Question 1

The present value of a $100 annuity deposited for 10 years at 10% is $614.46.

Accepted Answer

A) True 
 B)False

Question 2

Compound interest is interest earned on interest in addition to interest earned on the principal.

Accepted Answer

A) True 
 B)False

Question 3

The effective annual rate (EAR)is sometimes called the annual effective yield.

Accepted Answer

A) True 
 B)False

Question 4

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as:

Accepted Answer

A) an ordinary annuity 
B) a deferred annuity 
C) an annuity due 
D) an extraordinary annuity 
A) an ordinary annuity 
B) a deferred annuity 
C) an annuity due 
D) an extraordinary annuity

Question 5

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

Accepted Answer

A) $26,210 
B) $27,258 
C) $3,950 
D) none of the above 
A) $26,210 
B) $27,258 
C) $3,950 
D) none of the above

Question 6

Bill Clinton plans to fund his individual retirement account (IRA)with the maximum contribution of $2,000 at the end of each year for the next 20 years.If Bill can earn 12 percent on his contributions,how much will he have at the end of the twentieth year?

Accepted Answer

A) $19,292. 
B) $14,938. 
C) $40,000. 
D) $144,104. 
A) $19,292. 
B) $14,938. 
C) $40,000. 
D) $144,104.

Question 7

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

Accepted Answer

A) True 
 B)False

Question 8

A fixed-rate mortgage is an example of an annuity.

Accepted Answer

A) True 
 B)False

Question 9

If a Canadian Savings bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?

Accepted Answer

A) 5% 
B) 6% 
C) 7% 
D) 8% 
A) 5% 
B) 6% 
C) 7% 
D) 8%

Question 10

The future value of an annuity of $1,000 each quarter for 10 years,deposited at 12 percent compounded quarterly is

Accepted Answer

A) $17,549 
B) $75,401 
C) $93,049 
D) $11,200 
A) $17,549 
B) $75,401 
C) $93,049 
D) $11,200

Question 11

Assume that a borrower is willing to pay you $2,000 at the end of three years in return for a sum of money now.To receive a return of 10%,how much are you willing to lend now?

Accepted Answer

A) $1,502 
B) $1,786 
C) $1,802 
D) $1,818 
A) $1,502 
B) $1,786 
C) $1,802 
D) $1,818

Question 12

How much would you be willing to pay for a preferred stock that pays $6.50 to perpetuity if the appropriate discount rate is 9%?

Accepted Answer

A) $65.00 
B) $72.22 
C) $81.25 
D) $722.20 
A) $65.00 
B) $72.22 
C) $81.25 
D) $722.20

Question 13

Simple interest is interest earned on the investment's principal and interest.

Accepted Answer

A) True 
 B)False

Question 14

For the same annual percentage rate,more frequent compounding increases the future value of an investor's funds more quickly.

Accepted Answer

A) True 
 B)False

Question 15

What would be the future value of a loan of $1,000 for two years if the bank offered a 10% interest rate compounded semiannually?

Accepted Answer

A) $1,720 
B) $1,960 
C) $1,200 
D) $1,216 
A) $1,720 
B) $1,960 
C) $1,200 
D) $1,216

Question 16

Suppose you have a choice of two equally risky annuities,each paying $1,000 per year for 20 years.One is an annuity due,while the other is an ordinary annuity.Which annuity would you choose?

Accepted Answer

A) the ordinary annuity 
B) the annuity due 
C) either one because the annuities have the same present value 
D) without information about the appropriate interest rate,we cannot tell which annuity is better 
A) the ordinary annuity 
B) the annuity due 
C) either one because the annuities have the same present value 
D) without information about the appropriate interest rate,we cannot tell which annuity is better

Question 17

The return provided by $100 deposited for 10 years that results in a future value of $614.46 is -11.45%.

Accepted Answer

A) True 
 B)False

Question 18

The basic future and present value equations contain four variables.Which one of the following is not included?

