Question 1

Using the "Rule of 72," about how long will it take a sum of money to double in value if the annual interest rate is 9 percent?

Accepted Answer

A) 9 years 
B) 7 years 
C) 8 years 
D) 10 years 
A) 9 years 
B) 7 years 
C) 8 years 
D) 10 years C

Question 2

If a 16 year old high school student put $2,000 at the end of each year for 4 years into an IRA that earned a rate of 9%, how much would she have accumulated by age 65? Assume funds are left to accumulate for 45 years (age 20 - 65) at 9%.

Accepted Answer

A) $442,014 
B) $386,616 
C) $1,767,995 
D) $9,146 
A) $442,014 
B) $386,616 
C) $1,767,995 
D) $9,146 A

Question 3

What is the present value of the following net cash flows if the discount rate is 10%?
$$\begin{array} { l l } 
\text { Year } & \text { Net Cash Flow } \
1 - 10 & \$ 20,000 \text { each year } \
11 - 15 & \$ 15,000 \text { each year } \
16 - 20 & \$ 10,000 \text { each year }
\end{array}$$

Accepted Answer

A) $217,675 
B) $153,895 
C) $322,130 
D) $167,515 
A) $217,675 
B) $153,895 
C) $322,130 
D) $167,515 B

Question 4

The values shown in ordinary annuity tables (either present value or compound value) can be adjusted to the
Annuity due form by the ordinary annuity interest factor by .

Accepted Answer

A) dividing, (1 + i) 
B) dividing, (1 + i)n 
C) multiplying, (1 + i) 
D) multiplying, (1 + i)n 
A) dividing, (1 + i) 
B) dividing, (1 + i)n 
C) multiplying, (1 + i) 
D) multiplying, (1 + i)n

Question 5

BB&C bank has agreed to lend you $30,000 today, but you must repay $42,135 in 3 years.What rate is the bank charging you?

Accepted Answer

A) 10% 
B) 11% 
C) 12% 
D) 13% 
A) 10% 
B) 11% 
C) 12% 
D) 13%

Question 6

The earnings of Omega Supply Company have grown from $2.00 per share to $4.00 per share over a nine year time period.Determine the compound annual growth rate.

Accepted Answer

A) 11.1% 
B) 8% 
C) 22.2% 
D) 100% 
A) 11.1% 
B) 8% 
C) 22.2% 
D) 100%

Question 7

The Summer Breeze Hotel borrowed $100,000 from the Meadowlands Bank to pay for a new air conditioning system.The loan is for a period of 5 years at an interest rate of 10% and requires 5 equal end-of-year payments that include both principal and interest on the outstanding balance.What will be the outstanding balance after the third payment?

Accepted Answer

A) $60,000 
B) $20,865 
C) $45,788 
D) $50,866 
A) $60,000 
B) $20,865 
C) $45,788 
D) $50,866

Question 8

The process of finding present values is frequently called

Accepted Answer

A) annualizing 
B) compounding 
C) discounting 
D) leasing 
A) annualizing 
B) compounding 
C) discounting 
D) leasing

Question 9

Based on the Rule of 72, what interest rate do you need to earn to double your money in 6 years?

Accepted Answer

A) 8% 
B) 12% 
C) 7% 
D) 6% 
A) 8% 
B) 12% 
C) 7% 
D) 6%

Question 10

Your monthly statement from your bank credit card shows that the monthly rate of interest is 1.5%.What is the annual effective rate of interest you are being charged on your credit card?

Accepted Answer

A) 18.00% 
B) 18.64% 
C) 19.56% 
D) 29.74% 
A) 18.00% 
B) 18.64% 
C) 19.56% 
D) 29.74%

Question 11

You have just calculated the present value of the expected cash flows of a potential investment.Management thinks your figures are too low.Which of the following actions would improve the present value of your cash flows?

Accepted Answer

A) extend the cash flows over a longer period of time 
B) increase the discount rate 
C) decrease the discount rate 
D) extend the cash flows over a longer period of time, and decrease the discount rate 
A) extend the cash flows over a longer period of time 
B) increase the discount rate 
C) decrease the discount rate 
D) extend the cash flows over a longer period of time, and decrease the discount rate

Question 12

You just purchased a new $25,000 car and agreed to pay for the car in 50 monthly payments.If the monthly interest rate is 1 percent, what is your total financing cost?

Accepted Answer

A) $637.82 
B) $12,500 
C) $574.25 
D) $6,891 
A) $637.82 
B) $12,500 
C) $574.25 
D) $6,891

Question 13

If the discount rate is 12%, what is the present value of the following cash flows:
$$\begin{array} { l c } 
\text { Year } & \text { Cash Flow } \
1 & \$ 10,000 \
2 & \$ 11,000 \
3 & \$ 12,000 \
4 & \$ 13,000 \
5 & \$ 14,000 \
6 - 15 & \$ 15,000 \text { each year }
\end{array}$$

Accepted Answer

A) $144,618 
B) $127,923 
C) $127,197 
D) $ 90, 537 
A) $144,618 
B) $127,923 
C) $127,197 
D) $ 90, 537

Question 14

is the return earned by someone who has forgone current consumption.

Accepted Answer

A) the present value 
B) principle 
C) an annuity 
D) interest 
A) the present value 
B) principle 
C) an annuity 
D) interest

Question 15

When using a present value of an annuity table (e.g., Table IV at the back of the book),

Accepted Answer

A) payments are assumed to be made at the beginning of each period 
B) PVIFA factors decrease with an increase in the interest rate 
C) PVIFA factors increase with an increase in the number of periods 
D) b and c only 
A) payments are assumed to be made at the beginning of each period 
B) PVIFA factors decrease with an increase in the interest rate 
C) PVIFA factors increase with an increase in the number of periods 
D) b and c only

Question 16

What is the present value of the following mixed cash flow stream if interest is 6% (rounded)?
$$\begin{array} { | l | l | } 
\hline Y A A R & \text { QASH FLOW } \
\hline 1 & \$ 5,000 \
\hline 2 & 40,000 \
\hline 3 & \$ 9,500 \
\hline
\end{array}$$

Accepted Answer

A) $25,370 
B) $19,813 
C) $21,225 
D) $18,750 
A) $25,370 
B) $19,813 
C) $21,225 
D) $18,750

Question 17

The of a perpetual stream of equal, annual returns (PMT) discounted at i% per year is equal to .

Accepted Answer

A) present value;PMT/i 
B) present value;PMT × i 
C) future value;PMT/i 
D) future value;PMT × i 
A) present value;PMT/i 
B) present value;PMT × i 
C) future value;PMT/i 
D) future value;PMT × i

Question 18

Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete mixer.The loan requires five equal annual end of the year payments.If the loan provides the bank with a 12 percent return, what will be your annual payments?

Accepted Answer

A) $5,548 
B) $3,148.12 
C) $6,000 
D) $1,666.67 
A) $5,548 
B) $3,148.12 
C) $6,000 
D) $1,666.67

Question 19

You sold 100 shares of stock today for $30 per share that you paid $20 for 6 years ago.Determine the average annual rate of return on your investment, assuming the stock paid no dividends.

Accepted Answer

A) 25% 
B) 8.33% 
C) 150% 
D) 7% 
A) 25% 
B) 8.33% 
C) 150% 
D) 7%

Question 20

How much will you have at the end of 5 years in a European vacation account if you deposit $200 a month in an account that is paying a nominal 12 percent per year, compounded monthly?

Accepted Answer

A) $16,334 
B) $15,247 
C) $16,497 
D) $15,817 
A) $16,334 
B) $15,247 
C) $16,497 
D) $15,817

Exam 5: The Time Value of Money

Using the "Rule of 72," about how long will it take a sum of money to double in value if the annual interest rate is 9 percent?

If a 16 year old high school student put $2,000 at the end of each year for 4 years into an IRA that earned a rate of 9%, how much would she have accumulated by age 65? Assume funds are left to accumulate for 45 years (age 20 - 65) at 9%.

What is the present value of the following net cash flows if the discount rate is 10%? Year Net Cash Flow 1-10 \ 20,000 each year 11-15 \ 15,000 each year 16-20 \ 10,000 each year

The values shown in ordinary annuity tables (either present value or compound value) can be adjusted to the Annuity due form by the ordinary annuity interest factor by .

BB&C bank has agreed to lend you $30,000 today, but you must repay $42,135 in 3 years.What rate is the bank charging you?

The earnings of Omega Supply Company have grown from $2.00 per share to $4.00 per share over a nine year time period.Determine the compound annual growth rate.

The process of finding present values is frequently called

Based on the Rule of 72, what interest rate do you need to earn to double your money in 6 years?

Your monthly statement from your bank credit card shows that the monthly rate of interest is 1.5%.What is the annual effective rate of interest you are being charged on your credit card?

You have just calculated the present value of the expected cash flows of a potential investment.Management thinks your figures are too low.Which of the following actions would improve the present value of your cash flows?

You just purchased a new $25,000 car and agreed to pay for the car in 50 monthly payments.If the monthly interest rate is 1 percent, what is your total financing cost?

If the discount rate is 12%, what is the present value of the following cash flows: Year Cash Flow 1 \ 10,000 2 \ 11,000 3 \ 12,000 4 \ 13,000 5 \ 14,000 6-15 \ 15,000 each year

is the return earned by someone who has forgone current consumption.

When using a present value of an annuity table (e.g., Table IV at the back of the book),

What is the present value of the following mixed cash flow stream if interest is 6% (rounded)? YAAR QASH FLOW 1 \ 5,000 2 40,000 3 \ 9,500

The of a perpetual stream of equal, annual returns (PMT) discounted at i% per year is equal to .

Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete mixer.The loan requires five equal annual end of the year payments.If the loan provides the bank with a 12 percent return, what will be your annual payments?

You sold 100 shares of stock today for $30 per share that you paid $20 for 6 years ago.Determine the average annual rate of return on your investment, assuming the stock paid no dividends.

How much will you have at the end of 5 years in a European vacation account if you deposit $200 a month in an account that is paying a nominal 12 percent per year, compounded monthly?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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