Question 1

Today,you earn a salary of $36,000.What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent?

Accepted Answer

A) $55,032.54 
B) $57,414.06 
C) $58,235.24 
D) $59,122.08 
E) $59,360.45 
A) $55,032.54 
B) $57,414.06 
C) $58,235.24 
D) $59,122.08 
E) $59,360.45

Question 2

Luis is going to receive $20,000 six years from now.Soo Lee is going to receive $20,000 nine years from now.Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts?

Accepted Answer

A) The present values of Luis and Soo Lee's monies are equal. 
B) In future dollars, Soo Lee's money is worth more than Luis' money. 
C) In today's dollars, Luis' money is worth more than Soo Lee's. 
D) Twenty years from now, the value of Luis' money will be equal to the value of Soo Lee's money. 
E) Soo Lee's money is worth more than Luis' money given the 7 percent discount rate. 
A) The present values of Luis and Soo Lee's monies are equal. 
B) In future dollars, Soo Lee's money is worth more than Luis' money. 
C) In today's dollars, Luis' money is worth more than Soo Lee's. 
D) Twenty years from now, the value of Luis' money will be equal to the value of Soo Lee's money. 
E) Soo Lee's money is worth more than Luis' money given the 7 percent discount rate.

Question 3

Ten years ago,Jackson Supply set aside $130,000 in case of a financial emergency.Today,that account has increased in value to $330,592.What rate of interest is the firm earning on this money?

Accepted Answer

A) 8.80 percent 
B) 9.78 percent 
C) 10.75 percent 
D) 11.28 percent 
E) 11.53 percent 
A) 8.80 percent 
B) 9.78 percent 
C) 10.75 percent 
D) 11.28 percent 
E) 11.53 percent

Question 4

Suppose you are committed to owning a $140,000 Ferrari.You believe your mutual fund can achieve an annual rate of return of 8 percent and you want to buy the car in 7 years.How much must you invest today to fund this purchase assuming the price of the car remains constant?

Accepted Answer

A) $74,208.16 
B) $81,688.66 
C) $87,911.08 
D) $98,019.82 
E) $99,446.60 
A) $74,208.16 
B) $81,688.66 
C) $87,911.08 
D) $98,019.82 
E) $99,446.60

Question 5

You want to have $1 million in your savings account when you retire.You plan on investing a single lump sum today to fund this goal.You are planning on investing in an account which will pay 7.5 percent annual interest.Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire?
I.Invest in a different account paying a higher rate of interest.
II.Invest in a different account paying a lower rate of interest.
III.Retire later.
IV.Retire sooner.

Accepted Answer

A) I only 
B) II only 
C) I and III only 
D) I and IV only 
E) II and III only 
A) I only 
B) II only 
C) I and III only 
D) I and IV only 
E) II and III only

Question 6

One year ago,you invested $1,800.Today it is worth $1,924.62.What rate of interest did you earn?

Accepted Answer

A) 6.59 percent 
B) 6.67 percent 
C) 6.88 percent 
D) 6.92 percent 
E) 7.01 percent 
A) 6.59 percent 
B) 6.67 percent 
C) 6.88 percent 
D) 6.92 percent 
E) 7.01 percent

Question 7

Your coin collection contains fifty-four 1941 silver dollars.Your grandparents purchased them for their face value when they were new.These coins have appreciated at a 10 percent annual rate.How much will your collection be worth when you retire in 2060?

Accepted Answer

A) $3,611,008 
B) $3,987,456 
C) $4,122,394 
D) $4,421,008 
E) $4,551,172 
A) $3,611,008 
B) $3,987,456 
C) $4,122,394 
D) $4,421,008 
E) $4,551,172

Question 8

Steve just computed the present value of a $10,000 bonus he will receive in the future.The interest rate he used in this process is referred to as which one of the following?

Accepted Answer

A) current yield 
B) effective rate 
C) compound rate 
D) simple rate 
E) discount rate 
A) current yield 
B) effective rate 
C) compound rate 
D) simple rate 
E) discount rate

Question 9

What is the relationship between present value and future value interest factors?