Accepted Answer

A) present value (PV) 
B) future value (FV) 
C) interest rate (r) 
D) inflation rate (I) 
E) number of periods (n) 
A) present value (PV) 
B) future value (FV) 
C) interest rate (r) 
D) inflation rate (I) 
E) number of periods (n)

Question 19

If the APR is 12% and interest is compounded monthly,then the EAR is:

Accepted Answer

A) 12.00% 
B) 1.00% 
C) 12.68%% 
D) none of the above 
A) 12.00% 
B) 1.00% 
C) 12.68%% 
D) none of the above

Question 20

Moe Howard borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments.The interest paid in the first year is

Accepted Answer

A) $1,155 
B) $2,481 
C) $144 
D) $1,327 
A) $1,155 
B) $2,481 
C) $144 
D) $1,327

The present value of a $100 annuity deposited for 10 years at 10% is $614.46.

Compound interest is interest earned on interest in addition to interest earned on the principal.

The effective annual rate (EAR)is sometimes called the annual effective yield.

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as:

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

Bill Clinton plans to fund his individual retirement account (IRA)with the maximum contribution of $2,000 at the end of each year for the next 20 years.If Bill can earn 12 percent on his contributions,how much will he have at the end of the twentieth year?

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

A fixed-rate mortgage is an example of an annuity.

If a Canadian Savings bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?

The future value of an annuity of $1,000 each quarter for 10 years,deposited at 12 percent compounded quarterly is

Assume that a borrower is willing to pay you $2,000 at the end of three years in return for a sum of money now.To receive a return of 10%,how much are you willing to lend now?

How much would you be willing to pay for a preferred stock that pays $6.50 to perpetuity if the appropriate discount rate is 9%?

Simple interest is interest earned on the investment's principal and interest.

For the same annual percentage rate,more frequent compounding increases the future value of an investor's funds more quickly.

What would be the future value of a loan of $1,000 for two years if the bank offered a 10% interest rate compounded semiannually?

Suppose you have a choice of two equally risky annuities,each paying $1,000 per year for 20 years.One is an annuity due,while the other is an ordinary annuity.Which annuity would you choose?

The return provided by $100 deposited for 10 years that results in a future value of $614.46 is -11.45%.

The basic future and present value equations contain four variables.Which one of the following is not included?

If the APR is 12% and interest is compounded monthly,then the EAR is:

Moe Howard borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments.The interest paid in the first year is

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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Exam 9: Time Value of Money

The present value of a $100 annuity deposited for 10 years at 10% is $614.46.

Compound interest is interest earned on interest in addition to interest earned on the principal.

The effective annual rate (EAR)is sometimes called the annual effective yield.

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as:

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

Bill Clinton plans to fund his individual retirement account (IRA)with the maximum contribution of $2,000 at the end of each year for the next 20 years.If Bill can earn 12 percent on his contributions,how much will he have at the end of the twentieth year?

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

A fixed-rate mortgage is an example of an annuity.

If a Canadian Savings bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?

The future value of an annuity of $1,000 each quarter for 10 years,deposited at 12 percent compounded quarterly is

Assume that a borrower is willing to pay you $2,000 at the end of three years in return for a sum of money now.To receive a return of 10%,how much are you willing to lend now?

How much would you be willing to pay for a preferred stock that pays $6.50 to perpetuity if the appropriate discount rate is 9%?

Simple interest is interest earned on the investment's principal and interest.

For the same annual percentage rate,more frequent compounding increases the future value of an investor's funds more quickly.

What would be the future value of a loan of $1,000 for two years if the bank offered a 10% interest rate compounded semiannually?

Suppose you have a choice of two equally risky annuities,each paying $1,000 per year for 20 years.One is an annuity due,while the other is an ordinary annuity.Which annuity would you choose?

The return provided by $100 deposited for 10 years that results in a future value of $614.46 is -11.45%.

The basic future and present value equations contain four variables.Which one of the following is not included?

If the APR is 12% and interest is compounded monthly,then the EAR is:

Moe Howard borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments.The interest paid in the first year is

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

Filters