Question 1

What is the future value of a $10,000 college tuition fund if the nominal rate of interest is 12 percent compounded monthly for five years?

Accepted Answer

A)  $17,623.42 
B)  $18,170 
C)  $16,105.10 
D)  $16,122.26 
A)  $17,623.42 
B)  $18,170 
C)  $16,105.10 
D)  $16,122.26

Question 2

What is the value in 10 years of $10,000 deposited in an account earning 8% compounded monthly?

Accepted Answer

A)  $33,004 
B)  $22,285 
C)  $102,530 
D)  $21,589 
A)  $33,004 
B)  $22,285 
C)  $102,530 
D)  $21,589

Question 3

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 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

John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to achieve this goal?

Accepted Answer

A)  $7,499.96 
B)  $5,024.60 
C)  $4,143.65 
D)  $33,333.33 
A)  $7,499.96 
B)  $5,024.60 
C)  $4,143.65 
D)  $33,333.33

Question 6

The basic future value equation is given by

Accepted Answer

A)  FVn = PV0(PVIFi,n) 
B)  FVn = PV0(FVIFAi,n) 
C)  FVn = PV0(1/(1+ i)n) 
D)  FVn = PV0(FVIFi,n) 
A)  FVn = PV0(PVIFi,n) 
B)  FVn = PV0(FVIFAi,n) 
C)  FVn = PV0(1/(1+ i)n) 
D)  FVn = PV0(FVIFi,n)

Question 7

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

Question 8

California Life has just offered you a single premium annuity for $5,000 that will pay $5,144.12 per year for 20 years, the first payment being received exactly 31 years from today. What is the implied rate of return on this annuity?

Accepted Answer

A)  7% 
B)  8% 
C)  9% 
D)  6.5% 
A)  7% 
B)  8% 
C)  9% 
D)  6.5%

Question 9

Determine how much $1,000 deposited in a savings account paying 8% (compounded annually) will be worth after 5 years.

Accepted Answer

A)  $5,526 
B)  $ 784 
C)  $1,400 
D)  $1,469 
A)  $5,526 
B)  $ 784 
C)  $1,400 
D)  $1,469

Question 10

An annuity due is one in which

Accepted Answer

A)  payments or receipts occur at the end of each period. 
B)  payments or receipts occur at the beginning of each period. 
C)  payments or receipts occur forever. 
D)  cash flows occur continuously. 
A)  payments or receipts occur at the end of each period. 
B)  payments or receipts occur at the beginning of each period. 
C)  payments or receipts occur forever. 
D)  cash flows occur continuously.

Question 11

Billy Bob has decided to put $2,400 a year (at the end of each year) into an IRA over his 40 year working life and then retire. What will Billy have if the account will earn 10 percent compounded annually?

Accepted Answer

A)  $394,786 
B)  $ 23,470 
C)  $1,062,223 
D)  $810,917 
A)  $394,786 
B)  $ 23,470 
C)  $1,062,223 
D)  $810,917

Question 12

Alabama Power has preferred stock that pays an annual dividend of $9.44. If the security has no maturity, what is it's value to an investor who wishes to obtain a 9 percent rate of return?

Accepted Answer

A)  $84.96 
B)  $104.89 
C)  $95.34 
D)  $94.40 
A)  $84.96 
B)  $104.89 
C)  $95.34 
D)  $94.40

Question 13

____ is interest that is paid not only on the principal, but also on any interest earned but not withdrawn during earlier periods.

Accepted Answer

A)  basic interest 
B)  simple interest 
C)  future interest 
D)  compound interest 
A)  basic interest 
B)  simple interest 
C)  future interest 
D)  compound interest

Question 14

Seebee makes quarterly (end of period) payments of $30,000 into a pension fund earning 12 percent per year compounded quarterly for 10 years. How much interest will they have 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 15

Explain the sinking fund problem.

Accepted Answer

The sinking fund problem results from tr

Question 16

The present value of a single amount can be represented as

Accepted Answer

A)  PV0 = FVn(PVIFi,n) 
B)  PV0 = FVn(PVIFAi,n) 
C)  PV0 = FVn[1/(1 + i)n] 
D)  a and c 
A)  PV0 = FVn(PVIFi,n) 
B)  PV0 = FVn(PVIFAi,n) 
C)  PV0 = FVn[1/(1 + i)n] 
D)  a and c

Question 17

Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?

Accepted Answer

A)  $12,107 
B)  $11,465 
C)  $9,901 
D)  $14,727 
A)  $12,107 
B)  $11,465 
C)  $9,901 
D)  $14,727

Question 18

Keith Stone has a 10-year old daughter, Kate, who will be entering college in 8 years. Keith estimates college costs to be $16,000, $17,000, $18,000 and $19,000 payable at the beginning of each of Kate's four years in college. How much must Keith save each year (assume end of year payments) for each of the next 8 years to have enough savings to pay for Kate's education? Assume Keith can earn 9% on his savings.

Accepted Answer

A)  $5,569 
B)  $7,720 
C)  $5,108 
D)  $7,677 
A)  $5,569 
B)  $7,720 
C)  $5,108 
D)  $7,677

Question 19

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

Question 20

Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a ten-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment.

Accepted Answer

A)  16.3% 
B)  62.7% 
C)  10% 
D)  20% 
A)  16.3% 
B)  62.7% 
C)  10% 
D)  20%

Exam 5: The Time Value of Money

What is the future value of a $10,000 college tuition fund if the nominal rate of interest is 12 percent compounded monthly for five years?

What is the value in 10 years of $10,000 deposited in an account earning 8% compounded monthly?

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?

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 ____.

John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to achieve this goal?

The basic future value equation is given by

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%.

California Life has just offered you a single premium annuity for $5,000 that will pay $5,144.12 per year for 20 years, the first payment being received exactly 31 years from today. What is the implied rate of return on this annuity?

Determine how much $1,000 deposited in a savings account paying 8% (compounded annually) will be worth after 5 years.

An annuity due is one in which

Billy Bob has decided to put $2,400 a year (at the end of each year) into an IRA over his 40 year working life and then retire. What will Billy have if the account will earn 10 percent compounded annually?

Alabama Power has preferred stock that pays an annual dividend of $9.44. If the security has no maturity, what is it's value to an investor who wishes to obtain a 9 percent rate of return?

____ is interest that is paid not only on the principal, but also on any interest earned but not withdrawn during earlier periods.

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

Explain the sinking fund problem.

The present value of a single amount can be represented as

Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?

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?

Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a ten-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

Filters

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 .