Question 1

What is the present value of a five-period annuity of $3,000 if the interest rate is 12% 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 
A)  $9,655.65 
B)  $10,814.33 
C)  $12,112.05 
D)  $13,200.00

Question 2

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

Accepted Answer

A)  $120,000 
B)  $162,000 
C)  $181,458 
D)  $227,598 
A)  $120,000 
B)  $162,000 
C)  $181,458 
D)  $227,598

Question 3

Accrued interest declines with each payment on an amortizing loan.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements best describes the real interest rate?

Accepted Answer

A)  Real interest rates exceed inflation rates. 
B)  Real interest rates can decline only to zero. 
C)  Real interest rates can be negative, zero, or positive. 
D)  Real interest rates traditionally exceed nominal rates. 
A)  Real interest rates exceed inflation rates. 
B)  Real interest rates can decline only to zero. 
C)  Real interest rates can be negative, zero, or positive. 
D)  Real interest rates traditionally exceed nominal rates.

Question 5

The Excel function for present value is PV (rate,nper,pmt,FV).

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

Money has a time value due to the concep

Question 7

Would you prefer a savings account that paid 7% interest,compounded quarterly,over an account that paid 7.5% with annual compounding if you had $1,000 to deposit? Would the answer change if you had $100,000 to deposit?

Accepted Answer

FV = (1 + i)ⁿ for simple interest FV = (1

Question 8

How much interest will be earned in an account into which $1,000 is deposited for one year with continuous compounding at a 13% rate?

Accepted Answer

A)  $130.00 
B)  $138.83 
C)  $169.00 
D)  $353.34 
A)  $130.00 
B)  $138.83 
C)  $169.00 
D)  $353.34

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

What is the discount factor for $1 to be received in 5 years at a discount rate of 8%?

Accepted Answer

A)  .4693 
B)  .5500 
C)  .6000 
D)  .6806 
A)  .4693 
B)  .5500 
C)  .6000 
D)  .6806

Question 11

The term "constant dollars" refers to equal payments for amortizing a loan.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

What is the annually compounded rate of interest on an account with an APR of 10% and monthly compounding?

Accepted Answer

A)  10.00% 
B)  10.47% 
C)  10.52% 
D)  11.05% 
A)  10.00% 
B)  10.47% 
C)  10.52% 
D)  11.05%

Question 14

A stream of equal cash payments lasting forever is termed:

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 15

The Excel function for future value is FV (rate,nper,pmt,PV).

Accepted Answer

A) True 
 B)False

Question 16

An annuity due must have a present value at least as large as an equivalent ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 17

The present value of a perpetuity can be determined by:

Accepted Answer

A)  Multiplying the payment by the interest rate. 
B)  Dividing the interest rate by the payment. 
C)  Multiplying the payment by the number of payments to be made. 
D)  Dividing the payment by the interest rate. 
A)  Multiplying the payment by the interest rate. 
B)  Dividing the interest rate by the payment. 
C)  Multiplying the payment by the number of payments to be made. 
D)  Dividing the payment by the interest rate.

Question 18

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 19

How much more would you be willing to pay today for an investment offering $10,000 in 4 years rather than the normally advertised 5-year period? Your discount rate is 8%.

Accepted Answer

A)  $544.47 
B)  $681.48 
C)  $740.74 
D)  $800.00 
A)  $544.47 
B)  $681.48 
C)  $740.74 
D)  $800.00

Question 20

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

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% and the first payment is made today?

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

Accrued interest declines with each payment on an amortizing loan.

Which of the following statements best describes the real interest rate?

The Excel function for present value is PV (rate,nper,pmt,FV).

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

Would you prefer a savings account that paid 7% interest,compounded quarterly,over an account that paid 7.5% with annual compounding if you had $1,000 to deposit? Would the answer change if you had $100,000 to deposit?

How much interest will be earned in an account into which $1,000 is deposited for one year with continuous compounding at a 13% rate?

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?

What is the discount factor for $1 to be received in 5 years at a discount rate of 8%?

The term "constant dollars" refers to equal payments for amortizing a loan.

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

What is the annually compounded rate of interest on an account with an APR of 10% and monthly compounding?

A stream of equal cash payments lasting forever is termed:

The Excel function for future value is FV (rate,nper,pmt,PV).

An annuity due must have a present value at least as large as an equivalent ordinary annuity.

The present value of a perpetuity can be determined by:

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

How much more would you be willing to pay today for an investment offering $10,000 in 4 years rather than the normally advertised 5-year period? Your discount rate is 8%.

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?

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