Question 1

The effective annual rate measures the true interest rate when compounding occurs more frequently than once a year.

Accepted Answer

A) True 
 B)False

Question 2

The _________ value of a savings or investment is its amount or value at the current time.

Accepted Answer

A)  present 
B)  future 
C)  book 
D)  capital 
A)  present 
B)  future 
C)  book 
D)  capital

Question 3

An ordinary annuity exists when the equal payments occur at the beginning of each time period.

Accepted Answer

A) True 
 B)False

Question 4

You put $2,000 in an IRA account at Northern Trust. This account pays a fixed interest rate of 8% compounded quarterly. How much money do you have in five years?

Accepted Answer

A)  $2,914 
B)  $2,938 
C)  $2,972 
D)  $2,999 
A)  $2,914 
B)  $2,938 
C)  $2,972 
D)  $2,999

Question 5

A venture capitalist usually will invest in a small business by one of several methods. Which of the following is not one of those methods.

Accepted Answer

A)  Taking a direct ownership position in the form of common stock 
B)  Purchasing the business 
C)  Accepting the firm's bond plus an "equity kicker" 
D)  Taking the right to purchase a certain portion of the firm 
A)  Taking a direct ownership position in the form of common stock 
B)  Purchasing the business 
C)  Accepting the firm's bond plus an "equity kicker" 
D)  Taking the right to purchase a certain portion of the firm

Question 6

When the annual interest rate stays the same, more frequent interest compounding helps savers earn more interest over the course of the year.

Accepted Answer

A) True 
 B)False

Question 7

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate.

Accepted Answer

A)  effective. 
B)  stated. 
C)  discounted. 
D)  continuous. 
A)  effective. 
B)  stated. 
C)  discounted. 
D)  continuous.

Question 8

Angelina has planned to start her college education four years from now. To pay for her college education, she has decided to save $1,000 each quarter for the next four years in a bank account paying 12 percent interest. How much will she have at the end of the fourth year?

Accepted Answer

A)  $1,574 
B)  $19,116 
C)  $20,157 
D)  $16,000 
A)  $1,574 
B)  $19,116 
C)  $20,157 
D)  $16,000

Question 9

The future value of a $100 annuity deposited for 10 years at 10% is $614.46.

Accepted Answer

A) True 
 B)False

Question 10

What is the highest effective rate attainable with a 12 percent nominal rate?

Accepted Answer

A)  12.00% 
B)  12.55% 
C)  12.75% 
D)  12.95% 
A)  12.00% 
B)  12.55% 
C)  12.75% 
D)  12.95%

Question 11

A(n) __________ is a series of equal payments (or receipts) that occur over a number of time periods.

Accepted Answer

A)  ordinary annuity 
B)  loan amortization 
C)  annuity 
D)  annuity due 
A)  ordinary annuity 
B)  loan amortization 
C)  annuity 
D)  annuity due

Question 12

At very high interest rates the "Rule of 72" will result in a small estimation error for the estimate of the time for an investment to double.

Accepted Answer

A) True 
 B)False

Question 13

Level cash flow amounts that occur at the end of each period, starting at the end of the first period, are an annuity due.

Accepted Answer

A) True 
 B)False

Question 14

Future value is the value of a loan at a specified time or date in the future.

Accepted Answer

A) True 
 B)False

Question 15

The annual percentage rate is the true opportunity cost measure of the interest rate.

Accepted Answer

A) True 
 B)False

Question 16

The return provided by a $100 annuity deposited for 10 years that results in a future value of $1,593.74 is 15%.

Accepted Answer

A) True 
 B)False

Question 17

At very low interest rates, the "Rule of 72" does not approximate the compounding process well.

Accepted Answer

A) True 
 B)False

Question 18

The future value of $200 received today and deposited at 8 percent for three years is

Accepted Answer

A)  $248. 
B)  $252. 
C)  $158. 
D)  $200. 
A)  $248. 
B)  $252. 
C)  $158. 
D)  $200.

Question 19

__________ is the arithmetic process whereby a future value decreases at a compound interest rate over time to reach a present value.

