Exam 5: The Time Value of Money

The present value of an annuity stream of $100 per year is $614 when valued at a 10 percent rate.By approximately how much would the value change if these were annuities due?

(Multiple Choice)

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Question 21

Comparing the values of undiscounted cash flows is analogous to comparing apples to oranges.

(True/False)

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Question 22

After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 18 percent APR, or 1.5 percent per month.Now, to make you feel even worse, calculate the effective annual interest rate.

(Essay)

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Question 23

An APR will be equal to an effective annual rate if:

(Multiple Choice)

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Question 24

What is the difference between the effective annual rate and the nominal rate if the nominal rate is compounded annually?

(Essay)

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Question 25

Accrued interest declines with each payment on an amortizing loan.

(True/False)

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Question 26

If $120,000 is borrowed for a home mortgage, to be repaid at 9 percent interest over 30 years with monthly payments of $965.55, how much interest is paid over the life of the loan?

(Multiple Choice)

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Question 27

If a borrower promises to pay you $1,900 nine years from now in return for a loan of $1,000 today, what effective annual interest rate is being offered?

(Multiple Choice)

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Question 28

Discuss the statement, "Money has a time value."

(Essay)

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Question 29

A corporation has promised to pay $1,000 twenty years from today for each bond sold now.No interest will be paid on the bonds during the twenty years, and the bonds are said to offer a 7 percent interest rate.Approximately how much should an investor pay for each bond?

(Multiple Choice)

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Question 30

Appleton University seeks to setup a scholarship for its students in perpetuity.Every six months, $5,000 will be provided to students.If interest is 4.8% compounded monthly, determine the amount that must be invested in order to deliver on the semi-annual scholarship.

(Multiple Choice)

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Question 31

"Give me $5,000 today and I'll return $20,000 to you in five years," offers the investment broker.To the nearest percent, what annual interest rate is being offered?

(Multiple Choice)

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Question 32

A cash-strapped young professional offers to buy your car with four, equal annual payments of $3,000, beginning two years from today.Assuming you're indifferent to cash versus credit, that you can invest at 10 percent, and that you want to receive $9,000 for the car, should you accept?

(Multiple Choice)

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Question 33

What is the present value of the following set of cash flows at an interest rate of 7 percent; $1,000 today, $2,000 at end of year one, $4,000 at end of year three, and $6,000 at end of year five?

(Multiple Choice)

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Question 34

When an investment pays only simple interest, this means:

(Multiple Choice)

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Question 35

$50,000 is borrowed, to be repaid in three equal, annual payments with 10% interest.Approximately how much principal is amortized with the first payment?

(Multiple Choice)

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Question 36

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

(Multiple Choice)

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Question 37

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

(True/False)

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Question 38

Jackson purchased a $40,000 sports car through a 60 month financing plan.The interest rate was 4.95% compounded monthly.At the end of year 3, Jackson wanted to pay off the outstanding balance.Determine the amount that must be paid off by Jackson

(Multiple Choice)

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Question 39

A dollar tomorrow is worth more than a dollar today.

(True/False)

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Question 40

Showing 21 - 40 of 129

Exam 5: The Time Value of Money

The present value of an annuity stream of $100 per year is $614 when valued at a 10 percent rate.By approximately how much would the value change if these were annuities due?

Comparing the values of undiscounted cash flows is analogous to comparing apples to oranges.

After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 18 percent APR, or 1.5 percent per month.Now, to make you feel even worse, calculate the effective annual interest rate.

An APR will be equal to an effective annual rate if:

What is the difference between the effective annual rate and the nominal rate if the nominal rate is compounded annually?

Accrued interest declines with each payment on an amortizing loan.

If $120,000 is borrowed for a home mortgage, to be repaid at 9 percent interest over 30 years with monthly payments of $965.55, how much interest is paid over the life of the loan?

If a borrower promises to pay you $1,900 nine years from now in return for a loan of $1,000 today, what effective annual interest rate is being offered?

Discuss the statement, "Money has a time value."

A corporation has promised to pay $1,000 twenty years from today for each bond sold now.No interest will be paid on the bonds during the twenty years, and the bonds are said to offer a 7 percent interest rate.Approximately how much should an investor pay for each bond?

Appleton University seeks to setup a scholarship for its students in perpetuity.Every six months, $5,000 will be provided to students.If interest is 4.8% compounded monthly, determine the amount that must be invested in order to deliver on the semi-annual scholarship.

"Give me $5,000 today and I'll return $20,000 to you in five years," offers the investment broker.To the nearest percent, what annual interest rate is being offered?

A cash-strapped young professional offers to buy your car with four, equal annual payments of $3,000, beginning two years from today.Assuming you're indifferent to cash versus credit, that you can invest at 10 percent, and that you want to receive $9,000 for the car, should you accept?

What is the present value of the following set of cash flows at an interest rate of 7 percent; $1,000 today, $2,000 at end of year one, $4,000 at end of year three, and $6,000 at end of year five?

When an investment pays only simple interest, this means:

$50,000 is borrowed, to be repaid in three equal, annual payments with 10% interest.Approximately how much principal is amortized with the first payment?

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

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

Jackson purchased a $40,000 sports car through a 60 month financing plan.The interest rate was 4.95% compounded monthly.At the end of year 3, Jackson wanted to pay off the outstanding balance.Determine the amount that must be paid off by Jackson

A dollar tomorrow is worth more than a dollar today.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

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

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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