Question 1

Explain the Rule of 72.

Accepted Answer

The Rule of 72 allows you to estimate th

Question 2

Jamie earned $180 in interest on her savings account last year.She has decided to leave the $180 in her account so that she can earn interest on the $180 this year.The interest Jamie earns this year on this $180 is referred to as:

Accepted Answer

A) simple interest. 
B) complex interest. 
C) accrued interest. 
D) interest on interest. 
E) discounted interest. 
A) simple interest. 
B) complex interest. 
C) accrued interest. 
D) interest on interest. 
E) discounted interest.

Question 3

Jim just deposited $13,000 into his account at Traditions Bank.The bank will pay 1.3 percent interest,compounded annually,on this account.How much interest on interest will he earn over the next 15 years?

Accepted Answer

A) $238.16 
B) $244.20 
C) $360.70 
D) $606.15 
E) $623.70 
A) $238.16 
B) $244.20 
C) $360.70 
D) $606.15 
E) $623.70

Question 4

By definition,a bank that pays simple interest on a savings account will pay interest:

Accepted Answer

A) only at the beginning of the investment period. 
B) on interest. 
C) only on the principal amount originally invested. 
D) on both the principal amount and the reinvested interest. 
E) only if all previous interest payments are reinvested. 
A) only at the beginning of the investment period. 
B) on interest. 
C) only on the principal amount originally invested. 
D) on both the principal amount and the reinvested interest. 
E) only if all previous interest payments are reinvested.

Question 5

Centre Bank pays 2.5 percent interest,compounded annually,on its savings accounts.Country Bank pays 2.5 percent simple interest on its savings accounts.You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today.The amount you must deposit today:

Accepted Answer

A) is the same regardless of which bank you choose because they both pay compound interest. 
B) is the same regardless of which bank you choose because they both pay simple interest. 
C) is the same regardless of which bank you choose because the time period is the same for both banks. 
D) will be greater if you invest with Centre Bank. 
E) will be greater if you invest with Country Bank. 
A) is the same regardless of which bank you choose because they both pay compound interest. 
B) is the same regardless of which bank you choose because they both pay simple interest. 
C) is the same regardless of which bank you choose because the time period is the same for both banks. 
D) will be greater if you invest with Centre Bank. 
E) will be greater if you invest with Country Bank.

Question 6

Draw a graph that illustrates the relationship between interest rates and the present value of $1,000 to be received in one year.

Accepted Answer

Students should illu

Question 7

Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested.

Accepted Answer

A) Increase in the time period 
B) Increase in the interest rate 
C) Decrease in the future value 
D) Decrease in the interest rate 
E) None of these 
A) Increase in the time period 
B) Increase in the interest rate 
C) Decrease in the future value 
D) Decrease in the interest rate 
E) None of these

Question 8

Today,you deposit $2,400 in a bank account that pays 4 percent simple interest.How much interest will you earn over the next 5 years?

Accepted Answer

A) $96.00 
B) $101.15 
C) $480.00 
D) $492.16 
E) $519.97 
A) $96.00 
B) $101.15 
C) $480.00 
D) $492.16 
E) $519.97

Question 9

Identify the relationship (direct or inverse)between each of the following pairs of variables as they relate to the time value of money:
 (Assume all else constant)
Present value and future value _________
Present value and interest rate _________
Present value and time _________
Time and interest rate _________
Time and future value _________
Interest rate and future value _________

Accepted Answer

The answer of Identify the relationship (direct or inverse)between each...

Question 10

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

Accepted Answer

A) compounding. 
B) factoring. 
C) time valuation. 
D) simple cash flow valuation. 
E) discounted cash flow valuation. 
A) compounding. 
B) factoring. 
C) time valuation. 
D) simple cash flow valuation. 
E) discounted cash flow valuation.

Question 11

Precision Engineering invested $110,000 at 6.5 percent interest,compounded annually for 4 years.How much interest on interest did the company earn over this period of time?