Accepted Answer

A)  Discounting 
B)  Future value 
C)  Inflation 
D)  Compounding 
A)  Discounting 
B)  Future value 
C)  Inflation 
D)  Compounding

Question 20

When solving for the future value of an amount deposited now, which one of the following factors would not be part of the calculation?

Accepted Answer

A)  present value amount 
B)  1 plus the interest rate 
C)  1 divided by the sum of 1 plus the interest rate 
D)  number of periods to compound over 
A)  present value amount 
B)  1 plus the interest rate 
C)  1 divided by the sum of 1 plus the interest rate 
D)  number of periods to compound over

The effective annual rate measures the true interest rate when compounding occurs more frequently than once a year.

The _________ value of a savings or investment is its amount or value at the current time.

An ordinary annuity exists when the equal payments occur at the beginning of each time period.

You put $2,000 in an IRA account at Northern Trust. This account pays a fixed interest rate of 8% compounded quarterly. How much money do you have in five years?

A venture capitalist usually will invest in a small business by one of several methods. Which of the following is not one of those methods.

When the annual interest rate stays the same, more frequent interest compounding helps savers earn more interest over the course of the year.

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate.

Angelina has planned to start her college education four years from now. To pay for her college education, she has decided to save $1,000 each quarter for the next four years in a bank account paying 12 percent interest. How much will she have at the end of the fourth year?

The future value of a $100 annuity deposited for 10 years at 10% is $614.46.

What is the highest effective rate attainable with a 12 percent nominal rate?

A(n) __________ is a series of equal payments (or receipts) that occur over a number of time periods.

At very high interest rates the "Rule of 72" will result in a small estimation error for the estimate of the time for an investment to double.

Level cash flow amounts that occur at the end of each period, starting at the end of the first period, are an annuity due.

Future value is the value of a loan at a specified time or date in the future.

The annual percentage rate is the true opportunity cost measure of the interest rate.

The return provided by a $100 annuity deposited for 10 years that results in a future value of $1,593.74 is 15%.

At very low interest rates, the "Rule of 72" does not approximate the compounding process well.

The future value of $200 received today and deposited at 8 percent for three years is

__________ is the arithmetic process whereby a future value decreases at a compound interest rate over time to reach a present value.

When solving for the future value of an amount deposited now, which one of the following factors would not be part of the calculation?

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

Exam 9: Time Value of Money

The effective annual rate measures the true interest rate when compounding occurs more frequently than once a year.

The _________ value of a savings or investment is its amount or value at the current time.

An ordinary annuity exists when the equal payments occur at the beginning of each time period.

You put $2,000 in an IRA account at Northern Trust. This account pays a fixed interest rate of 8% compounded quarterly. How much money do you have in five years?

A venture capitalist usually will invest in a small business by one of several methods. Which of the following is not one of those methods.

When the annual interest rate stays the same, more frequent interest compounding helps savers earn more interest over the course of the year.

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate.

Angelina has planned to start her college education four years from now. To pay for her college education, she has decided to save $1,000 each quarter for the next four years in a bank account paying 12 percent interest. How much will she have at the end of the fourth year?

The future value of a $100 annuity deposited for 10 years at 10% is $614.46.

What is the highest effective rate attainable with a 12 percent nominal rate?

A(n) __________ is a series of equal payments (or receipts) that occur over a number of time periods.

At very high interest rates the "Rule of 72" will result in a small estimation error for the estimate of the time for an investment to double.

Level cash flow amounts that occur at the end of each period, starting at the end of the first period, are an annuity due.

Future value is the value of a loan at a specified time or date in the future.

The annual percentage rate is the true opportunity cost measure of the interest rate.

The return provided by a $100 annuity deposited for 10 years that results in a future value of $1,593.74 is 15%.

At very low interest rates, the "Rule of 72" does not approximate the compounding process well.

The future value of $200 received today and deposited at 8 percent for three years is

__________ is the arithmetic process whereby a future value decreases at a compound interest rate over time to reach a present value.

When solving for the future value of an amount deposited now, which one of the following factors would not be part of the calculation?

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