Question 1

The concept of time value of money is not important to financial decision making because:

Accepted Answer

A)  it emphasizes earning a return on invested capital. 
B)  it recognizes that earning a return makes $1 worth more today than $1 received in the future. 
C)  it can be applied to future cash flows in order to compare different streams of income. 
D)  it emphasizes the historic interest paid. 
A)  it emphasizes earning a return on invested capital. 
B)  it recognizes that earning a return makes $1 worth more today than $1 received in the future. 
C)  it can be applied to future cash flows in order to compare different streams of income. 
D)  it emphasizes the historic interest paid.

Question 2

The higher the discount rate used in determining the future value of a $1 annuity,:

Accepted Answer

A)  the greater the future value at the end of a period. 
B)  the smaller the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  none of the other answers are correct: the interest has no effect on the future value of an annuity. 
A)  the greater the future value at the end of a period. 
B)  the smaller the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  none of the other answers are correct: the interest has no effect on the future value of an annuity.

Question 3

An annuity is a series of consecutive payments of equal amount.

Accepted Answer

A) True 
 B)False

Question 4

In paying off a mortgage loan,the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

Accepted Answer

A) True 
 B)False

Question 5

The future value of an annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

Accepted Answer

A) True 
 B)False

Question 6

Debby Robinson borrows $10,000 to be repaid over 10 years with equal annual payments at 9%.Repayment of principal in the second year is:

Accepted Answer

A)  $1,558.20. 
B)  $1,000.00. 
C)  $717.44. 
D)  $658.20. 
A)  $1,558.20. 
B)  $1,000.00. 
C)  $717.44. 
D)  $658.20.

Question 7

Babe Ruth Jr.has agreed to play for the Toronto Blue Jays for $9 million per year for the next 10 years.What table would you use to calculate the value of this contract in today's dollars?

Accepted Answer

A)  Present value of an annuity. 
B)  Present value of a single amount. 
C)  Future value of an annuity. 
D)  Future value of an annuity due. 
A)  Present value of an annuity. 
B)  Present value of a single amount. 
C)  Future value of an annuity. 
D)  Future value of an annuity due.

Question 8

The farther into the future any given amount is received,the larger its present value.

Accepted Answer

A) True 
 B)False

Question 9

You can lease a vehicle today for 36 months.The dealer will guarantee a residual value of $10,000.If the cash price of the car is $38,000,and the financing is priced at 8.75%,what would be your monthly payment?

Accepted Answer

A)  $1,204 
B)  $602 
C)  $960 
D)  $782 
A)  $1,204 
B)  $602 
C)  $960 
D)  $782

Question 10

A home buyer signed a 20-year,8% mortgage for $72,500.How much should the annual loan payments be? (Assume annual compounding.)

Accepted Answer

A)  $5,560 
B)  $7,384 
C)  $8,074 
D)  $13,900 
A)  $5,560 
B)  $7,384 
C)  $8,074 
D)  $13,900

Question 11

Janice Hardin sets aside $5,000 each year for 10 years.She then withdraws the funds on an equal annual basis for the next 10 years.The two tables she should use in the correct order are:

Accepted Answer

A)  present value of an annuity of $1; future value of an annuity of $1. 
B)  future value of an annuity of $1; present value of an annuity of $1. 
C)  future value of an annuity of $1; present value of $1. 
D)  future value of an annuity of $1; future value of $1. 
A)  present value of an annuity of $1; future value of an annuity of $1. 
B)  future value of an annuity of $1; present value of an annuity of $1. 
C)  future value of an annuity of $1; present value of $1. 
D)  future value of an annuity of $1; future value of $1.

Question 12

Marcia Stubern is planning for her golden years.She will retire in 20 years,at which time she plans to begin withdrawing $60,000 annually.She is expected to live for 20 years following her retirement.Her financial advisor thinks she can earn 9% annually.How much does she need to invest each year to prepare for her financial needs after her retirement?

Accepted Answer

@#IMG-DLM& @#IMG-DLM& 
Amount needed in 20 years:
PVA = A ×

Question 13

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 14

A 20-year mortgage with monthly payments has a principal outstanding of $125,000.Interest is at 8% compounded semi-annually.What are the monthly payments?

Accepted Answer

A)  $833.33 
B)  $1,035.24 
C)  $1,045.55 
D)  $1,354.16 
A)  $833.33 
B)  $1,035.24 
C)  $1,045.55 
D)  $1,354.16

Question 15

Mike Carlson will receive $10,000 a year from the end of the third year to the end of the 12th year (10 payments).The discount rate is 10%.The present value today of this deferred annuity is:

Accepted Answer

A)  $61,446 
B)  $55,860 
C)  $46,165 
D)  $50,782 
A)  $61,446 
B)  $55,860 
C)  $46,165 
D)  $50,782

Question 16

If we wish to accumulate $8,000 by the end of 4 years,how much should the annual payments be if we receive an interest rate of 10% on our investments? The first payment is made at the end of each year.

Accepted Answer

A)  $1,379.24 
B)  $1,567.06 
C)  $1,723.77 
D)  $2,000.00 
A)  $1,379.24 
B)  $1,567.06 
C)  $1,723.77 
D)  $2,000.00

Question 17

Using semiannual compounding rather than annual compounding will increase the future value of an annuity.

