Question 1

Preferred stock dividends are:

Accepted Answer

A) paid on demand. 
B) amortized. 
C) a perpetuity. 
D) due at the end of an investment. 
A) paid on demand. 
B) amortized. 
C) a perpetuity. 
D) due at the end of an investment.

Question 2

If you invest $10,000 in a 4-year certificate of deposit (CD)paying 10 percent interest compounded annually, determine how much the CD will be worth at the end of 4 years.

Accepted Answer

A) $13,600 
B) $45,730 
C) $14,640 
D) $15,958 
A) $13,600 
B) $45,730 
C) $14,640 
D) $15,958

Question 3

The future value of an annuity:

Accepted Answer

A) is the end sum of all payments and all interest if each payment is deposited when received. 
B) is the beginning sum and future interest amortized over the life of the annuity. 
C) allows for both the time interval and amounts to be different. 
D) is the beginning sum and present value calculated into the future. 
A) is the end sum of all payments and all interest if each payment is deposited when received. 
B) is the beginning sum and future interest amortized over the life of the annuity. 
C) allows for both the time interval and amounts to be different. 
D) is the beginning sum and present value calculated into the future.

Question 4

You wish to save $500,000 in the next 25 years. You notice that a corporate bond fund that earns about 11 percent per year and decide to invest in it. How much must you save each year to obtain your goal?

Accepted Answer

A) $20,000.00 
B) $3,749.98 
C) $4,370.13 
D) $2,000.00 
A) $20,000.00 
B) $3,749.98 
C) $4,370.13 
D) $2,000.00

Question 5

Your grandparents put $1,000 into a savings account for you when you were born 20 years ago. This account has been earning interest at a compound rate of 7 percent. What is its value today?

Accepted Answer

A) $3,870 
B) $1,967 
C) $3,026 
D) $3,583 
A) $3,870 
B) $1,967 
C) $3,026 
D) $3,583

Question 6

The present value of an annuity is simply the sum of the annuity's payments, traditionally made at the end of each of the time periods.

Accepted Answer

A) True 
 B)False

Question 7

Marcy wants to buy a new car in one year.  She currently has $1,500 in the bank. Marcy plans to save $250 a month towards the car.  How much will Marcy have for a down payment assuming her bank pays 6% compounded monthly? ​

Accepted Answer

A) ​$4,584 
B) ​$3,084 
C) ​$4,217 
D) ​$4,676 
A) ​$4,584 
B) ​$3,084 
C) ​$4,217 
D) ​$4,676

Question 8

Ordinary annuities differ from annuities due in that annuities due occur at the ends of time periods while ordinary annuities occur at the beginning.

Accepted Answer

A) True 
 B)False

Question 9

When interest rates are high, people prefer investments that return cash quickly.

Accepted Answer

A) True 
 B)False

Question 10

The time value of money means that a dollar today is worth less than a dollar at any time in the future.

Accepted Answer

A) True 
 B)False

Question 11

What is the effective rate of interest on a CD that has a nominal rate of 9.5 percent with interest compounded monthly?

Accepted Answer

A) 9.92% 
B) 9.74% 
C) 10.02% 
D) 9.86% 
A) 9.92% 
B) 9.74% 
C) 10.02% 
D) 9.86%

Question 12

Determine how much you would be willing to pay for a security that pays $60 annually indefinitely (a perpetuity), assuming you require an 8 percent return on this investment.

Accepted Answer

A) $480 
B) $743 
C) $1,000 
D) $750 
A) $480 
B) $743 
C) $1,000 
D) $750

Question 13

A(n)____ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever).

Accepted Answer

A) imbedded annuity 
B) annuity due 
C) sinking fund 
D) perpetuity 
A) imbedded annuity 
B) annuity due 
C) sinking fund 
D) perpetuity

Question 14

You want to purchase a car for $40,000 when you graduate in two years. At that time you will take out a 5-year bank loan at 12% compounded monthly. Based on your estimated earnings, you think you'll be able to afford loan payments of $750 per month. You plan to save up the difference between the cost of the car and the amount you'll borrow by making quarterly deposits over the next two years in a bank account that pays 8% compounded quarterly. How large must those deposits be? (Round to the nearest dollar)

Accepted Answer

A) $523 
B) $637 
C) $732 
D) $845 
A) $523 
B) $637 
C) $732 
D) $845

Question 15

What is the effective annual interest rate on a credit card with an interest rate of 15% per year, compounded monthly?

Accepted Answer

A) 15.0% 
B) 16.1% 
C) 17.8% 
D) 18.3% 
A) 15.0% 
B) 16.1% 
C) 17.8% 
D) 18.3%

Question 16

You have just won a lottery that promises to pay you and your heirs $1000 dollars a month forever. How much could you get for this stream of cash if the rate of return is 6% compounded monthly?

Accepted Answer

A) $200,000 
B) $166,667 
C) $943,520 
D) None of the above 
A) $200,000 
B) $166,667 
C) $943,520 
D) None of the above

Question 17

If the interest rate is 0%:

Accepted Answer

A) future amounts have zero present value. 
B) future amounts have an infinite present value. 
C) the present value of amounts to be received in the future is equal to the sum of those amounts. 
D) the future value of an investment is less than the sum of its cash flows. 
A) future amounts have zero present value. 
B) future amounts have an infinite present value. 
C) the present value of amounts to be received in the future is equal to the sum of those amounts. 
D) the future value of an investment is less than the sum of its cash flows.

