Question 1

If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the EAR is:

Accepted Answer

A) 10.38% 
B) 10.00% 
C) 2.50% 
D) none of the above 
A) 10.38% 
B) 10.00% 
C) 2.50% 
D) none of the above

Question 2

Carol Channing is planning for her son's college education to begin five years from today.She estimates the yearly tuition,books,and living expenses to be $5,000 per year for a four-year degree.How much must Carol deposit today,at an interest rate of 8 percent,for her son to be able to withdraw $5,000 per year for four years of college?

Accepted Answer

A) $20,000 
B) $13,620 
C) $39,520 
D) $11,277 
A) $20,000 
B) $13,620 
C) $39,520 
D) $11,277

Question 3

In future value or present value problems,unless stated otherwise,cash flows are assumed to be

Accepted Answer

A) at the end of a time period. 
B) at the beginning of a time period. 
C) in the middle of a time period. 
D) spread out evenly over a time period. 
A) at the end of a time period. 
B) at the beginning of a time period. 
C) in the middle of a time period. 
D) spread out evenly over a time period.

Question 4

The future value of a $100 deposit in 10 years at 10% is $38.55.

Accepted Answer

A) True 
 B)False

Question 5

The annual percentage rate is the true opportunity cost measure of the interest rate.

Accepted Answer

A) True 
 B)False

Question 6

Assume JP Morgan has a choice between two deposit accounts.Account A has an annual percentage rate of 7.55 percent but with interest compounded monthly.Account B has an annual percentage rate of 7.45 percent with interest compounded continuously.Which account provides the highest effective annual return?

Accepted Answer

A) Account A 
B) Account B 
C) Both provide the same effective annual return. 
D) We don't have sufficient information to make a choice. 
A) Account A 
B) Account B 
C) Both provide the same effective annual return. 
D) We don't have sufficient information to make a choice.

Question 7

A ski chalet in Vail now costs $250,000 to rent for a week during February.Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Curly Howard and his wife retire from successful investment banking careers.How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?

Accepted Answer

A) $8,333 
B) $13,572 
C) $25,005 
D) $22,109 
A) $8,333 
B) $13,572 
C) $25,005 
D) $22,109

Question 8

Your subscription to Consumer Reports is about to expire.You may renew it for $24 a year or,instead,you may get a lifetime subscription to the magazine for a onetime payment of $400 today.Payments for the regular subscription are made at the beginning of each year.Using a discount rate of 5%,how many years does it take to make the lifetime subscription the better deal?

Accepted Answer

A) 25 years 
B) 28 years 
C) 30 years 
D) 40 years 
A) 25 years 
B) 28 years 
C) 30 years 
D) 40 years

Question 9

If the interest rate is 0% for 10 years,then the present value will be less than the future value.

Accepted Answer

A) True 
 B)False

Question 10

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years.To determine what such a contract is worth today,you would need to use:

Accepted Answer

A) present value factors 
B) future value factors 
C) present value factors of an annuity 
D) future value factors of an annuity 
A) present value factors 
B) future value factors 
C) present value factors of an annuity 
D) future value factors of an annuity

Question 11

A hospital received a contribution to its endowment fund of $2 million.The hospital can never touch the principal,but it can use the earnings.At an assumed interest rate of 9.5 percent,how much can the hospital earn to help its operations each year?

Accepted Answer

A) $95,000 
B) $19,000. 
C) $190,000. 
D) $18,000. 
A) $95,000 
B) $19,000. 
C) $190,000. 
D) $18,000.

Question 12

Joseph has just accepted a job as a stockbroker.He estimates his gross pay each year for the next three years is $35,000 in year 1,$21,000 in year 2,and $32,000 in year 3.What is the present value of these cash flows if they are discounted at 4%?

Accepted Answer

A) $79,452.30 
B) $80,294.50 
C) $81,517.10 
D) $88,000 
A) $79,452.30 
B) $80,294.50 
C) $81,517.10 
D) $88,000

Question 13

Stephen Spielberg would like to send his parents on a cruise for their 25th wedding anniversary.He has priced the cruise at $15,000 and he has 5 years to accumulate this money.How much must Stephen deposit annually in an account paying 10 percent interest in order to have enough money to send his parents on the cruise?

Accepted Answer

A) $1,862 
B) $2,457 
C) $3,000 
D) $2,234 
A) $1,862 
B) $2,457 
C) $3,000 
D) $2,234

Question 14

You deposit $1,000 in a long-term certificate of deposit with a fixed interest rate of ? 9%.How many years will it take for you to triple your deposit? Pick the closest ? answer.

Accepted Answer

A) 11 years 
B) 12 years 
C) 13 years 
D) 14 years 
A) 11 years 
B) 12 years 
C) 13 years 
D) 14 years

Question 15

What is the highest effective rate attainable with a 12 percent nominal rate?

Accepted Answer

A) 12.00% 
B) 12.55% 
C) 12.75% 
D) 12.95% 
A) 12.00% 
B) 12.55% 
C) 12.75% 
D) 12.95%

Question 16

When the annual interest rate stays the same,more frequent interest compounding helps savers earn more interest over the course of the year.

Accepted Answer

A) True 
 B)False

Question 17

If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the APR is:

Accepted Answer

A) 10.38% 
B) 10.00% 
C) 2.50% 
D) none of the above 
A) 10.38% 
B) 10.00% 
C) 2.50% 
D) none of the above

Question 18

You want to buy a Volvo in seven years.The car is currently selling for $50,000,and the price will increase at a compound rate of 10% per year.You can presently invest in high-yield bonds earning a compound annual rate 14% per year.How much must you invest at the end of each of the next seven years to be able to purchase your dream car in seven years?

Accepted Answer

A) $8,831.46 
B) $9,080.20 
C) $9,125.42 
D) $9,282.09 
A) $8,831.46 
B) $9,080.20 
C) $9,125.42 
D) $9,282.09

Question 19

Which of the following statements is false?

Accepted Answer

A) the present value of a future sum decreases as either the discount rate or the number of discounting periods per year increases. 
B) if the present value of a sum is equal to its future value,the interest rate must be zero. 
C) if the discount (or interest)rate is positive,the future value of an expected series of payments will always exceed the present value of the same series. 
D) each of the above statements is true. 
A) the present value of a future sum decreases as either the discount rate or the number of discounting periods per year increases. 
B) if the present value of a sum is equal to its future value,the interest rate must be zero. 
C) if the discount (or interest)rate is positive,the future value of an expected series of payments will always exceed the present value of the same series. 
D) each of the above statements is true.

Question 20

If we will receive $100 per year beginning one year from now for a period of three years with a 12% discount rate,what would be the value of our investment today?

Accepted Answer

A) $230 
B) $240 
C) $250 
D) $260 
A) $230 
B) $240 
C) $250 
D) $260

If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the EAR is:

In future value or present value problems,unless stated otherwise,cash flows are assumed to be

The future value of a $100 deposit in 10 years at 10% is $38.55.

The annual percentage rate is the true opportunity cost measure of the interest rate.

If the interest rate is 0% for 10 years,then the present value will be less than the future value.

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years.To determine what such a contract is worth today,you would need to use:

A hospital received a contribution to its endowment fund of $2 million.The hospital can never touch the principal,but it can use the earnings.At an assumed interest rate of 9.5 percent,how much can the hospital earn to help its operations each year?

Joseph has just accepted a job as a stockbroker.He estimates his gross pay each year for the next three years is $35,000 in year 1,$21,000 in year 2,and $32,000 in year 3.What is the present value of these cash flows if they are discounted at 4%?

You deposit $1,000 in a long-term certificate of deposit with a fixed interest rate of ? 9%.How many years will it take for you to triple your deposit? Pick the closest ? answer.

What is the highest effective rate attainable with a 12 percent nominal rate?

When the annual interest rate stays the same,more frequent interest compounding helps savers earn more interest over the course of the year.

If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the APR is:

Which of the following statements is false?

If we will receive $100 per year beginning one year from now for a period of three years with a 12% discount rate,what would be the value of our investment today?

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Exam 9: Time Value of Money

If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the EAR is:

In future value or present value problems,unless stated otherwise,cash flows are assumed to be

The future value of a $100 deposit in 10 years at 10% is $38.55.

The annual percentage rate is the true opportunity cost measure of the interest rate.

If the interest rate is 0% for 10 years,then the present value will be less than the future value.

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years.To determine what such a contract is worth today,you would need to use:

A hospital received a contribution to its endowment fund of $2 million.The hospital can never touch the principal,but it can use the earnings.At an assumed interest rate of 9.5 percent,how much can the hospital earn to help its operations each year?

Joseph has just accepted a job as a stockbroker.He estimates his gross pay each year for the next three years is $35,000 in year 1,$21,000 in year 2,and $32,000 in year 3.What is the present value of these cash flows if they are discounted at 4%?

You deposit $1,000 in a long-term certificate of deposit with a fixed interest rate of ? 9%.How many years will it take for you to triple your deposit? Pick the closest ? answer.

What is the highest effective rate attainable with a 12 percent nominal rate?

When the annual interest rate stays the same,more frequent interest compounding helps savers earn more interest over the course of the year.

If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the APR is:

Which of the following statements is false?

If we will receive $100 per year beginning one year from now for a period of three years with a 12% discount rate,what would be the value of our investment today?

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

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