invest in high-yield bonds earning a compound annual rate 14% per year. How much must you invest at the end of each of the next seven years to be able to purchase your dream car in seven years?

Accepted Answer

A)  $8,831.46 
B)  $9,080.20 
C)  $9,125.42 
D)  $9,282.09 
A)  $8,831.46 
B)  $9,080.20 
C)  $9,125.42 
D)  $9,282.09

Question 15

Discounting is an arithmetic process whereby a future sum decreases at a compounding interest rate over time to reach a present value.

Accepted Answer

A) True 
 B)False

Question 16

The future value of $200 received today and deposited for three years in an account which earns semiannual interest of 8 percent is ________.

Accepted Answer

A)  $253 
B)  $252 
C)  $158 
D)  $135 
A)  $253 
B)  $252 
C)  $158 
D)  $135

Question 17

To find out how long it will take for your money in an investment to double, just multiply the interest times 72.

Accepted Answer

A) True 
 B)False

Question 18

The method of calculating the annual percentage rate (APR) is set by law.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following characteristics is not descriptive of an amortization schedule?

Accepted Answer

A)  Each payment is the same. 
B)  The same dollar amount of interest is paid with each payment. 
C)  Payment on principal increases with each total payment. 
D)  Balance owed is reduced by each payment. 
A)  Each payment is the same. 
B)  The same dollar amount of interest is paid with each payment. 
C)  Payment on principal increases with each total payment. 
D)  Balance owed is reduced by each payment.

Question 20

A loan amortization schedule shows the breakdown of each payment between interest and principal, as well as the remaining balance after each payment.

Accepted Answer

A) True 
 B)False

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

The present value of an annuity of $5,000 to be received at the end of every six months for over 6 years at a 4% annual rate would be:

Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose?

The return provided by a $100 annuity deposited for 10 years that results in a future value of $614.46 is 11.45%.

The amount earned on a deposit becomes part of the principal at the end of a period and can earn a return in future periods is called

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

The future value of a $100 annuity deposited for 10 years at 10% is $1,593.74.

Which of the following statements is most correct?

Simple interest is interest earned on the investment's principal and subsequently-earned interest.

As the interest rate increases, present value decreases.

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years. To determine what lump sum has the same value as the contract today, you would need to use:

An investment will mature in 20 years. Its maturity value is $1,000. If the discount rate is 7%, what is the present value of the investment?

Which of the following statements is false?

Discounting is an arithmetic process whereby a future sum decreases at a compounding interest rate over time to reach a present value.

The future value of $200 received today and deposited for three years in an account which earns semiannual interest of 8 percent is ________.

To find out how long it will take for your money in an investment to double, just multiply the interest times 72.

The method of calculating the annual percentage rate (APR) is set by law.

Which of the following characteristics is not descriptive of an amortization schedule?

A loan amortization schedule shows the breakdown of each payment between interest and principal, as well as the remaining balance after each payment.

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Money and the Monetary System

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Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Bonds and Stocks: Characteristics and Valuations

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Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

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Exam 9: Time Value of Money

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

The present value of an annuity of $5,000 to be received at the end of every six months for over 6 years at a 4% annual rate would be:

Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose?

The return provided by a $100 annuity deposited for 10 years that results in a future value of $614.46 is 11.45%.

The amount earned on a deposit becomes part of the principal at the end of a period and can earn a return in future periods is called

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

The future value of a $100 annuity deposited for 10 years at 10% is $1,593.74.

Which of the following statements is most correct?

Simple interest is interest earned on the investment's principal and subsequently-earned interest.

As the interest rate increases, present value decreases.

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years. To determine what lump sum has the same value as the contract today, you would need to use:

An investment will mature in 20 years. Its maturity value is $1,000. If the discount rate is 7%, what is the present value of the investment?

Which of the following statements is false?

Discounting is an arithmetic process whereby a future sum decreases at a compounding interest rate over time to reach a present value.

The future value of $200 received today and deposited for three years in an account which earns semiannual interest of 8 percent is ________.

To find out how long it will take for your money in an investment to double, just multiply the interest times 72.

The method of calculating the annual percentage rate (APR) is set by law.

Which of the following characteristics is not descriptive of an amortization schedule?

A loan amortization schedule shows the breakdown of each payment between interest and principal, as well as the remaining balance after each payment.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters