Question 1

The present value of an annuity due equals the present value of an ordinary annuity times the discount rate.

Accepted Answer

A) True 
 B)False

Question 2

An amortizing loan is one in which:

Accepted Answer

A)  the principal remains unchanged with each payment. 
B)  accrued interest is paid regularly. 
C)  the maturity of the loan is variable. 
D) the principal balance is reduced with each payment. 
A)  the principal remains unchanged with each payment. 
B)  accrued interest is paid regularly. 
C)  the maturity of the loan is variable. 
D) the principal balance is reduced with each payment.

Question 3

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

Accepted Answer

A)  $70.00 
B)  $80.14 
C)  $105.62 
D) $140.00 
A)  $70.00 
B)  $80.14 
C)  $105.62 
D) $140.00

Question 4

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." Assuming that the salesperson does not offer a free lunch, 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 5

What happens over time to the real cost of purchasing a home if the mortgage payments are fixed in nominal terms and inflation is in existence?

Accepted Answer

A)  The real cost is constant. 
B)  The real cost is increasing. 
C)  The real cost is decreasing. 
D) The price index must be known to answer this question. 
A)  The real cost is constant. 
B)  The real cost is increasing. 
C)  The real cost is decreasing. 
D) The price index must be known to answer this question.

Question 6

Which one of the following factors is fixed and thus cannot change for a specific perpetuity?

Accepted Answer

A)  Present value 
B)  Payment amount 
C)  Interest rate 
D) Discount rate 
A)  Present value 
B)  Payment amount 
C)  Interest rate 
D) Discount rate

Question 7

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 8

A cash-strapped young professional offers to buy your car with four, equal annual payments of $3,000, beginning 2 years from today. 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 9

What APR is being earned on a deposit of $5,000 made 10 years ago today if the deposit is worth $9,848.21 today? The deposit pays interest semiannually.

Accepted Answer

A)  3.56% 
B)  6.76% 
C)  6.89% 
D) 7.12% 
A)  3.56% 
B)  6.76% 
C)  6.89% 
D) 7.12%

Question 10

"Give me $5,000 today and I'll return $10,000 to you in 5 years," offers the investment broker. To the nearest percent, what annual interest rate is being offered?

Accepted Answer

A)  12.29% 
B)  13.67% 
C)  14.87% 
D) 12.84% 
A)  12.29% 
B)  13.67% 
C)  14.87% 
D) 12.84%

Question 11

What is the present value of $100 to be deposited today into an account paying 8%, compounded semiannually for 2 years?

Accepted Answer

A)  $85.48 
B)  $100.00 
C)  $116.00 
D) $116.99 
A)  $85.48 
B)  $100.00 
C)  $116.00 
D) $116.99

Question 12

Approximately how much must be saved for retirement in order to withdraw $100,000 per year for the next 25 years if the balance earns 8% annually, and the first payment occurs one year from now?

Accepted Answer

A)  $1,067,477.62 
B)  $1,128,433.33 
C)  $1,487,320.09 
D) $1,250,000.00 
A)  $1,067,477.62 
B)  $1,128,433.33 
C)  $1,487,320.09 
D) $1,250,000.00

Question 13

The APR on a loan must be equal to the effective annual rate when:

Accepted Answer

A)  compounding occurs monthly. 
B)  compounding occurs annually. 
C)  the loan is for less than one year. 
D) the loan is for more than one year. 
A)  compounding occurs monthly. 
B)  compounding occurs annually. 
C)  the loan is for less than one year. 
D) the loan is for more than one year.

Question 14

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 15

A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of _____ and an APR of ____.

Accepted Answer

A)  16.08%; 15.00% 
B)  14.55%; 16.08% 
C)  12.68%; 15.00% 
D) 15.00%; 14.55% 
A)  16.08%; 15.00% 
B)  14.55%; 16.08% 
C)  12.68%; 15.00% 
D) 15.00%; 14.55%

Question 16

You're ready to make the last of four equal, annual payments on a $1,000 loan with a 10% interest rate. If the amount of the payment is $315.47, how much of that payment is accrued interest?

Accepted Answer

A)  $28.68 
B)  $31.55 
C)  $100.00 
D) $315.47 
A)  $28.68 
B)  $31.55 
C)  $100.00 
D) $315.47

Question 17

Accrued interest declines with each payment on an amortizing loan.

Accepted Answer

A) True 
 B)False

Question 18

An annual percentage rate (APR) is determined by annualizing the rate using compound interest.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

Money has a time value due to the concep

Question 20

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

Exam 5: The Time Value of Money

The present value of an annuity due equals the present value of an ordinary annuity times the discount rate.

An amortizing loan is one in which:

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

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." Assuming that the salesperson does not offer a free lunch, calculate the "appropriate" down payment.

What happens over time to the real cost of purchasing a home if the mortgage payments are fixed in nominal terms and inflation is in existence?

Which one of the following factors is fixed and thus cannot change for a specific perpetuity?

When an investment pays only simple interest, this means:

A cash-strapped young professional offers to buy your car with four, equal annual payments of $3,000, beginning 2 years from today. 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?

What APR is being earned on a deposit of $5,000 made 10 years ago today if the deposit is worth $9,848.21 today? The deposit pays interest semiannually.

"Give me $5,000 today and I'll return $10,000 to you in 5 years," offers the investment broker. To the nearest percent, what annual interest rate is being offered?

What is the present value of $100 to be deposited today into an account paying 8%, compounded semiannually for 2 years?

Approximately how much must be saved for retirement in order to withdraw $100,000 per year for the next 25 years if the balance earns 8% annually, and the first payment occurs one year from now?

The APR on a loan must be equal to the effective annual rate when:

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

A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of _____ and an APR of ____.

You're ready to make the last of four equal, annual payments on a $1,000 loan with a 10% interest rate. If the amount of the payment is $315.47, how much of that payment is accrued interest?

Accrued interest declines with each payment on an amortizing loan.

An annual percentage rate (APR) is determined by annualizing the rate using compound interest.

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

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

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

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

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A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of _ and an APR of .