Question 1

You are offered a choice between $770 today and $815 one year from today. Assume that interest rates are 4 percent. Which do you prefer?

Accepted Answer

A)  $770 today 
B)  $815 one year from today 
C)  They are equivalent to each other. 
D)  $770 today at 3 percent interest rates 
A)  $770 today 
B)  $815 one year from today 
C)  They are equivalent to each other. 
D)  $770 today at 3 percent interest rates B

Question 2

Which of the following investments would you prefer?

Accepted Answer

A)  an investment earning 10 percent for 20 years 
B)  an investment earning 8.5 percent for 20 years 
C)  an investment earning 5 percent for 40 years 
D)  an investment earning 3 percent for 40 years 
A)  an investment earning 10 percent for 20 years 
B)  an investment earning 8.5 percent for 20 years 
C)  an investment earning 5 percent for 40 years 
D)  an investment earning 3 percent for 40 years C

Question 3

Which of the following statements is incorrect with respect to time lines?

Accepted Answer

A)  A helpful tool for organizing our analysis is the time line. 
B)  Cash flows we receive are called inflows and denoted with a positive number. 
C)  Cash flows we pay out are called outflows and designated with a negative number. 
D)  Interest rates are not included on our time lines. 
A)  A helpful tool for organizing our analysis is the time line. 
B)  Cash flows we receive are called inflows and denoted with a positive number. 
C)  Cash flows we pay out are called outflows and designated with a negative number. 
D)  Interest rates are not included on our time lines. D

Question 4

What is the present value of a $250 payment in one year when the discount rate is 6 percent?

Accepted Answer

A)  $245.00 
B)  $235.85 
C)  $250.00 
D)  $265.00 
A)  $245.00 
B)  $235.85 
C)  $250.00 
D)  $265.00

Question 5

Determine the interest rate earned on an $800 deposit when $808 is paid back in one year.

Accepted Answer

A)  100 percent 
B) 10 percent 
C)  1 percent 
D)  15 percent 
A)  100 percent 
B) 10 percent 
C)  1 percent 
D)  15 percent

Question 6

You invested $2,000 in the stock market one year ago. Today, the investment is valued at $9,500. What return did you earn? What return would you need to suffer next year for your investment to be valued at the original $2,000?

Accepted Answer

A)  −78.95 percent, 0 percent 
B)  375 percent, −78.95 percent 
C)  250 percent, −51.8 percent 
D) −78.95 percent, 100 percent 
A)  −78.95 percent, 0 percent 
B)  375 percent, −78.95 percent 
C)  250 percent, −51.8 percent 
D) −78.95 percent, 100 percent

Question 7

When your investment compounds, your money will grow in a(n) __________ fashion.

Accepted Answer

A)  linear 
B)  exponential 
C)  static 
D)  implied 
A)  linear 
B)  exponential 
C)  static 
D)  implied

Question 8

Suppose a U.S. Treasury bond promises to pay $9,780.13 in three years. If bonds of this type are generating a 4 percent annual return, how much would you pay for this bond today?

Accepted Answer

A)  $8,429.71 
B)  $11,001.32 
C)  $8,694.50 
D)  $9,112.78 
A)  $8,429.71 
B)  $11,001.32 
C)  $8,694.50 
D)  $9,112.78

Question 9

How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5 percent interest per year?

Accepted Answer

A)  $135.00 
B)  $140.71 
C)  $735.00 
D)  $814.20 
A)  $135.00 
B)  $140.71 
C)  $735.00 
D)  $814.20

Question 10

Assume that you borrow $2,000 from your sister and that you will pay her back in one lump sum. She charges you 9 percent interest in year 1 and increases the rate by 1 percent per year until the loan is paid off. How much will you owe if you wait until year 3 to pay off the loan?

Accepted Answer

A)  $2,467.91 
B)  $2,661.78 
C)  $2,775.23 
D)  $2,809.53 
A)  $2,467.91 
B)  $2,661.78 
C)  $2,775.23 
D)  $2,809.53

Question 11

What is the present value of a $200 payment made in three years when the discount rate is 8 percent?