Accepted Answer

A) The present value and future value factors are equal to each other. 
B) The present value factor is the exponent of the future value factor. 
C) The future value factor is the exponent of the present value factor. 
D) The factors are reciprocals of each other. 
E) There is no relationship between these two factors. 
A) The present value and future value factors are equal to each other. 
B) The present value factor is the exponent of the future value factor. 
C) The future value factor is the exponent of the present value factor. 
D) The factors are reciprocals of each other. 
E) There is no relationship between these two factors.

Question 10

You are investing $100 today in a savings account at your local bank.Which one of the following terms refers to the value of this investment one year from now?

Accepted Answer

A) future value 
B) present value 
C) principal amounts 
D) discounted value 
E) invested principal 
A) future value 
B) present value 
C) principal amounts 
D) discounted value 
E) invested principal

Question 11

Samantha opened a savings account this morning.Her money will earn 5 percent interest,compounded annually.After five years,her savings account will be worth $5,600.Assume she will not make any withdrawals.Given this,which one of the following statements is true?

Accepted Answer

A) Samantha deposited more than $5,600 this morning. 
B) The present value of Samantha's account is $5,600. 
C) Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest. 
D) Samantha would have had to deposit more money to have $5,600 in five years if she could have earned 6 percent interest. 
E) Samantha will earn an equal amount of interest every year for the next five years. 
A) Samantha deposited more than $5,600 this morning. 
B) The present value of Samantha's account is $5,600. 
C) Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest. 
D) Samantha would have had to deposit more money to have $5,600 in five years if she could have earned 6 percent interest. 
E) Samantha will earn an equal amount of interest every year for the next five years.

Question 12

You just received $225,000 from an insurance settlement.You have decided to set this money aside and invest it for your retirement.Currently,your goal is to retire 25 years from today.How much more will you have in your account on the day you retire if you can earn an average return of 10.5 percent rather than just 8 percent?

Accepted Answer

A) $417,137 
B) $689,509 
C) $1,050,423 
D) $1,189,576 
E) $1,818,342 
A) $417,137 
B) $689,509 
C) $1,050,423 
D) $1,189,576 
E) $1,818,342

Question 13

Fourteen years ago,your parents set aside $7,500 to help fund your college education.Today,that fund is valued at $26,180.What rate of interest is being earned on this account?

Accepted Answer

A) 7.99 percent 
B) 8.36 percent 
C) 8.51 percent 
D) 9.34 percent 
E) 10.06 percent 
A) 7.99 percent 
B) 8.36 percent 
C) 8.51 percent 
D) 9.34 percent 
E) 10.06 percent

Question 14

According to the Rule of 72,you can do which one of the following?

Accepted Answer

A) double your money in five years at 7.2 percent interest 
B) double your money in 7.2 years at 8 percent interest 
C) double your money in 5 years at 14.4 percent interest 
D) triple your money in 7.2 years at 5 percent interest 
E) triple your money at 10 percent interest in 7.2 years 
A) double your money in five years at 7.2 percent interest 
B) double your money in 7.2 years at 8 percent interest 
C) double your money in 5 years at 14.4 percent interest 
D) triple your money in 7.2 years at 5 percent interest 
E) triple your money at 10 percent interest in 7.2 years

Question 15

You are depositing $1,500 in a retirement account today and expect to earn an average return of 7.5 percent on this money.How much additional income will you earn if you leave the money invested for 45 years instead of just 40 years?

Accepted Answer

A) $10,723.08 
B) $11,790.90 
C) $12,441.56 
D) $12,908.19 
E) $13,590.93 
A) $10,723.08 
B) $11,790.90 
C) $12,441.56 
D) $12,908.19 
E) $13,590.93

Question 16

You just received a $3,000 gift from your grandmother.You have decided to save this money so that you can gift it to your grandchildren 50 years from now.How much additional money will you have to gift to your grandchildren if you can earn an average of 8.5 percent instead of just 8 percent on your savings?

Accepted Answer

A) $17,318.09 
B) $22,464.79 
C) $25,211.16 
D) $28,811.99 
E) $36,554.11 
A) $17,318.09 
B) $22,464.79 
C) $25,211.16 
D) $28,811.99 
E) $36,554.11

Question 17

The process of determining the present value of future cash flows in order to know their worth today is called which one of the following?