Accepted Answer

A) True 
 B)False

Question 18

The future value of a $1,000 investment today at 8% annual interest compounded semiannually for 5 years is:

Accepted Answer

A)  $1,469 
B)  $1,480 
C)  $1,520 
D)  $1,555 
A)  $1,469 
B)  $1,480 
C)  $1,520 
D)  $1,555

Question 19

John Doeber borrowed $125,000 to buy a house.His loan cost was 11% and he promised to repay the loan over 15 years (amortization).How much are the monthly payments with semiannual compounding?

Accepted Answer

A)  $1,146 
B)  $1,380 
C)  $1,421 
D)  $1,402 
A)  $1,146 
B)  $1,380 
C)  $1,421 
D)  $1,402

Question 20

Increasing the number of periods will increase all of the following except:

Accepted Answer

A)  the present value of an annuity. 
B)  the present value of $1. 
C)  the future value of $1. 
D)  the future value of an annuity. 
A)  the present value of an annuity. 
B)  the present value of $1. 
C)  the future value of $1. 
D)  the future value of an annuity.

The concept of time value of money is not important to financial decision making because:

The higher the discount rate used in determining the future value of a $1 annuity,:

An annuity is a series of consecutive payments of equal amount.

In paying off a mortgage loan,the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

The future value of an annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

Debby Robinson borrows $10,000 to be repaid over 10 years with equal annual payments at 9%.Repayment of principal in the second year is:

Babe Ruth Jr.has agreed to play for the Toronto Blue Jays for $9 million per year for the next 10 years.What table would you use to calculate the value of this contract in today's dollars?

The farther into the future any given amount is received,the larger its present value.

You can lease a vehicle today for 36 months.The dealer will guarantee a residual value of $10,000.If the cash price of the car is $38,000,and the financing is priced at 8.75%,what would be your monthly payment?

A home buyer signed a 20-year,8% mortgage for $72,500.How much should the annual loan payments be? (Assume annual compounding.)

Janice Hardin sets aside $5,000 each year for 10 years.She then withdraws the funds on an equal annual basis for the next 10 years.The two tables she should use in the correct order are:

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

A 20-year mortgage with monthly payments has a principal outstanding of $125,000.Interest is at 8% compounded semi-annually.What are the monthly payments?

Mike Carlson will receive $10,000 a year from the end of the third year to the end of the 12^th year (10 payments).The discount rate is 10%.The present value today of this deferred annuity is:

If we wish to accumulate $8,000 by the end of 4 years,how much should the annual payments be if we receive an interest rate of 10% on our investments? The first payment is made at the end of each year.

Using semiannual compounding rather than annual compounding will increase the future value of an annuity.

The future value of a $1,000 investment today at 8% annual interest compounded semiannually for 5 years is:

John Doeber borrowed $125,000 to buy a house.His loan cost was 11% and he promised to repay the loan over 15 years (amortization).How much are the monthly payments with semiannual compounding?

Increasing the number of periods will increase all of the following except:

The Goals and Activities of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

External Growth Through Mergers

International Financial Management

Filters

Exam 9: The Time Value of Money

The concept of time value of money is not important to financial decision making because:

The higher the discount rate used in determining the future value of a $1 annuity,:

An annuity is a series of consecutive payments of equal amount.

In paying off a mortgage loan,the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

The future value of an annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

Debby Robinson borrows $10,000 to be repaid over 10 years with equal annual payments at 9%.Repayment of principal in the second year is:

Babe Ruth Jr.has agreed to play for the Toronto Blue Jays for $9 million per year for the next 10 years.What table would you use to calculate the value of this contract in today's dollars?

The farther into the future any given amount is received,the larger its present value.

You can lease a vehicle today for 36 months.The dealer will guarantee a residual value of $10,000.If the cash price of the car is $38,000,and the financing is priced at 8.75%,what would be your monthly payment?

A home buyer signed a 20-year,8% mortgage for $72,500.How much should the annual loan payments be? (Assume annual compounding.)

Janice Hardin sets aside $5,000 each year for 10 years.She then withdraws the funds on an equal annual basis for the next 10 years.The two tables she should use in the correct order are:

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

A 20-year mortgage with monthly payments has a principal outstanding of $125,000.Interest is at 8% compounded semi-annually.What are the monthly payments?

Mike Carlson will receive $10,000 a year from the end of the third year to the end of the 12th year (10 payments).The discount rate is 10%.The present value today of this deferred annuity is:

If we wish to accumulate $8,000 by the end of 4 years,how much should the annual payments be if we receive an interest rate of 10% on our investments? The first payment is made at the end of each year.

Using semiannual compounding rather than annual compounding will increase the future value of an annuity.

The future value of a $1,000 investment today at 8% annual interest compounded semiannually for 5 years is:

John Doeber borrowed $125,000 to buy a house.His loan cost was 11% and he promised to repay the loan over 15 years (amortization).How much are the monthly payments with semiannual compounding?

Increasing the number of periods will increase all of the following except:

The Goals and Activities of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

External Growth Through Mergers

International Financial Management

Filters

Mike Carlson will receive $10,000 a year from the end of the third year to the end of the 12^th year (10 payments).The discount rate is 10%.The present value today of this deferred annuity is: