Exam 7: The Time Value of Money

The future value of a dollar 1) increases with lower interest rates 2) increases with higher interest rates 3) increases with longer periods of time 4) decreases with longer periods of time

Free

(Multiple Choice)

4.8/5

(33)

Question 1

Correct Answer:

Verified

Higher rates of interest are associated with greater present values.

Free

(True/False)

4.8/5

(37)

Question 2

Correct Answer:

Verified

False

If an individual can save $1,500 annually, how much will have been accumulated after 4 years if the funds earn 7 percent?

Free

(Essay)

4.8/5

(44)

Question 3

Correct Answer:

Verified

This problem is also an example of the future value of an annuity:
$1,500(FVIF 7I, 4N) = $1,500(4.440) = $6,660

(PV = 0; N = 4; I = 7; PMT = -1500; FV = ?; FV = 6659.91.)

The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?

(Essay)

4.9/5

(42)

Question 4

If a bank pays 5 percent compounded semi‑annually, the true rate of interest is less than 5 percent annually.

(True/False)

4.8/5

(46)

Question 5

A firm earns 10 percent annually on its investments. One possible investment offers $50,000 a year for 10 years and costs $300,000. Should the firm make this investment?

(Essay)

4.9/5

(34)

Question 6

The time value of money suggests

(Multiple Choice)

4.8/5

(37)

Question 7

The present value of a dollar 1) increases with lower interest rates 2) increases with higher interest rates 3) increases with longer periods of time 4) decreases with longer periods of time

(Multiple Choice)

4.9/5

(47)

Question 8

Which is the largest if the interest rate is 10%?

(Multiple Choice)

4.8/5

(40)

Question 9

The present value of a dollar 1) is larger the longer the time period 2) is larger the shorter the time period 3) is larger the greater the interest rate 4) is larger the smaller the interest rate

(Multiple Choice)

4.9/5

(44)

Question 10

The New Jersey lotto awarded a prize of $560,000 a year for the next 20 years starting today. If the state sold $21,900,000 in lotto tickets, what proportion of the sales will the state distribute if it earns 8% annually on invested funds?

(Essay)

4.9/5

(45)

Question 11

If interest rates rise,

(Multiple Choice)

4.8/5

(37)

Question 12

A company earned $2.00 per share in 1995 and paid cash dividends of $1.00. In 2005, it earned $5.20 and paid a dividend of $2.16. What is the annual growth rate in earnings and dividends? If the Consumer Price Index was 100 in 1995 and 163 in 2005, has the investor's purchasing power fallen?

(Essay)

4.9/5

(39)

Question 13

If a new college graduate wants a car costing $25,000, how much must be saved annually if the funds earn 5 percent?

(Essay)

4.8/5

(45)

Question 14

Compounding refers to the earning of interest on interest.

(True/False)

4.8/5

(38)

Question 15

A firm has a $1,000,000 debt (e.g., a bond) outstanding that matures after 10 years. The sinking fund requires the firm to set aside annually an amount so the debt may be retired at maturity. If the firm can earn 10% annually on these funds, how much must it invest annually to meet the sinking fund?

(Essay)

4.8/5

(39)

Question 16

How much additional interest will you earn on $1,000 at 10 percent for 10 years if interest is compounded semi-annually instead of annually?

(Essay)

4.9/5

(32)

Question 17

An investor expects a stock to double in 7 years. What is the expected annual rate of growth in the price of the stock?

(Essay)

4.8/5

(33)

Question 18

If an annuity costs $200,000 and yields 7 percent annually for 5 years, how much cash can an individual withdraw each year such that the principal is consumed at the end of the time period?

(Essay)

4.9/5

(42)

Question 19

An annuity due is a set of

(Multiple Choice)

4.8/5

(38)

Question 20

Showing 1 - 20 of 53

Exam 7: The Time Value of Money

​The future value of a dollar 1) increases with lower interest rates 2) increases with higher interest rates 3) increases with longer periods of time 4) decreases with longer periods of time

Higher rates of interest are associated with greater present values.​

If an individual can save $1,500 annually, how much will have been accumulated after 4 years if the funds earn 7 percent?​

The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?​

If a bank pays 5 percent compounded semi‑annually, the true rate of interest is less than 5 percent annually.​

A firm earns 10 percent annually on its investments. One possible investment offers $50,000 a year for 10 years and costs $300,000. Should the firm make this investment?​

The time value of money suggests​ ​

The present value of a dollar​ 1) increases with lower interest rates 2) increases with higher interest rates 3) increases with longer periods of time 4) decreases with longer periods of time

Which is the largest if the interest rate is 10%?​

The present value of a dollar​ 1) is larger the longer the time period 2) is larger the shorter the time period 3) is larger the greater the interest rate 4) is larger the smaller the interest rate

The New Jersey lotto awarded a prize of $560,000 a year for the next 20 years starting today. If the state sold $21,900,000 in lotto tickets, what proportion of the sales will the state distribute if it earns 8% annually on invested funds?​

If interest rates rise,​

A company earned $2.00 per share in 1995 and paid cash dividends of $1.00. In 2005, it earned $5.20 and paid a dividend of $2.16. What is the annual growth rate in earnings and dividends? If the Consumer Price Index was 100 in 1995 and 163 in 2005, has the investor's purchasing power fallen?​

If a new college graduate wants a car costing $25,000, how much must be saved annually if the funds earn 5 percent?​

Compounding refers to the earning of interest on interest.​

How much additional interest will you earn on $1,000 at 10 percent for 10 years if interest is compounded semi-annually instead of annually?​

An investor expects a stock to double in 7 years. What is the expected annual rate of growth in the price of the stock?​

If an annuity costs $200,000 and yields 7 percent annually for 5 years, how much cash can an individual withdraw each year such that the principal is consumed at the end of the time period?​

​An annuity due is a set of

The Role of Financial Markets and Financial Intermediaries

Investment Banking

Securities Markets

The Federal Reserve

International Currency Flows

Risk and Its Measurement

Analysis of Financial Statements

The Features of Stock

Stock Valuation

The Features of Long-Term Debt - Bonds

Bond Pricing and Yields

Preferred Stock

Convertile Securities

Investment Returns

Investment Companies

Forms of Businss and Corporate Taxation

Break-Even Analysis and the Payback Period

Leverage

Cost of Capital

Capital Budgeting

Forecasting

Cash Budgeting

Management of Current Assets

Management of Short-Term Liabilities

Intermediate-Term Debt and Leasing

Options: Puts and Calls

Futures and Swaps

Filters

The future value of a dollar 1) increases with lower interest rates 2) increases with higher interest rates 3) increases with longer periods of time 4) decreases with longer periods of time

Higher rates of interest are associated with greater present values.

If an individual can save $1,500 annually, how much will have been accumulated after 4 years if the funds earn 7 percent?

The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?

If a bank pays 5 percent compounded semi‑annually, the true rate of interest is less than 5 percent annually.

A firm earns 10 percent annually on its investments. One possible investment offers $50,000 a year for 10 years and costs $300,000. Should the firm make this investment?

The time value of money suggests

The present value of a dollar 1) increases with lower interest rates 2) increases with higher interest rates 3) increases with longer periods of time 4) decreases with longer periods of time

Which is the largest if the interest rate is 10%?

The present value of a dollar 1) is larger the longer the time period 2) is larger the shorter the time period 3) is larger the greater the interest rate 4) is larger the smaller the interest rate

The New Jersey lotto awarded a prize of $560,000 a year for the next 20 years starting today. If the state sold $21,900,000 in lotto tickets, what proportion of the sales will the state distribute if it earns 8% annually on invested funds?

If interest rates rise,

A company earned $2.00 per share in 1995 and paid cash dividends of $1.00. In 2005, it earned $5.20 and paid a dividend of $2.16. What is the annual growth rate in earnings and dividends? If the Consumer Price Index was 100 in 1995 and 163 in 2005, has the investor's purchasing power fallen?

If a new college graduate wants a car costing $25,000, how much must be saved annually if the funds earn 5 percent?

Compounding refers to the earning of interest on interest.

How much additional interest will you earn on $1,000 at 10 percent for 10 years if interest is compounded semi-annually instead of annually?

An investor expects a stock to double in 7 years. What is the expected annual rate of growth in the price of the stock?

If an annuity costs $200,000 and yields 7 percent annually for 5 years, how much cash can an individual withdraw each year such that the principal is consumed at the end of the time period?

An annuity due is a set of