Question 18

Seabee makes quarterly (end of period)payments of $30,000 into a pension fund earning 12 percent compounded quarterly for 10 years. How much interest will have been earned in 10 years?

Accepted Answer

A) $2,262,030 
B) $2,105,880 
C) $905,880 
D) $1,062,030 
A) $2,262,030 
B) $2,105,880 
C) $905,880 
D) $1,062,030

Question 19

The more frequent the compounding the:

Accepted Answer

A) greater the present value. 
B) greater the amount deposited. 
C) greater the effective interest rate. 
D) lower the future value. 
A) greater the present value. 
B) greater the amount deposited. 
C) greater the effective interest rate. 
D) lower the future value.

Question 20

A thirty year $200,000.00 mortgage has a monthly payment of $1,199.10 based on a rate of 6% APR. After making 180 payments over fifteen years, how much of the mortgage do you still owe?

Accepted Answer

A) $100,000.00 
B) $57,901.85 
C) $142,098.15 
D) $112,567.83 
A) $100,000.00 
B) $57,901.85 
C) $142,098.15 
D) $112,567.83

Preferred stock dividends are:

If you invest $10,000 in a 4-year certificate of deposit (CD)paying 10 percent interest compounded annually, determine how much the CD will be worth at the end of 4 years.

The future value of an annuity:

You wish to save $500,000 in the next 25 years. You notice that a corporate bond fund that earns about 11 percent per year and decide to invest in it. How much must you save each year to obtain your goal?

Your grandparents put $1,000 into a savings account for you when you were born 20 years ago. This account has been earning interest at a compound rate of 7 percent. What is its value today?

The present value of an annuity is simply the sum of the annuity's payments, traditionally made at the end of each of the time periods.

Marcy wants to buy a new car in one year. She currently has $1,500 in the bank. Marcy plans to save $250 a month towards the car. How much will Marcy have for a down payment assuming her bank pays 6% compounded monthly?

Ordinary annuities differ from annuities due in that annuities due occur at the ends of time periods while ordinary annuities occur at the beginning.

When interest rates are high, people prefer investments that return cash quickly.

The time value of money means that a dollar today is worth less than a dollar at any time in the future.

What is the effective rate of interest on a CD that has a nominal rate of 9.5 percent with interest compounded monthly?

Determine how much you would be willing to pay for a security that pays $60 annually indefinitely (a perpetuity), assuming you require an 8 percent return on this investment.

A(n)____ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever).

What is the effective annual interest rate on a credit card with an interest rate of 15% per year, compounded monthly?

You have just won a lottery that promises to pay you and your heirs $1000 dollars a month forever. How much could you get for this stream of cash if the rate of return is 6% compounded monthly?

If the interest rate is 0%:

Seabee makes quarterly (end of period)payments of $30,000 into a pension fund earning 12 percent compounded quarterly for 10 years. How much interest will have been earned in 10 years?

The more frequent the compounding the:

A thirty year $200,000.00 mortgage has a monthly payment of $1,199.10 based on a rate of 6% APR. After making 180 payments over fifteen years, how much of the mortgage do you still owe?

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

Exam 6: Time Value of Money

Preferred stock dividends are:

If you invest $10,000 in a 4-year certificate of deposit (CD)paying 10 percent interest compounded annually, determine how much the CD will be worth at the end of 4 years.

The future value of an annuity:

You wish to save $500,000 in the next 25 years. You notice that a corporate bond fund that earns about 11 percent per year and decide to invest in it. How much must you save each year to obtain your goal?

Your grandparents put $1,000 into a savings account for you when you were born 20 years ago. This account has been earning interest at a compound rate of 7 percent. What is its value today?

The present value of an annuity is simply the sum of the annuity's payments, traditionally made at the end of each of the time periods.

Marcy wants to buy a new car in one year. She currently has $1,500 in the bank. Marcy plans to save $250 a month towards the car. How much will Marcy have for a down payment assuming her bank pays 6% compounded monthly? ​

Ordinary annuities differ from annuities due in that annuities due occur at the ends of time periods while ordinary annuities occur at the beginning.

When interest rates are high, people prefer investments that return cash quickly.

The time value of money means that a dollar today is worth less than a dollar at any time in the future.

What is the effective rate of interest on a CD that has a nominal rate of 9.5 percent with interest compounded monthly?

Determine how much you would be willing to pay for a security that pays $60 annually indefinitely (a perpetuity), assuming you require an 8 percent return on this investment.

A(n)____ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever).

What is the effective annual interest rate on a credit card with an interest rate of 15% per year, compounded monthly?

You have just won a lottery that promises to pay you and your heirs $1000 dollars a month forever. How much could you get for this stream of cash if the rate of return is 6% compounded monthly?

If the interest rate is 0%:

Seabee makes quarterly (end of period)payments of $30,000 into a pension fund earning 12 percent compounded quarterly for 10 years. How much interest will have been earned in 10 years?

The more frequent the compounding the:

A thirty year $200,000.00 mortgage has a monthly payment of $1,199.10 based on a rate of 6% APR. After making 180 payments over fifteen years, how much of the mortgage do you still owe?

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

Marcy wants to buy a new car in one year. She currently has $1,500 in the bank. Marcy plans to save $250 a month towards the car. How much will Marcy have for a down payment assuming her bank pays 6% compounded monthly?