Accepted Answer

A) compound interest valuation 
B) interest on interest computation 
C) discounted cash flow valuation 
D) present value interest factoring 
E) complex factoring 
A) compound interest valuation 
B) interest on interest computation 
C) discounted cash flow valuation 
D) present value interest factoring 
E) complex factoring

Question 18

Steve invested $100 two years ago at 10 percent interest.The first year,he earned $10 interest on his $100 investment.He reinvested the $10.The second year,he earned $11 interest on his $110 investment.The extra $1 he earned in interest the second year is referred to as:

Accepted Answer

A) free interest. 
B) bonus income. 
C) simple interest. 
D) interest on interest. 
E) present value interest. 
A) free interest. 
B) bonus income. 
C) simple interest. 
D) interest on interest. 
E) present value interest.

Question 19

Sara invested $500 six years ago at 5 percent interest.She spends her earnings as soon as she earns any interest so she only receives interest on her initial $500 investment.Which type of interest is Sara earning?

Accepted Answer

A) free interest 
B) complex interest 
C) simple interest 
D) interest on interest 
E) compound interest 
A) free interest 
B) complex interest 
C) simple interest 
D) interest on interest 
E) compound interest

Question 20

What is the future value of $6,200 invested for 23 years at 9.25 percent compounded annually?

Accepted Answer

A) $22,483.60 
B) $27,890.87 
C) $38,991.07 
D) $41,009.13 
E) $47,433.47 
A) $22,483.60 
B) $27,890.87 
C) $38,991.07 
D) $41,009.13 
E) $47,433.47

Exam 5: Introduction to Valuation: The Time Value of Money

Today,you earn a salary of $36,000.What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent?

Luis is going to receive $20,000 six years from now.Soo Lee is going to receive $20,000 nine years from now.Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts?

Ten years ago,Jackson Supply set aside $130,000 in case of a financial emergency.Today,that account has increased in value to $330,592.What rate of interest is the firm earning on this money?

Suppose you are committed to owning a $140,000 Ferrari.You believe your mutual fund can achieve an annual rate of return of 8 percent and you want to buy the car in 7 years.How much must you invest today to fund this purchase assuming the price of the car remains constant?

One year ago,you invested $1,800.Today it is worth $1,924.62.What rate of interest did you earn?

Your coin collection contains fifty-four 1941 silver dollars.Your grandparents purchased them for their face value when they were new.These coins have appreciated at a 10 percent annual rate.How much will your collection be worth when you retire in 2060?

Steve just computed the present value of a $10,000 bonus he will receive in the future.The interest rate he used in this process is referred to as which one of the following?

What is the relationship between present value and future value interest factors?

You are investing $100 today in a savings account at your local bank.Which one of the following terms refers to the value of this investment one year from now?

Samantha opened a savings account this morning.Her money will earn 5 percent interest,compounded annually.After five years,her savings account will be worth $5,600.Assume she will not make any withdrawals.Given this,which one of the following statements is true?

Fourteen years ago,your parents set aside $7,500 to help fund your college education.Today,that fund is valued at $26,180.What rate of interest is being earned on this account?

According to the Rule of 72,you can do which one of the following?

You are depositing $1,500 in a retirement account today and expect to earn an average return of 7.5 percent on this money.How much additional income will you earn if you leave the money invested for 45 years instead of just 40 years?

The process of determining the present value of future cash flows in order to know their worth today is called which one of the following?

Steve invested $100 two years ago at 10 percent interest.The first year,he earned $10 interest on his $100 investment.He reinvested the $10.The second year,he earned $11 interest on his $110 investment.The extra $1 he earned in interest the second year is referred to as:

Sara invested $500 six years ago at 5 percent interest.She spends her earnings as soon as she earns any interest so she only receives interest on her initial $500 investment.Which type of interest is Sara earning?

What is the future value of $6,200 invested for 23 years at 9.25 percent compounded annually?

Introduction to Corporate Finance

Financial Statements,Taxes,and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return,Risk,and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

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