Question 1

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 2

What is the future value of $10,000 on deposit for 5 years at 6% simple interest?

Accepted Answer

A)  $7,472.58 
B)  $10,303.62 
C)  $13,000.00 
D)  $13,382.26 
A)  $7,472.58 
B)  $10,303.62 
C)  $13,000.00 
D)  $13,382.26

Question 3

If a borrower promises to pay you $1,900 9 years from now in return for a loan of $1,000 today,what effective annual interest rate is being offered?

Accepted Answer

A)  5.26% 
B)  7.39% 
C)  9.00% 
D)  10.00% 
A)  5.26% 
B)  7.39% 
C)  9.00% 
D)  10.00%

Question 4

You should never compare cash flows occurring at different times without first discounting them to a common date.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  $88 
B)  $100 
C)  $112 
D)  $200 
A)  $88 
B)  $100 
C)  $112 
D)  $200

Question 6

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

Accepted Answer

A)  25% 
B)  29% 
C)  32% 
D)  60% 
A)  25% 
B)  29% 
C)  32% 
D)  60%

Question 7

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 8

How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume a 10% interest rate and cash flows at end of period.

Accepted Answer

A)  $297.29 
B)  $1,486.44 
C)  $1,635.08 
D)  $2,000.00 
A)  $297.29 
B)  $1,486.44 
C)  $1,635.08 
D)  $2,000.00

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Which 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

Question 11

Which of the following characteristics applies to the amortization of a loan such as a home mortgage?

Accepted Answer

A)  The amortization decreases with each payment. 
B)  The amortization increases with each payment. 
C)  The amortization is constant throughout the loan. 
D)  The amortization fluctuates monthly with changes in interest rates. 
A)  The amortization decreases with each payment. 
B)  The amortization increases with each payment. 
C)  The amortization is constant throughout the loan. 
D)  The amortization fluctuates monthly with changes in interest rates.

Question 12

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 13

How much must be saved annually,beginning 1 year from now,in order to accumulate $50,000 over the next 10 years,earning 9% annually?

Accepted Answer

A)  $3,291 
B)  $3,587 
C)  $4,500 
D)  $4,587 
A)  $3,291 
B)  $3,587 
C)  $4,500 
D)  $4,587

Question 14

Which of the following strategies will allow real retirement spending to remain approximately equal,assuming savings of $1,000,000 invested at 8%,a 25-year horizon,and 4% expected inflation?

Accepted Answer

A)  Spend approximately $63,000 annually. 
B)  Spend approximately $78,225 annually. 
C)  Spend approximately $93,680 annually. 
D)  Spend approximately $127,500 annually. 
A)  Spend approximately $63,000 annually. 
B)  Spend approximately $78,225 annually. 
C)  Spend approximately $93,680 annually. 
D)  Spend approximately $127,500 annually.

Question 15

The more frequent the compounding,the higher the future value,other things equal.

Accepted Answer

A) True 
 B)False

Question 16

What problem can be caused by "mixing" real and nominal cash flows in discounting exercises?

Accepted Answer

One of the primary components of a nomin

Question 17

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

Accepted Answer

A)  compounding occurs monthly. 
B)  compounding occurs continuously. 
C)  compounding occurs annually. 
D)  an error has occurred; these terms cannot be equal. 
A)  compounding occurs monthly. 
B)  compounding occurs continuously. 
C)  compounding occurs annually. 
D)  an error has occurred; these terms cannot be equal.

Question 18

How should we compare interest rates quoted over different time intervals-for example,monthly versus annual rates?

Accepted Answer

Interest rates for short time periods ar

Question 19

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

Accepted Answer

A)  Approximately 268 payments 
B)  Approximately 180 payments 
C)  Approximately 92 payments 
D)  Approximately 68 payments 
A)  Approximately 268 payments 
B)  Approximately 180 payments 
C)  Approximately 92 payments 
D)  Approximately 68 payments

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 5: The Time Value of Money

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

What is the future value of $10,000 on deposit for 5 years at 6% simple interest?

If a borrower promises to pay you $1,900 9 years from now in return for a loan of $1,000 today,what effective annual interest rate is being offered?

You should never compare cash flows occurring at different times without first discounting them to a common date.

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

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

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 more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume a 10% interest rate and cash flows at end of period.

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

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

Which of the following characteristics applies to the amortization of a loan such as a home mortgage?

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

How much must be saved annually,beginning 1 year from now,in order to accumulate $50,000 over the next 10 years,earning 9% annually?

Which of the following strategies will allow real retirement spending to remain approximately equal,assuming savings of $1,000,000 invested at 8%,a 25-year horizon,and 4% expected inflation?

The more frequent the compounding,the higher the future value,other things equal.

What problem can be caused by "mixing" real and nominal cash flows in discounting exercises?

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

How should we compare interest rates quoted over different time intervals-for example,monthly versus annual rates?

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

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

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Accounting and Finance

Measuring Corporate Performance

Valuing Bonds

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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

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