Question 1

What is the present value of a five period annuity of $3,000 if the interest rate is 12 percent and the first payment is made today?

Accepted Answer

A) $9,655.65 
B) $10,814.33 
C) $12,112.05 
D) $13,200.00 PV = 3,000 
A) $9,655.65 
B) $10,814.33 
C) $12,112.05 
D) $13,200.00 PV = 3,000

Question 2

In most cases it will save money for consumers to select their loans based on the lowest:

Accepted Answer

A) Annual percentage rate 
B) Effective annual rate 
C) Number of compounding periods per year 
D) Simple interest rate 
A) Annual percentage rate 
B) Effective annual rate 
C) Number of compounding periods per year 
D) Simple interest rate

Question 3

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 4

Through fundraising efforts, Kwantlen University has raised $2 million.Determine the annual scholarship value that can be provided to students in perpetuity if the investment rate is 2.5% compounded quarterly.

Accepted Answer

A) $40,470 
B) $50,470 
C) $60,470 
D) $70,470 
A) $40,470 
B) $50,470 
C) $60,470 
D) $70,470

Question 5

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 percent interest versus a 15-year mortgage with 8.5 percent 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?

Accepted Answer

$100,000 = PMT
PMT [133.3333-9.0515]
= P

Question 6

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

Accepted Answer

A) $771.46 
B) $775.90 
C) $1,028.61 
D) $1,034.53 75,000 = PMT 
A) $771.46 
B) $775.90 
C) $1,028.61 
D) $1,034.53 75,000 = PMT

Question 7

How much interest is earned in the third year on a $1,000 deposit that earns 7 percent interest compounded annually?

Accepted Answer

A) $70.00 
B) $80.14 
C) $105.62 
D) $140.00 100 x (1.07)2 = $1,144.90 after 2 years. 
A) $70.00 
B) $80.14 
C) $105.62 
D) $140.00 100 x (1.07)2 = $1,144.90 after 2 years.

Question 8

How much interest will be earned in the next year on an investment paying 12 percent compounded annually if $100 was just credited to the account for interest?

Accepted Answer

A) $88 
B) $100 
C) $112 
D) $200 The investment will again pay $100 plus interest on the previous interest: 
A) $88 
B) $100 
C) $112 
D) $200 The investment will again pay $100 plus interest on the previous interest:

Question 9

A famous athlete went bankrupt by spending his $30 million fortune in 15 years.Given that his investments were earning him 7.45% compounded monthly, determine his annual spending that allowed him to be penniless in 15 years.

Accepted Answer

A) $2,443,012 
B) $3,443,012 
C) $4,443,012 
D) $5,443,012 
A) $2,443,012 
B) $3,443,012 
C) $4,443,012 
D) $5,443,012

Question 10

Franco has been given the option of making $600 quarterly contributions to an investment plan earning 2.95% interest compounded monthly for 10 years.Determine how much more Franco will earn if contributions are made at the beginning of each quarter versus end of each quarter.

Accepted Answer

A) $506 
B) $406 
C) $306 
D) $206 
A) $506 
B) $406 
C) $306 
D) $206

Question 11

Approximately how much should be accumulated by the beginning of retirement to provide a $2,500 monthly check that will last for 25 years, during which time the fund will earn 8 percent interest with monthly compounding?

Accepted Answer

A) $261,500.00 
B) $323,800.00 
C) $578,700.00 
D) $690,000.00 PV = $2,500
= $2,500 [149.925-20.405]
= $2,500 [129.52] 
A) $261,500.00 
B) $323,800.00 
C) $578,700.00 
D) $690,000.00 PV = $2,500
= $2,500 [149.925-20.405]
= $2,500 [129.52]

Question 12

An interest rate that has been annualized using compound interest is termed the:

Accepted Answer

A) simple interest rate 
B) Annual percentage rate 
C) Discounted interest rate 
D) Effective annual interest rate 
A) simple interest rate 
B) Annual percentage rate 
C) Discounted interest rate 
D) Effective annual interest rate

Question 13

Nominal dollars refer to the amount of purchasing power.

Accepted Answer

A) True 
 B)False

Question 14

An annuity factor represents the future value of $1 that is deposited today.

Accepted Answer

A) True 
 B)False

Question 15

Some home loans involve "points," which are fees charged by the lender.Each point charged means that the borrower must pay 1 percent of the loan amount as a fee.For example, if 0.5 point is charged on a $100,000 loan, the loan repayment schedule is calculated on the $100,000 loan, but the net amount the borrower receives is only $99,500.What is the effective annual interest rate charged on such a loan, assuming that loan repayment occurs over 360 months, and that the interest rate is 1 percent per month?

Accepted Answer

Since the monthly payment is based on a

Question 16

Show numerically that a savings account with a current balance of $1,000 that earns interest at 9 percent annually is precisely sufficient to make the payments on a three-year loan of $1,000 that carries equal annual payments at 9 percent interest.

Accepted Answer

The loan payments are:
$1,000 = PMT
= PM

Question 17

What is the relationship between an annually compounded rate and the annual percentage rate (APR) which is calculated for truth in lending laws for a loan requiring monthly payments?

Accepted Answer

A) The APR is lower than the annually compounded rate 
B) The APR is higher than the annually compounded rate 
C) The APR equals the annually compounded rate 
D) The answer depends on the interest rate 
A) The APR is lower than the annually compounded rate 
B) The APR is higher than the annually compounded rate 
C) The APR equals the annually compounded rate 
D) The answer depends on the interest rate

Question 18

When money is invested at compound interest, the growth rate is the interest rate.

Accepted Answer

A) True 
 B)False

Question 19

Assume the total expense for your current year in college equals $20,000.Approximately how much would your parents have needed to invest 21 years ago in an account paying 8 percent compounded annually to cover this amount?

Accepted Answer

A) $952 
B) $1,600 
C) $1,728 
D) $3,973 $20,000 = x(1.08)21
$20,000 = 5.0338x 
A) $952 
B) $1,600 
C) $1,728 
D) $3,973 $20,000 = x(1.08)21
$20,000 = 5.0338x

Question 20

How many monthly payments remain to be paid on an 8 percent mortgage with a 30-year amortization and monthly payments of $733.76, when the balance reaches one-half of the initial $100,000 amount?

Accepted Answer

A) Approximately 268 payments 
B) Approximately 180 payments 
C) Approximately 92 payments 
D) Approximately 68 payments $50,000 = $733.76 [1/.08-1/.08 (1.0067)n 
A) Approximately 268 payments 
B) Approximately 180 payments 
C) Approximately 92 payments 
D) Approximately 68 payments $50,000 = $733.76 [1/.08-1/.08 (1.0067)n

Exam 5: The Time Value of Money

What is the present value of a five period annuity of $3,000 if the interest rate is 12 percent and the first payment is made today?

In most cases it will save money for consumers to select their loans based on the lowest:

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?

Through fundraising efforts, Kwantlen University has raised $2 million.Determine the annual scholarship value that can be provided to students in perpetuity if the investment rate is 2.5% compounded quarterly.

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

How much interest is earned in the third year on a $1,000 deposit that earns 7 percent interest compounded annually?

How much interest will be earned in the next year on an investment paying 12 percent compounded annually if $100 was just credited to the account for interest?

A famous athlete went bankrupt by spending his $30 million fortune in 15 years.Given that his investments were earning him 7.45% compounded monthly, determine his annual spending that allowed him to be penniless in 15 years.

Franco has been given the option of making $600 quarterly contributions to an investment plan earning 2.95% interest compounded monthly for 10 years.Determine how much more Franco will earn if contributions are made at the beginning of each quarter versus end of each quarter.

Approximately how much should be accumulated by the beginning of retirement to provide a $2,500 monthly check that will last for 25 years, during which time the fund will earn 8 percent interest with monthly compounding?

An interest rate that has been annualized using compound interest is termed the:

Nominal dollars refer to the amount of purchasing power.

An annuity factor represents the future value of $1 that is deposited today.

Show numerically that a savings account with a current balance of $1,000 that earns interest at 9 percent annually is precisely sufficient to make the payments on a three-year loan of $1,000 that carries equal annual payments at 9 percent interest.

What is the relationship between an annually compounded rate and the annual percentage rate (APR) which is calculated for truth in lending laws for a loan requiring monthly payments?

When money is invested at compound interest, the growth rate is the interest rate.

Assume the total expense for your current year in college equals $20,000.Approximately how much would your parents have needed to invest 21 years ago in an account paying 8 percent compounded annually to cover this amount?

How many monthly payments remain to be paid on an 8 percent mortgage with a 30-year amortization and monthly payments of $733.76, when the balance reaches one-half of the initial $100,000 amount?

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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