Question 1

The future value of a $500 investment today at 8% annual interest compounded semiannually for five years is ______.

Accepted Answer

A)  $805 
B)  $814 
C)  $740 
D)  $923 
A)  $805 
B)  $814 
C)  $740 
D)  $923 C

Question 2

The shorter the length of time between a present value and its corresponding future value,

Accepted Answer

A)  the lower the present value, relative to the future value. 
B)  the higher the present value, relative to the future value. 
C)  the higher the interest rate used in the discounting to the present value. 
D)  None of these options are correct. 
A)  the lower the present value, relative to the future value. 
B)  the higher the present value, relative to the future value. 
C)  the higher the interest rate used in the discounting to the present value. 
D)  None of these options are correct. B

Question 3

Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement in 20 years. How much will she have available for retirement if she can make 8% on her investment?

Accepted Answer

A)  $2,150 
B)  $457,620 
C)  $46,610 
D)  $217,250 
A)  $2,150 
B)  $457,620 
C)  $46,610 
D)  $217,250 C

Question 4

If Gerry makes a deposit of $1,500 at the end of each quarter for five years, how much will he have at the end of the five years assuming a 12% annual return and quarterly compounding?

Accepted Answer

A)  $40,305 
B)  $30,000 
C)  $108,078 
D)  $161,220 
A)  $40,305 
B)  $30,000 
C)  $108,078 
D)  $161,220

Question 5

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What is the principal outstanding after the first loan payment?

Accepted Answer

A)  $143,555 
B)  $134,560 
C)  $141,200 
D)  $138,620 
A)  $143,555 
B)  $134,560 
C)  $141,200 
D)  $138,620

Question 6

Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years?

Accepted Answer

A)  Greater than 10% 
B)  Between 8% and 10% 
C)  Between 6% and 8% 
D)  Lower than 6% 
A)  Greater than 10% 
B)  Between 8% and 10% 
C)  Between 6% and 8% 
D)  Lower than 6%

Question 7

Using semi-annual compounding rather than annual compounding will increase the future value of an annuity.

Accepted Answer

A) True 
 B)False

Question 8

An amount of money to be received in the future is worth less today than the stated present value amount.

Accepted Answer

A) True 
 B)False

Question 9

Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she can receive $200,000 today. Which should she choose?

Accepted Answer

A)  The $200,000 today. 
B)  The $1 million in 20 years. 
C)  Both equal the same value. 
D)  Neither option would be preferred. 
A)  The $200,000 today. 
B)  The $1 million in 20 years. 
C)  Both equal the same value. 
D)  Neither option would be preferred.

Question 10

The future value of an annuity table provides a "shortcut" for calculating the future value of a steady stream of payments, denoted as
A. The same value can be calculated directly from the following equation:

Accepted Answer

A) True 
 B)False

Question 11

You are to receive $12,000 at the end of each of five years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

Accepted Answer

A)  Present value of an annuity of $1 
B)  Future value of an annuity of $1 
C)  Present value of $1 
D)  Future value of $1 
A)  Present value of an annuity of $1 
B)  Future value of an annuity of $1 
C)  Present value of $1 
D)  Future value of $1

Question 12

The formula PV = FV(1 + n)i will determine the present value of $1.

Accepted Answer

A) True 
 B)False

Question 13

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

Accepted Answer

A)  A period of recession 
B)  When idle money can earn a positive return 
C)  When there is no risk of non payment in the future 
D)  When current interest rates are different from expected future rates 
A)  A period of recession 
B)  When idle money can earn a positive return 
C)  When there is no risk of non payment in the future 
D)  When current interest rates are different from expected future rates

Question 14

Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12th year (10 payments). The discount rate is 10%. The present value today of this deferred annuity is ______.

Accepted Answer

A)  $61,450 
B)  $42,185 
C)  $60,909 
D)  $55,379 
A)  $61,450 
B)  $42,185 
C)  $60,909 
D)  $55,379

Question 15

You are to receive $12,000 at the end of five years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

Accepted Answer

A)  Present value of an annuity of $1 
B)  Future value of an annuity of $1 
C)  Present value of $1 
D)  Future value of $1 
A)  Present value of an annuity of $1 
B)  Future value of an annuity of $1 
C)  Present value of $1 
D)  Future value of $1

Question 16

Lou Lewis borrows $10,000 to be completely repaid over 10 years at 8%. Repayment of principal in the first year is ______.

Accepted Answer

A)  $1,493 
B)  $693 
C)  $690 
D)  $885 
A)  $1,493 
B)  $693 
C)  $690 
D)  $885

Question 17

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% compounded for four years. How much total return will his investment earn during this time period?

Accepted Answer

A)  $3,675 
B)  $1,800 
C)  $6,254 
D)  $8,570 
A)  $3,675 
B)  $1,800 
C)  $6,254 
D)  $8,570

Question 18

Calculation of the yield of an investment provides the total return over multiple years.

Accepted Answer

A) True 
 B)False

Question 19

An annuity is a series of consecutive payments of equal amount.
If even ONE of a stream of payments is not the same, we cannot use the "shortcut" of annuity tables and calculations

Accepted Answer

A) True 
 B)False

Question 20

In determining the future value of an ordinary annuity, the final payment is not compounded at all.

Accepted Answer

A) True 
 B)False

Exam 9: The Time Value of Money

The future value of a $500 investment today at 8% annual interest compounded semiannually for five years is ______.

The shorter the length of time between a present value and its corresponding future value,

Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement in 20 years. How much will she have available for retirement if she can make 8% on her investment?

If Gerry makes a deposit of $1,500 at the end of each quarter for five years, how much will he have at the end of the five years assuming a 12% annual return and quarterly compounding?

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What is the principal outstanding after the first loan payment?

Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years?

Using semi-annual compounding rather than annual compounding will increase the future value of an annuity.

An amount of money to be received in the future is worth less today than the stated present value amount.

Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she can receive $200,000 today. Which should she choose?

The future value of an annuity table provides a "shortcut" for calculating the future value of a steady stream of payments, denoted as A. The same value can be calculated directly from the following equation:

You are to receive $12,000 at the end of each of five years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

The formula PV = FV(1 + n)i will determine the present value of $1.

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12th year (10 payments). The discount rate is 10%. The present value today of this deferred annuity is ______.

You are to receive $12,000 at the end of five years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

Lou Lewis borrows $10,000 to be completely repaid over 10 years at 8%. Repayment of principal in the first year is ______.

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% compounded for four years. How much total return will his investment earn during this time period?

Calculation of the yield of an investment provides the total return over multiple years.

An annuity is a series of consecutive payments of equal amount. If even ONE of a stream of payments is not the same, we cannot use the "shortcut" of annuity tables and calculations

In determining the future value of an ordinary annuity, the final payment is not compounded at all.

The Goals and Activities of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

External Growth Through Mergers

International Financial Management

Filters

The formula PV = FV(1 + n)ⁱ will determine the present value of $1.

Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12^th year (10 payments). The discount rate is 10%. The present value today of this deferred annuity is ______.