Question 1

What will be the monthly payment on a home mortgage of $75,000 at 12% interest compounded monthly,to be amortized over 30 years?

Accepted Answer

A)  $771.46 
B)  $775.90 
C)  $1,028.61 
D)  $1,034.53 
A)  $771.46 
B)  $775.90 
C)  $1,028.61 
D)  $1,034.53

Question 2

The salesperson offers,"Buy this new car for $25,000 cash or,with an appropriate down payment,pay $500 per month for 48 months at 8% interest,compounded monthly." Calculate the "appropriate" down payment.

Accepted Answer

A)  $1,000.00 
B)  $4,519.04 
C)  $5,127.24 
D)  $8,000.00 
A)  $1,000.00 
B)  $4,519.04 
C)  $5,127.24 
D)  $8,000.00

Question 3

A loan officer states,"Thousands of dollars can be saved by switching to a 15-year mortgage from a 30-year mortgage." Calculate the difference in payments on a 30-year mortgage at 9% interest versus a 15-year mortgage with 8.5% interest.Both mortgages are for $100,000 and have monthly payments.What is the difference in total dollars that will be paid to the lender under each loan? (Round the monthly payment amounts to 2 decimal places.Both interest rates are compounded monthly.)

Accepted Answer

A)  $89,211 
B)  $98,406 
C)  $112,410 
D)  $124,300 
A)  $89,211 
B)  $98,406 
C)  $112,410 
D)  $124,300

Question 4

When an investment pays only simple interest,this means:

Accepted Answer

A)  the interest rate is lower than on comparable investments. 
B)  the future value of the investment will be low. 
C)  the earned interest is nontaxable to the investor. 
D)  interest is earned only on the original investment. 
A)  the interest rate is lower than on comparable investments. 
B)  the future value of the investment will be low. 
C)  the earned interest is nontaxable to the investor. 
D)  interest is earned only on the original investment.

Question 5

Cash flows occurring in different periods should not be compared unless:

Accepted Answer

A)  interest rates are expected to be stable. 
B)  the flows occur no more than one year from each other. 
C)  high rates of interest can be earned on the flows. 
D)  the flows have been discounted to a common date. 
A)  interest rates are expected to be stable. 
B)  the flows occur no more than one year from each other. 
C)  high rates of interest can be earned on the flows. 
D)  the flows have been discounted to a common date.

Question 6

Prizes are often not "worth" as much as claimed.Place a value on a prize of $5,000,000 that is to be received in equal payments over 20 years,with the first payment beginning today.Assume an interest rate of 7%.

Accepted Answer

A)  $2,833,898.81 
B)  $2,911,015.68 
C)  $2,609,144.14 
D)  $2,738,304.13 
A)  $2,833,898.81 
B)  $2,911,015.68 
C)  $2,609,144.14 
D)  $2,738,304.13

Question 7

How much will accumulate in an account with an initial deposit of $100,and which earns 10% interest compounded quarterly for 3 years?

Accepted Answer

A)  $107.69 
B)  $133.10 
C)  $134.49 
D)  $313.84 
A)  $107.69 
B)  $133.10 
C)  $134.49 
D)  $313.84

Question 8

A stream of equal cash payments lasting forever is termed as:

Accepted Answer

A)  an annuity. 
B)  an annuity due. 
C)  an installment plan. 
D)  a perpetuity. 
A)  an annuity. 
B)  an annuity due. 
C)  an installment plan. 
D)  a perpetuity.

Question 9

If the effective annual rate of interest is known to be 16.08% on a debt that has quarterly payments,what is the annual percentage rate?

Accepted Answer

A)  4.02% 
B)  10.02% 
C)  14.50% 
D)  15.19% 
A)  4.02% 
B)  10.02% 
C)  14.50% 
D)  15.19%

Question 10

The appropriate manner of adjusting for inflationary effects is to discount nominal cash flows with real interest rates.

Accepted Answer

A) True 
 B)False

Question 11

How much can be accumulated for retirement if $2,000 is deposited annually,beginning 1 year from today,and the account earns 9% interest compounded annually for 40 years?

Accepted Answer

A)  $87,200.00 
B)  $675,764.89 
C)  $736,583.73 
D)  $802,876.27 
A)  $87,200.00 
B)  $675,764.89 
C)  $736,583.73 
D)  $802,876.27

Question 12

A cash-strapped young professional offers to buy your car with four,equal end of year annual payments of $3,000,beginning 2 years from today (the first payment will be made on the last day of year 2).Assuming you're indifferent to cash versus credit,that you can invest at 10%,and that you want to receive $9,000 for the car,should you accept?

Accepted Answer

A)  Yes; present value is $9,510.08 
B)  Yes; present value is $11,372.67 
C)  No; present value is $8,645.09 
D)  No; present value is $7,461.17 
A)  Yes; present value is $9,510.08 
B)  Yes; present value is $11,372.67 
C)  No; present value is $8,645.09 
D)  No; present value is $7,461.17

Question 13

Under which of the following conditions will a future value calculated with simple interest exceed a future value calculated with compound interest at the same rate?

Accepted Answer

A)  the interest rate is very high. 
B)  the investment period is very long. 
C)  the compounding is annually. 
D)  this is not possible with positive interest rates. 
A)  the interest rate is very high. 
B)  the investment period is very long. 
C)  the compounding is annually. 
D)  this is not possible with positive interest rates.

Question 14

How much interest can be accumulated during one year on a $1,000 deposit paying continuously compounded interest at an APR of 10%?

Accepted Answer

A)  $100.00 
B)  $105.17 
C)  $110.50 
D)  $115.70 
A)  $100.00 
B)  $105.17 
C)  $110.50 
D)  $115.70

Question 15

Your retirement account has a current balance of $50,000.What interest rate would need to be earned in order to accumulate a total of $1,000,000 in 30 years,by adding $6,000 annually?

Accepted Answer

A)  5.02% 
B)  7.24% 
C)  9.80% 
D)  10.07% 
A)  5.02% 
B)  7.24% 
C)  9.80% 
D)  10.07%

Question 16

An effective annual rate must be greater than an annual percentage rate.

Accepted Answer

A) True 
 B)False

Question 17

The discount factor is used to calculate the present value of $1 received in year t.

Accepted Answer

A) True 
 B)False

Question 18

You are considering the purchase of a home that would require a mortgage of $150,000.How much more in total interest will you pay if you select a 30-year mortgage at 5.65% rather than a 15-year mortgage at 4.9%? (Round the monthly payment amount to 2 decimal places.Both interest rates are compounded monthly.)

Accepted Answer

A)  $86,311.18 
B)  $78,487.92 
C)  $99,595.80 
D)  $102,486.68 
A)  $86,311.18 
B)  $78,487.92 
C)  $99,595.80 
D)  $102,486.68

Question 19

What is the APR on a loan that charges interest at the rate of 1.4% per month?

Accepted Answer

A)  10.20% 
B)  14.00% 
C)  16.80% 
D)  18.16% 
A)  10.20% 
B)  14.00% 
C)  16.80% 
D)  18.16%

Question 20

Which one of the following will increase the present value of an annuity,other things equal?

Accepted Answer

A)  increasing the interest rate 
B)  decreasing the interest rate 
C)  decreasing the number of payments 
D)  decreasing the amount of the payment 
A)  increasing the interest rate 
B)  decreasing the interest rate 
C)  decreasing the number of payments 
D)  decreasing the amount of the payment

Exam 5: The Time Value of Money

What will be the monthly payment on a home mortgage of $75,000 at 12% interest compounded monthly,to be amortized over 30 years?

The salesperson offers,"Buy this new car for $25,000 cash or,with an appropriate down payment,pay $500 per month for 48 months at 8% interest,compounded monthly." Calculate the "appropriate" down payment.

When an investment pays only simple interest,this means:

Cash flows occurring in different periods should not be compared unless:

Prizes are often not "worth" as much as claimed.Place a value on a prize of $5,000,000 that is to be received in equal payments over 20 years,with the first payment beginning today.Assume an interest rate of 7%.

How much will accumulate in an account with an initial deposit of $100,and which earns 10% interest compounded quarterly for 3 years?

A stream of equal cash payments lasting forever is termed as:

If the effective annual rate of interest is known to be 16.08% on a debt that has quarterly payments,what is the annual percentage rate?

The appropriate manner of adjusting for inflationary effects is to discount nominal cash flows with real interest rates.

How much can be accumulated for retirement if $2,000 is deposited annually,beginning 1 year from today,and the account earns 9% interest compounded annually for 40 years?

Under which of the following conditions will a future value calculated with simple interest exceed a future value calculated with compound interest at the same rate?

How much interest can be accumulated during one year on a $1,000 deposit paying continuously compounded interest at an APR of 10%?

Your retirement account has a current balance of $50,000.What interest rate would need to be earned in order to accumulate a total of $1,000,000 in 30 years,by adding $6,000 annually?

An effective annual rate must be greater than an annual percentage rate.

The discount factor is used to calculate the present value of $1 received in year t.

What is the APR on a loan that charges interest at the rate of 1.4% per month?

Which one of the following will increase the present value of an annuity,other things equal?

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Valuing Bonds

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Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

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Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

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