Accepted Answer

A) $2,481.25 
B) $2,911.30 
C) $3,014.14 
D) $3,250.00 
E) $3,333.33 
A) $2,481.25 
B) $2,911.30 
C) $3,014.14 
D) $3,250.00 
E) $3,333.33

Question 12

You have been told that you need $25,600 today in order to have $100,000 when you retire 35 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

Accepted Answer

A) 3.97 percent 
B) 4.15 percent 
C) 4.29 percent 
D) 4.53 percent 
E) 4.58 percent 
A) 3.97 percent 
B) 4.15 percent 
C) 4.29 percent 
D) 4.53 percent 
E) 4.58 percent

Question 13

You want to have $25,000 for a down payment on a house 6 years from now.If you can earn 6.5 percent,compounded annually,on your savings,how much do you need to deposit today to reach your goal?

Accepted Answer

A) $17,133.35 
B) $17,420.73 
C) $17,880.69 
D) $18,211.17 
E) $18,886.40 
A) $17,133.35 
B) $17,420.73 
C) $17,880.69 
D) $18,211.17 
E) $18,886.40

Question 14

You want to have $2.5 million saved on the day you retire.Explain how you can minimize the amount of cash you must invest in order to achieve this goal.

Accepted Answer

Each of the following will help reduce t

Question 15

Angela has just received an insurance settlement of $35,000.She wants to save this money until her daughter goes to college.If she can earn an average of 5.5 percent,compounded annually,how much will she have saved when her daughter enters college 10 years from now?

Accepted Answer

A) $48,000.00 
B) $50,929.02 
C) $51,374.89 
D) $59,875.06 
E) $59,785.06 
A) $48,000.00 
B) $50,929.02 
C) $51,374.89 
D) $59,875.06 
E) $59,785.06

Question 16

You have $1,500 today in your savings account.How long must you wait for your savings to be worth $4,000 if you are earning 1.1 percent interest,compounded annually?

Accepted Answer

A) 76.68 years 
B) 79.69 years 
C) 72.13 years 
D) 80.57 years 
E) 89.66 years 
A) 76.68 years 
B) 79.69 years 
C) 72.13 years 
D) 80.57 years 
E) 89.66 years

Question 17

The interest rate used to compute the present value of a future cash flow is called the:

Accepted Answer

A) prime rate. 
B) current rate. 
C) discount rate. 
D) compound rate. 
E) simple rate. 
A) prime rate. 
B) current rate. 
C) discount rate. 
D) compound rate. 
E) simple rate.

Question 18

The present value of a lump sum future amount:

Accepted Answer

A) increases as the interest rate decreases. 
B) decreases as the time period decreases. 
C) is inversely related to the future value. 
D) is directly related to the interest rate. 
E) is directly related to the time period. 
A) increases as the interest rate decreases. 
B) decreases as the time period decreases. 
C) is inversely related to the future value. 
D) is directly related to the interest rate. 
E) is directly related to the time period.

Question 19

You want to have $45,000 in cash to buy a car 4 years from today.You expect to earn 4.5 percent,compounded annually,on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

Accepted Answer

A) $33,618.92 
B) $34,511.68 
C) $35,726.04 
D) $37,735.26 
E) $38,156.19 
A) $33,618.92 
B) $34,511.68 
C) $35,726.04 
D) $37,735.26 
E) $38,156.19

Question 20

You are scheduled to receive $7,500 in three years.When you receive it,you will invest it for eight more years at 7.5 percent per year.How much will you have in eleven years?

Accepted Answer

A) $13,376.08 
B) $14,428.09 
C) $15,110.24 
D) $16,113.33 
E) $16,617.07 
A) $13,376.08 
B) $14,428.09 
C) $15,110.24 
D) $16,113.33 
E) $16,617.07

Explain the Rule of 72.

Jamie earned $180 in interest on her savings account last year.She has decided to leave the $180 in her account so that she can earn interest on the $180 this year.The interest Jamie earns this year on this $180 is referred to as:

Jim just deposited $13,000 into his account at Traditions Bank.The bank will pay 1.3 percent interest,compounded annually,on this account.How much interest on interest will he earn over the next 15 years?

By definition,a bank that pays simple interest on a savings account will pay interest:

Centre Bank pays 2.5 percent interest,compounded annually,on its savings accounts.Country Bank pays 2.5 percent simple interest on its savings accounts.You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today.The amount you must deposit today:

Draw a graph that illustrates the relationship between interest rates and the present value of $1,000 to be received in one year.

Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested.

Today,you deposit $2,400 in a bank account that pays 4 percent simple interest.How much interest will you earn over the next 5 years?

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

Precision Engineering invested $110,000 at 6.5 percent interest,compounded annually for 4 years.How much interest on interest did the company earn over this period of time?

You have been told that you need $25,600 today in order to have $100,000 when you retire 35 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

You want to have $25,000 for a down payment on a house 6 years from now.If you can earn 6.5 percent,compounded annually,on your savings,how much do you need to deposit today to reach your goal?

You want to have $2.5 million saved on the day you retire.Explain how you can minimize the amount of cash you must invest in order to achieve this goal.

Angela has just received an insurance settlement of $35,000.She wants to save this money until her daughter goes to college.If she can earn an average of 5.5 percent,compounded annually,how much will she have saved when her daughter enters college 10 years from now?

You have $1,500 today in your savings account.How long must you wait for your savings to be worth $4,000 if you are earning 1.1 percent interest,compounded annually?

The interest rate used to compute the present value of a future cash flow is called the:

The present value of a lump sum future amount:

You want to have $45,000 in cash to buy a car 4 years from today.You expect to earn 4.5 percent,compounded annually,on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

You are scheduled to receive $7,500 in three years.When you receive it,you will invest it for eight more years at 7.5 percent per year.How much will you have in eleven years?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

Exam 4: Introduction to Valuation: The Time Value of Money

Explain the Rule of 72.

Jamie earned $180 in interest on her savings account last year.She has decided to leave the $180 in her account so that she can earn interest on the $180 this year.The interest Jamie earns this year on this $180 is referred to as:

Jim just deposited $13,000 into his account at Traditions Bank.The bank will pay 1.3 percent interest,compounded annually,on this account.How much interest on interest will he earn over the next 15 years?

By definition,a bank that pays simple interest on a savings account will pay interest:

Centre Bank pays 2.5 percent interest,compounded annually,on its savings accounts.Country Bank pays 2.5 percent simple interest on its savings accounts.You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today.The amount you must deposit today:

Draw a graph that illustrates the relationship between interest rates and the present value of $1,000 to be received in one year.

Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested.

Today,you deposit $2,400 in a bank account that pays 4 percent simple interest.How much interest will you earn over the next 5 years?

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

Precision Engineering invested $110,000 at 6.5 percent interest,compounded annually for 4 years.How much interest on interest did the company earn over this period of time?

You have been told that you need $25,600 today in order to have $100,000 when you retire 35 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

You want to have $25,000 for a down payment on a house 6 years from now.If you can earn 6.5 percent,compounded annually,on your savings,how much do you need to deposit today to reach your goal?

You want to have $2.5 million saved on the day you retire.Explain how you can minimize the amount of cash you must invest in order to achieve this goal.

Angela has just received an insurance settlement of $35,000.She wants to save this money until her daughter goes to college.If she can earn an average of 5.5 percent,compounded annually,how much will she have saved when her daughter enters college 10 years from now?

You have $1,500 today in your savings account.How long must you wait for your savings to be worth $4,000 if you are earning 1.1 percent interest,compounded annually?

The interest rate used to compute the present value of a future cash flow is called the:

The present value of a lump sum future amount:

You want to have $45,000 in cash to buy a car 4 years from today.You expect to earn 4.5 percent,compounded annually,on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

You are scheduled to receive $7,500 in three years.When you receive it,you will invest it for eight more years at 7.5 percent per year.How much will you have in eleven years?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters