Question 1

You will deposit $200,000 today. It will grow for five years at 12% interest, but compounded semi-annually. What will your investment grow to?

Accepted Answer

A)  $111,600 
B)  $1,120,000 
C)  $352,468 
D)  $358,200 
A)  $111,600 
B)  $1,120,000 
C)  $352,468 
D)  $358,200

Question 2

Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment?

Accepted Answer

A)  2% 
B)  Between 3% and 4% 
C)  10% 
D)  Less than 1% 
A)  2% 
B)  Between 3% and 4% 
C)  10% 
D)  Less than 1%

Question 3

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

Accepted Answer

A) True 
 B)False

Question 4

Fishermen's Corp. is considering purchasing a boat. If the boat was purchased, it is expected to receive $20,000 at the end of the first year, $40,000 at the end of the second year, and $60,000 at the end of the third year within its business. What is the boat worth to Fishermen's Corp today, assume an 8% discount rate.

Accepted Answer

A)  $120,000 
B)  $100,440 
C)  $47,640 
D)  $98,756 
A)  $120,000 
B)  $100,440 
C)  $47,640 
D)  $98,756

Question 5

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 6

If you were to put $1,000 in the bank at 6% interest each year for the next 10 years, how much would you have as an ending balance in your account?

Accepted Answer

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

Question 7

As the time period until receipt increases, the present value

Accepted Answer

A)  decreases. 
B)  remains the same. 
C)  increases. 
D)  Not enough information is given to tell. 
A)  decreases. 
B)  remains the same. 
C)  increases. 
D)  Not enough information is given to tell.

Question 8

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 5 years starting one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?

Accepted Answer

A)  $4,212 
B)  $12,263 
C)  $5,000 
D)  $5,637 
A)  $4,212 
B)  $12,263 
C)  $5,000 
D)  $5,637

Question 9

The future value of an ordinary annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

Accepted Answer

A) True 
 B)False

Question 10

When the inflation rate is zero, the present value of $1 is identical to the future value of $1.

Accepted Answer

A) True 
 B)False

Question 11

When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity payment amount by 2.

Accepted Answer

A) True 
 B)False

Question 12

Higher interest rates reduce the present value amount.

Accepted Answer

A) True 
 B)False

Question 13

Football player Walter Johnson signs a contract calling for payments of $250,000 per year, which begins 10 years from now and then continue for five more years after that. To find the value of this contract today, which table or tables should you use?

Accepted Answer

A)  The future value of $1 
B)  The future value of an annuity of $1 and the future value of $1 
C)  The present value of an annuity of $1 and the present value of $1 
D)  The present value of $1 and the future value of $1 
A)  The future value of $1 
B)  The future value of an annuity of $1 and the future value of $1 
C)  The present value of an annuity of $1 and the present value of $1 
D)  The present value of $1 and the future value of $1

Question 14

The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?

Accepted Answer

A)  $2,500 
B)  $2,000 
C)  $1,724 
D)  $37,128 
A)  $2,500 
B)  $2,000 
C)  $1,724 
D)  $37,128

Question 15

In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

Accepted Answer

A) True 
 B)False

Question 16

If Allison has saved $1,000,000 upon retirement, how much money can she live on each year if she can earn 4% per year and will end with $0 when she expects to die 30 years after retirement?

Accepted Answer

A)  $40,000 
B)  $20,953 
C)  $17,830 
D)  $57,830 
A)  $40,000 
B)  $20,953 
C)  $17,830 
D)  $57,830

Question 17

An annuity may best be defined as

Accepted Answer

A)  a payment at a fixed interest rate. 
B)  a series of payments of unequal amount. 
C)  a series of yearly payments, regardless of amount. 
D)  a series of consecutive payments of equal amounts. 
A)  a payment at a fixed interest rate. 
B)  a series of payments of unequal amount. 
C)  a series of yearly payments, regardless of amount. 
D)  a series of consecutive payments of equal amounts.

Question 18

If a single amount were put on deposit at a given interest rate and allowed to grow, its future value could be determined by reference to a "future value of $1" table.

Accepted Answer

A) True 
 B)False

Question 19

The farther into the future any given amount is received, the larger its present value.
Time amplifies the growth of money. Consequently, to achieve a certain future value, more time means that you can start with less.

Accepted Answer

A) True 
 B)False

Question 20

The higher the interest rate used in determining the future value of a $1 annuity,

Accepted Answer

A)  the smaller the future value at the end of the period. 
B)  the greater the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  None of these options. The interest has no effect on the future value of an annuity. 
A)  the smaller the future value at the end of the period. 
B)  the greater the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  None of these options. The interest has no effect on the future value of an annuity.

You will deposit $200,000 today. It will grow for five years at 12% interest, but compounded semi-annually. What will your investment grow to?

Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment?

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

If you were to put $1,000 in the bank at 6% interest each year for the next 10 years, how much would you have as an ending balance in your account?

As the time period until receipt increases, the present value

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 5 years starting one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?

The future value of an ordinary annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

When the inflation rate is zero, the present value of $1 is identical to the future value of $1.

When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity payment amount by 2.

Higher interest rates reduce the present value amount.

Football player Walter Johnson signs a contract calling for payments of $250,000 per year, which begins 10 years from now and then continue for five more years after that. To find the value of this contract today, which table or tables should you use?

The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?

In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

If Allison has saved $1,000,000 upon retirement, how much money can she live on each year if she can earn 4% per year and will end with $0 when she expects to die 30 years after retirement?

An annuity may best be defined as

If a single amount were put on deposit at a given interest rate and allowed to grow, its future value could be determined by reference to a "future value of $1" table.

The farther into the future any given amount is received, the larger its present value. Time amplifies the growth of money. Consequently, to achieve a certain future value, more time means that you can start with less.

The higher the interest rate used in determining the future value of a $1 annuity,

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

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Exam 9: The Time Value of Money

You will deposit $200,000 today. It will grow for five years at 12% interest, but compounded semi-annually. What will your investment grow to?

Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment?

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

If you were to put $1,000 in the bank at 6% interest each year for the next 10 years, how much would you have as an ending balance in your account?

As the time period until receipt increases, the present value

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 5 years starting one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?

The future value of an ordinary annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

When the inflation rate is zero, the present value of $1 is identical to the future value of $1.

When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity payment amount by 2.

Higher interest rates reduce the present value amount.

Football player Walter Johnson signs a contract calling for payments of $250,000 per year, which begins 10 years from now and then continue for five more years after that. To find the value of this contract today, which table or tables should you use?

The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?

In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

If Allison has saved $1,000,000 upon retirement, how much money can she live on each year if she can earn 4% per year and will end with $0 when she expects to die 30 years after retirement?

An annuity may best be defined as

If a single amount were put on deposit at a given interest rate and allowed to grow, its future value could be determined by reference to a "future value of $1" table.

The farther into the future any given amount is received, the larger its present value. Time amplifies the growth of money. Consequently, to achieve a certain future value, more time means that you can start with less.

The higher the interest rate used in determining the future value of a $1 annuity,

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