Question 1

For positive interest rates, the present value interest factor is

Accepted Answer

A)  between 2.0 and 0.0. 
B)  always negative. 
C)  always less than 1.0. 
D)  a discount rate. 
A)  between 2.0 and 0.0. 
B)  always negative. 
C)  always less than 1.0. 
D)  a discount rate.

Question 2

With compound interest, interest is earned only on the investment's principal.

Accepted Answer

A) True 
 B)False

Question 3

Suppose you were going to save $1,000 per year for three years at a 10% interest rate compounded annually, with the first investment occurring today. What would be the future value of this investment?

Accepted Answer

A)  $2,124 
B)  $2,310 
C)  $3,641 
D)  $3,812 
A)  $2,124 
B)  $2,310 
C)  $3,641 
D)  $3,812

Question 4

Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Daniel have on deposit at the end of the 15 years?

Accepted Answer

A)  $39,981 
B)  $46,753 
C)  $49,002 
D)  $50,258 
A)  $39,981 
B)  $46,753 
C)  $49,002 
D)  $50,258

Question 5

Joe plans to fund his individual retirement account (IRA) with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Joe can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Accepted Answer

A)  $411,235 
B)  $611,235. 
C)  $23,567. 
D)  $43,567. 
A)  $411,235 
B)  $611,235. 
C)  $23,567. 
D)  $43,567.

Question 6

Joseph has just accepted a job as a stockbroker. He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. The present value of these cash flows, if they are discounted at 4%, is closest to

Accepted Answer

A)  $79,452.30 
B)  $80,294.50 
C)  $81,517.10 
D)  $88,000 
A)  $79,452.30 
B)  $80,294.50 
C)  $81,517.10 
D)  $88,000

Question 7

If the interest rate is zero, the future value interest factor equals ________.

Accepted Answer

A)  -1.0 
B)  0.0 
C)  1.0 
D)  2.0 
A)  -1.0 
B)  0.0 
C)  1.0 
D)  2.0

Question 8

For a given period of time until receipt of the funds, as the interest rate increases, the present value interest factor

Accepted Answer

A)  changes proportionally. 
B)  increases. 
C)  decreases. 
D)  remains unchanged. 
A)  changes proportionally. 
B)  increases. 
C)  decreases. 
D)  remains unchanged.

Question 9

You borrow $10,000 to pay for your college tuition. The loan is amortized over a three-year period with an interest rate of 18%. What is your remaining balance at the end of Year Two?

Accepted Answer

A)  $7,201 
B)  $4,599 
C)  $3,898 
D)  $3,303 
A)  $7,201 
B)  $4,599 
C)  $3,898 
D)  $3,303

Question 10

Compound interest is interest earned on interest in addition to interest earned on the principal.

Accepted Answer

A) True 
 B)False

Question 11

You need $8,000 four years from now for a down payment on your future house. How much money must you deposit today if your credit union pays 5% interest compounded annually? Pick the closest answer.

Accepted Answer

A)  $6,269.59 
B)  $6,578.95 
C)  $6,394.12 
D)  $6,189.83 
A)  $6,269.59 
B)  $6,578.95 
C)  $6,394.12 
D)  $6,189.83

Question 12

The present value of a $100 deposit in 10 years at 10% is $259.37.

Accepted Answer

A) True 
 B)False

Question 13

It will take approximately 18.8 years for a $100 deposit to grow to $600 if I can earn 10% on my deposit.

Accepted Answer

A) True 
 B)False

Question 14

Your college has agreed to give you a $10,000 tuition loan. As part of the agreement, you must repay $12,600 at the end of the three-year period. What interest rate is the college charging?

Accepted Answer

A)  8% 
B)  9% 
C)  11% 
D)  6% 
A)  8% 
B)  9% 
C)  11% 
D)  6%

Question 15

If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the APR is:

Accepted Answer

A)  10.38% 
B)  10.00% 
C)  2.50% 
D)  5.0% 
A)  10.38% 
B)  10.00% 
C)  2.50% 
D)  5.0%

Question 16

Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Accepted Answer

A)  $12,290 
B)  $20,000. 
C)  $31,874. 
D)  $51,880. 
A)  $12,290 
B)  $20,000. 
C)  $31,874. 
D)  $51,880.

Question 17

The future value of a $100 deposit in 10 years at 10% is $38.55.

Accepted Answer

A) True 
 B)False

Question 18

Because interest compounds, the annual percentage rate formula will overstate the true interest cost of a loan.

Accepted Answer

A) True 
 B)False

Question 19

Your current bank is paying 6.25% simple interest rate. You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually. To maximize your return you would choose:

Accepted Answer

A)  your current bank 
B)  Harris Bank 
C)  First Chicago bank 
D)  you are indifferent, because the effective interest rate for all three banks is the same 
A)  your current bank 
B)  Harris Bank 
C)  First Chicago bank 
D)  you are indifferent, because the effective interest rate for all three banks is the same

Question 20

If we know the future value of an investment, we can find its present value.

Accepted Answer

A) True 
 B)False

For positive interest rates, the present value interest factor is

With compound interest, interest is earned only on the investment's principal.

Suppose you were going to save $1,000 per year for three years at a 10% interest rate compounded annually, with the first investment occurring today. What would be the future value of this investment?

Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Daniel have on deposit at the end of the 15 years?

Joe plans to fund his individual retirement account (IRA) with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Joe can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Joseph has just accepted a job as a stockbroker. He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. The present value of these cash flows, if they are discounted at 4%, is closest to

If the interest rate is zero, the future value interest factor equals ________.

For a given period of time until receipt of the funds, as the interest rate increases, the present value interest factor

You borrow $10,000 to pay for your college tuition. The loan is amortized over a three-year period with an interest rate of 18%. What is your remaining balance at the end of Year Two?

Compound interest is interest earned on interest in addition to interest earned on the principal.

You need $8,000 four years from now for a down payment on your future house. How much money must you deposit today if your credit union pays 5% interest compounded annually? Pick the closest answer.

The present value of a $100 deposit in 10 years at 10% is $259.37.

It will take approximately 18.8 years for a $100 deposit to grow to $600 if I can earn 10% on my deposit.

Your college has agreed to give you a $10,000 tuition loan. As part of the agreement, you must repay $12,600 at the end of the three-year period. What interest rate is the college charging?

If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the APR is:

Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

The future value of a $100 deposit in 10 years at 10% is $38.55.

Because interest compounds, the annual percentage rate formula will overstate the true interest cost of a loan.

Your current bank is paying 6.25% simple interest rate. You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually. To maximize your return you would choose:

If we know the future value of an investment, we can find its present value.

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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

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Exam 9: Time Value of Money

For positive interest rates, the present value interest factor is

With compound interest, interest is earned only on the investment's principal.

Suppose you were going to save $1,000 per year for three years at a 10% interest rate compounded annually, with the first investment occurring today. What would be the future value of this investment?

Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Daniel have on deposit at the end of the 15 years?

Joe plans to fund his individual retirement account (IRA) with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Joe can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Joseph has just accepted a job as a stockbroker. He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. The present value of these cash flows, if they are discounted at 4%, is closest to

If the interest rate is zero, the future value interest factor equals ________.

For a given period of time until receipt of the funds, as the interest rate increases, the present value interest factor

You borrow $10,000 to pay for your college tuition. The loan is amortized over a three-year period with an interest rate of 18%. What is your remaining balance at the end of Year Two?

Compound interest is interest earned on interest in addition to interest earned on the principal.

You need $8,000 four years from now for a down payment on your future house. How much money must you deposit today if your credit union pays 5% interest compounded annually? Pick the closest answer.

The present value of a $100 deposit in 10 years at 10% is $259.37.

It will take approximately 18.8 years for a $100 deposit to grow to $600 if I can earn 10% on my deposit.

Your college has agreed to give you a $10,000 tuition loan. As part of the agreement, you must repay $12,600 at the end of the three-year period. What interest rate is the college charging?

If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the APR is:

Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

The future value of a $100 deposit in 10 years at 10% is $38.55.

Because interest compounds, the annual percentage rate formula will overstate the true interest cost of a loan.

Your current bank is paying 6.25% simple interest rate. You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually. To maximize your return you would choose:

If we know the future value of an investment, we can find its present value.

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