Accepted Answer

A)  $150.00 
B)  $158.77 
C)  $251.94 
D)  $515.42 
A)  $150.00 
B)  $158.77 
C)  $251.94 
D)  $515.42

Question 12

How many years (and months) will it take $1 million to grow to $3 million with an annual interest rate of 7.5 percent?

Accepted Answer

A)  15 years and 2.29 months 
B)  17 years and 5.6 months 
C)  18 years and 3.8 months 
D) 19 years and 2.4 months 
A)  15 years and 2.29 months 
B)  17 years and 5.6 months 
C)  18 years and 3.8 months 
D) 19 years and 2.4 months

Question 13

What is the value in year 3 of a $250 cash flow made in year 15 when interest rates are 12 percent?

Accepted Answer

A) $45.67 
B)  $64.17 
C)  $177.95 
D)  $220.00 
A) $45.67 
B)  $64.17 
C)  $177.95 
D)  $220.00

Question 14

You invested $5,000 in the stock market one year ago. Today, the investment is valued at $5,500. What return did you earn? What return would you suffer next year for your investment to be valued at the original $5,000?

Accepted Answer

A)  10 percent, −9.09 percent, respectively 
B)  −10 percent, +9.09 percent, respectively 
C) 110 percent, −10 percent, respectively 
D)  110 percent, −9.09 percent, respectively 
A)  10 percent, −9.09 percent, respectively 
B)  −10 percent, +9.09 percent, respectively 
C) 110 percent, −10 percent, respectively 
D)  110 percent, −9.09 percent, respectively

Question 15

What annual rate of return is implied on a $700 loan taken next year when $800 must be repaid in year 3?

Accepted Answer

A)  4.55 percent 
B)  4.76 percent 
C)  6.90 percent 
D) 7.14 percent 
A)  4.55 percent 
B)  4.76 percent 
C)  6.90 percent 
D) 7.14 percent

Question 16

What is the value in year 5 of a $600 cash flow made in year 10 when interest rates are 5 percent?

Accepted Answer

A)  $368.35 
B)  $450.00 
C)  $470.12 
D)  $570.00 
A)  $368.35 
B)  $450.00 
C)  $470.12 
D)  $570.00

Question 17

You deposit $10,000 in an account that doubles in "6" years. How many years will it take the account to be reduced to its original value if it loses 10 percent per year?

Accepted Answer

A)  6.00 years 
B)  6.58 years 
C)  7.27 years 
D)  10.00 years 
A)  6.00 years 
B)  6.58 years 
C)  7.27 years 
D)  10.00 years

Question 18

You borrow $3,500 and will pay back the entire amount in five years. You are charged 9 percent interest per year. How much interest do you pay on this loan?

Accepted Answer

A)  $1,885.18 
B)  $1,907.35 
C)  $1,959.02 
D) $2,106.81 
A)  $1,885.18 
B)  $1,907.35 
C)  $1,959.02 
D) $2,106.81

Question 19

Moving cash flows from one point in time to another requires us to use

Accepted Answer

A)  only present value equations. 
B)  only future value equations. 
C)  both present value and future value equations. 
D)  the Rule of 72. 
A)  only present value equations. 
B)  only future value equations. 
C)  both present value and future value equations. 
D)  the Rule of 72.

Question 20

You deposit $20,000 in an account that doubles in seven years. How many years will it take the account to double again if it earns 14 percent per year?

Accepted Answer

A)  4.92 years 
B)  5.29 years 
C)  6.62 years 
D)  8.22 years 
A)  4.92 years 
B)  5.29 years 
C)  6.62 years 
D)  8.22 years

You are offered a choice between $770 today and $815 one year from today. Assume that interest rates are 4 percent. Which do you prefer?

Which of the following investments would you prefer?

Which of the following statements is incorrect with respect to time lines?

What is the present value of a $250 payment in one year when the discount rate is 6 percent?

Determine the interest rate earned on an $800 deposit when $808 is paid back in one year.

You invested $2,000 in the stock market one year ago. Today, the investment is valued at $9,500. What return did you earn? What return would you need to suffer next year for your investment to be valued at the original $2,000?

When your investment compounds, your money will grow in a(n) __________ fashion.

Suppose a U.S. Treasury bond promises to pay $9,780.13 in three years. If bonds of this type are generating a 4 percent annual return, how much would you pay for this bond today?

How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5 percent interest per year?

Assume that you borrow $2,000 from your sister and that you will pay her back in one lump sum. She charges you 9 percent interest in year 1 and increases the rate by 1 percent per year until the loan is paid off. How much will you owe if you wait until year 3 to pay off the loan?

What is the present value of a $200 payment made in three years when the discount rate is 8 percent?

How many years (and months) will it take $1 million to grow to $3 million with an annual interest rate of 7.5 percent?

What is the value in year 3 of a $250 cash flow made in year 15 when interest rates are 12 percent?

You invested $5,000 in the stock market one year ago. Today, the investment is valued at $5,500. What return did you earn? What return would you suffer next year for your investment to be valued at the original $5,000?

What annual rate of return is implied on a $700 loan taken next year when $800 must be repaid in year 3?

What is the value in year 5 of a $600 cash flow made in year 10 when interest rates are 5 percent?

You deposit $10,000 in an account that doubles in "6" years. How many years will it take the account to be reduced to its original value if it loses 10 percent per year?

You borrow $3,500 and will pay back the entire amount in five years. You are charged 9 percent interest per year. How much interest do you pay on this loan?

Moving cash flows from one point in time to another requires us to use

You deposit $20,000 in an account that doubles in seven years. How many years will it take the account to double again if it earns 14 percent per year?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 4: Time Value of Money 1: Analyzing Single Cash Flows

You are offered a choice between $770 today and $815 one year from today. Assume that interest rates are 4 percent. Which do you prefer?

Which of the following investments would you prefer?

Which of the following statements is incorrect with respect to time lines?

What is the present value of a $250 payment in one year when the discount rate is 6 percent?

Determine the interest rate earned on an $800 deposit when $808 is paid back in one year.

You invested $2,000 in the stock market one year ago. Today, the investment is valued at $9,500. What return did you earn? What return would you need to suffer next year for your investment to be valued at the original $2,000?

When your investment compounds, your money will grow in a(n) __________ fashion.

Suppose a U.S. Treasury bond promises to pay $9,780.13 in three years. If bonds of this type are generating a 4 percent annual return, how much would you pay for this bond today?

How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5 percent interest per year?

Assume that you borrow $2,000 from your sister and that you will pay her back in one lump sum. She charges you 9 percent interest in year 1 and increases the rate by 1 percent per year until the loan is paid off. How much will you owe if you wait until year 3 to pay off the loan?

What is the present value of a $200 payment made in three years when the discount rate is 8 percent?

How many years (and months) will it take $1 million to grow to $3 million with an annual interest rate of 7.5 percent?

What is the value in year 3 of a $250 cash flow made in year 15 when interest rates are 12 percent?

You invested $5,000 in the stock market one year ago. Today, the investment is valued at $5,500. What return did you earn? What return would you suffer next year for your investment to be valued at the original $5,000?

What annual rate of return is implied on a $700 loan taken next year when $800 must be repaid in year 3?

What is the value in year 5 of a $600 cash flow made in year 10 when interest rates are 5 percent?

You deposit $10,000 in an account that doubles in "6" years. How many years will it take the account to be reduced to its original value if it loses 10 percent per year?

You borrow $3,500 and will pay back the entire amount in five years. You are charged 9 percent interest per year. How much interest do you pay on this loan?

Moving cash flows from one point in time to another requires us to use

You deposit $20,000 in an account that doubles in seven years. How many years will it take the account to double again if it earns 14 percent per year?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters