Question 1

What is the value of $10,000 invested for 1 year at 8% compounded continuously?

Accepted Answer

A) $10,800 
B) $10,833 
C) $10,824 
D) $11,268 
A) $10,800 
B) $10,833 
C) $10,824 
D) $11,268 B

Question 2

Fred deposited $5,000 in an account that promised a nominal interest rate of 8% compounded continuously for his daughter who will be going to college in 18 years.How much will she have in the account in 18 years?

Accepted Answer

A) $19,980 
B) $20,054 
C) $21,103 
D) $21,694 
A) $19,980 
B) $20,054 
C) $21,103 
D) $21,694 C

Question 3

Friendly Bank offers you a loan at an annual interest rate of 10% compounded monthly.What is the effective rate the bank is charging you?

Accepted Answer

A) 12.68% 
B) 10.00% 
C) 10.47% 
D) 10.83% 
A) 12.68% 
B) 10.00% 
C) 10.47% 
D) 10.83% C

Question 4

What is the present value of $100,000 that will be received 20 years from now if the nominal discount rate is 11 percent, discounted continuously?

Accepted Answer

A) $21,240 
B) $11,080 
C) $16,421 
D) none of these 
A) $21,240 
B) $11,080 
C) $16,421 
D) none of these

Question 5

What continuously compounded effective rate of interest will yield the same present value of a future cash flow as an annual rate of interest of 6.15%?

Accepted Answer

A) 5.97% 
B) 6.32% 
C) 4.11% 
D) 8.24% 
A) 5.97% 
B) 6.32% 
C) 4.11% 
D) 8.24%

Question 6

With continuous compounding

Accepted Answer

A) the effective rate is higher than the nominal rate 
B) the effective rate is higher than the logarithmic rate 
C) the base "e" is the effective rate 
D) all these are correct 
A) the effective rate is higher than the nominal rate 
B) the effective rate is higher than the logarithmic rate 
C) the base "e" is the effective rate 
D) all these are correct

Question 7

City Bank offers a 7 year CD with a nominal rate of interest of 7.0%.If compounding occurs continuously, what is the effective annual rate?

Accepted Answer

A) 7.25% 
B) 6.77% 
C) 7.32% 
D) 7.00% 
A) 7.25% 
B) 6.77% 
C) 7.32% 
D) 7.00%

Question 8

Determine the present value of $5,000 to be received 4 years from now at the continuously discounted rate of 8 percent.

Accepted Answer

A) $6,886 
B) $3,631 
C) $4,616 
D) None of these 
A) $6,886 
B) $3,631 
C) $4,616 
D) None of these

Question 9

Paula invested $25 into a savings account when she was 6 years old.She is now 35.Her money grew at 2% compounded continuously.How much money does she have?

Accepted Answer

A) $106.58 
B) $85.19 
C) $270.82 
D) $44.65 
A) $106.58 
B) $85.19 
C) $270.82 
D) $44.65

Question 10

If interest is at 8% and it is compounded continuously, what is the effective interest rate?

Accepted Answer

A) 7.25% 
B) 5.14% 
C) 8.33% 
D) 9.76% 
A) 7.25% 
B) 5.14% 
C) 8.33% 
D) 9.76%

Question 11

With continuous compounding, why is the effective rate higher than the nominal rate?

Accepted Answer

The effective rate is higher than the no

Question 12

What is the value of $10,000 invested for 5 years at 8% compounded continuously?

Accepted Answer

A) $14,693 
B) $14,928 
C) $14,918 
D) $13,064 
A) $14,693 
B) $14,928 
C) $14,918 
D) $13,064

Question 13

The nominal interest rate and the effective interest rate are equivalent when compounding occurs:

Accepted Answer

A) once a year at the end of the year. 
B) every quarter. 
C) semiannually. 
D) monthly. 
A) once a year at the end of the year. 
B) every quarter. 
C) semiannually. 
D) monthly.

Question 14

In the continuous compounding equation, "e" is the

Accepted Answer

A) natural log to the base 10. 
B) base number in natural logarithms 
C) natural log to the base 1. 
D) none of the above are correct 
A) natural log to the base 10. 
B) base number in natural logarithms 
C) natural log to the base 1. 
D) none of the above are correct

Question 15

What continuously compounded effective rate of interest will yield the same present value of a future cash flow as an annual rate of interest of 2.25%?

Accepted Answer

A) 2.23% 
B) 3.15% 
C) .95% 
D) 1.28% 
A) 2.23% 
B) 3.15% 
C) .95% 
D) 1.28%

Question 16

Brad deposited $5,250 into an account that earns 7% interest compounded continuously.How much money will he have in 15 years?

Accepted Answer

A) $15,002.67 
B) $12,175.90 
C) $13,957.14 
D) $14,964.25 
A) $15,002.67 
B) $12,175.90 
C) $13,957.14 
D) $14,964.25

Question 17

You have just won a lottery that promises to pay you $1,000,000 in 5 years.What is the present value of this lottery win at the continuously discounted rate of 10%?

Accepted Answer

A) $621,000 
B) $606,531 
C) $648,720 
D) $904,837 
A) $621,000 
B) $606,531 
C) $648,720 
D) $904,837

Question 18

Moneybag Bank & Trust is offering loans at 5% compounded continuously.Before you decide to borrow using that interest rate, what amount would need to be paid back if the loan is for 10 years?

Accepted Answer

A) $329,744.25 
B) $275,187.36 
C) $301,150.15 
D) $227,198.05 
A) $329,744.25 
B) $275,187.36 
C) $301,150.15 
D) $227,198.05

Question 19

Vida has just won a jackpot that will pay her $10,000 now, $10,000 in one year, and $10,000 in 2 years.What is the present value of this jackpot at the continuously discounted rate of 9%?

Accepted Answer

A) $27,515 
B) $28,345 
C) $24,516 
D) $27,492 
A) $27,515 
B) $28,345 
C) $24,516 
D) $27,492

Question 20

What is the effective interest rate on 12% if interest is compounded continuously?

Accepted Answer

A) 15.11% 
B) 16.25% 
C) 14.11% 
D) 12.75% 
A) 15.11% 
B) 16.25% 
C) 14.11% 
D) 12.75%

Exam 5: A: The Time Value of Money

What is the value of $10,000 invested for 1 year at 8% compounded continuously?

Fred deposited $5,000 in an account that promised a nominal interest rate of 8% compounded continuously for his daughter who will be going to college in 18 years.How much will she have in the account in 18 years?

Friendly Bank offers you a loan at an annual interest rate of 10% compounded monthly.What is the effective rate the bank is charging you?

What is the present value of $100,000 that will be received 20 years from now if the nominal discount rate is 11 percent, discounted continuously?

What continuously compounded effective rate of interest will yield the same present value of a future cash flow as an annual rate of interest of 6.15%?

With continuous compounding

City Bank offers a 7 year CD with a nominal rate of interest of 7.0%.If compounding occurs continuously, what is the effective annual rate?

Determine the present value of $5,000 to be received 4 years from now at the continuously discounted rate of 8 percent.

Paula invested $25 into a savings account when she was 6 years old.She is now 35.Her money grew at 2% compounded continuously.How much money does she have?

If interest is at 8% and it is compounded continuously, what is the effective interest rate?

With continuous compounding, why is the effective rate higher than the nominal rate?

What is the value of $10,000 invested for 5 years at 8% compounded continuously?

The nominal interest rate and the effective interest rate are equivalent when compounding occurs:

In the continuous compounding equation, "e" is the

What continuously compounded effective rate of interest will yield the same present value of a future cash flow as an annual rate of interest of 2.25%?

Brad deposited $5,250 into an account that earns 7% interest compounded continuously.How much money will he have in 15 years?

You have just won a lottery that promises to pay you $1,000,000 in 5 years.What is the present value of this lottery win at the continuously discounted rate of 10%?

Moneybag Bank & Trust is offering loans at 5% compounded continuously.Before you decide to borrow using that interest rate, what amount would need to be paid back if the loan is for 10 years?

Vida has just won a jackpot that will pay her $10,000 now, $10,000 in one year, and $10,000 in 2 years.What is the present value of this jackpot at the continuously discounted rate of 9%?

What is the effective interest rate on 12% if interest is compounded continuously?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

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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