Question 1

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 2

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 3

Which is more valuable, receiving $775 today or receiving $885 in 2.5 years if interest rates are 7.25 percent?

Accepted Answer

A) Receiving $775 today 
B) Receiving $885 in 2.5 years 
C) They are worth the same amount 
D) Need more information to make a determination 
A) Receiving $775 today 
B) Receiving $885 in 2.5 years 
C) They are worth the same amount 
D) Need more information to make a determination

Question 4

What is the value in year 3 of a $10,000 cash flow made in year 20 if interest rates are 5 percent?

Accepted Answer

A) $4,362.97 
B) $4,491.27 
C) $5,374.11 
D) $5,572.19 
A) $4,362.97 
B) $4,491.27 
C) $5,374.11 
D) $5,572.19

Question 5

Ten years ago, Hailey invested $1,000 and locked in a 9 percent annual rate for 30 years (end 20 years from now). Aidan can make a 20-year investment today and lock in an 8 percent rate. How much money should he invest now in order to have the same amount of money in 20 years as Hailey?

Accepted Answer

A) $1,589.03 
B) $2,846.56 
C) $3,109.48 
D) $2,109.73 
A) $1,589.03 
B) $2,846.56 
C) $3,109.48 
D) $2,109.73

Question 6

Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

Accepted Answer

A) 1.5 percent 
B) 12.65 percent 
C) 16.65 percent 
D) 20.11 percent 
A) 1.5 percent 
B) 12.65 percent 
C) 16.65 percent 
D) 20.11 percent

Question 7

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 8

The longer money can earn interest,

Accepted Answer

A) the greater the interest earned on the original deposit exceeds the interest-on-interest. 
B) the greater the compounding effect. 
C) the greater the present value must be to reach a financial goal. 
D) the greater the risk to the investor of not reaching a financial goal. 
A) the greater the interest earned on the original deposit exceeds the interest-on-interest. 
B) the greater the compounding effect. 
C) the greater the present value must be to reach a financial goal. 
D) the greater the risk to the investor of not reaching a financial goal.

Question 9

You deposit $20,000 in an account that doubles in 7 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

Question 10

At age 25 you invest $2,000 that earns 6 percent each year. At age 35 you invest $2,000 that earns 9 percent per year. In which case would you have more money at age 60?

Accepted Answer

A) At age 25 invest $2,000 at 6 percent. 
B) At age 35 invest $2,000 at 9 percent. 
C) Both yield the same amount at age 60. 
D) There is not enough information to determine which case earns the most money at age 60. 
A) At age 25 invest $2,000 at 6 percent. 
B) At age 35 invest $2,000 at 9 percent. 
C) Both yield the same amount at age 60. 
D) There is not enough information to determine which case earns the most money at age 60.

Question 11

What annual rate of return is implied on a $1,000 loan taken next year when $1,500 must be repaid in year 5?

Accepted Answer

A) 8.45 percent 
B) 10.00 percent 
C) 10.67 percent 
D) 12.50 percent 
A) 8.45 percent 
B) 10.00 percent 
C) 10.67 percent 
D) 12.50 percent

Question 12

What is the present value of a $750 payment made in 3 years when the discount rate is 5 percent?

Accepted Answer

A) $646.96 
B) $647.88 
C) $712.50 
D) $868.22 
A) $646.96 
B) $647.88 
C) $712.50 
D) $868.22

Question 13

What is the present value of a $7,000 payment made in six years when the discount rate is 4 percent?

Accepted Answer

A) $5,290.42 
B) $5,532.20 
C) $5,802.82 
D) $6,103.73 
A) $5,290.42 
B) $5,532.20 
C) $5,802.82 
D) $6,103.73

Question 14

You double your money in 5 years. The reason your return is not 20 percent per year is because:

Accepted Answer

A) it is probably a "fad" investment. 
B) it does not reflect the effect of discounting. 
C) it does not reflect the effect of the Rule of 72. 
D) it does not reflect the effect of compounding. 
A) it is probably a "fad" investment. 
B) it does not reflect the effect of discounting. 
C) it does not reflect the effect of the Rule of 72. 
D) it does not reflect the effect of compounding.

Question 15

What is the value in year 20 of a $1,000 cash flow made in year 8 if interest rates are 15 percent in years 6 through 13 and increase to 18 percent in the remaining years?

Accepted Answer

A) $5,779.57 
B) $5,912.42 
C) $6,005.71 
D) $6,407.13 
A) $5,779.57 
B) $5,912.42 
C) $6,005.71 
D) $6,407.13

Question 16

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

Question 17

What annual rate of return is earned on a $895 investment that grows to $1,976 in eight years?

Accepted Answer

A) 9.14 percent 
B) 9.97 percent 
C) 10.41 percent 
D) 11.73 percent 
A) 9.14 percent 
B) 9.97 percent 
C) 10.41 percent 
D) 11.73 percent

Question 18

Scenario A: At age 19 you invest $1,500 that earns 8 percent per year. Scenario B: At age 30 you invest $1,500 that earns 13 percent per year. Under which scenario would you have more money at age 55 and what is the dollar difference at age 55 between the two scenarios?

Accepted Answer

A) Scenario A; $1,085.49 
B) Scenario A; $2,104.73 
C) Scenario B; $4,179.36 
D) Scenario B; $7,893.55 
A) Scenario A; $1,085.49 
B) Scenario A; $2,104.73 
C) Scenario B; $4,179.36 
D) Scenario B; $7,893.55

Question 19

Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest rate for 25 years (end 20 years from now). James can make a 20-year investment today and lock in a 10 percent interest rate. How much money should he invest now in order to have the same amount of money in 20 years as Jane?

Accepted Answer

A) $3,160.43 
B) $3,464.11 
C) $5,089.91 
D) $7,346.64 
A) $3,160.43 
B) $3,464.11 
C) $5,089.91 
D) $7,346.64

Question 20

What annual rate of return is earned on a $5,000 investment when it grows to $7,000 in six years?

Accepted Answer

A) 1.40 percent 
B) 5.45 percent 
C) 5.77 percent 
D) 40.00 percent 
A) 1.40 percent 
B) 5.45 percent 
C) 5.77 percent 
D) 40.00 percent

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

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

Which is more valuable, receiving $775 today or receiving $885 in 2.5 years if interest rates are 7.25 percent?

What is the value in year 3 of a $10,000 cash flow made in year 20 if interest rates are 5 percent?

Ten years ago, Hailey invested $1,000 and locked in a 9 percent annual rate for 30 years (end 20 years from now). Aidan can make a 20-year investment today and lock in an 8 percent rate. How much money should he invest now in order to have the same amount of money in 20 years as Hailey?

Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

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

The longer money can earn interest,

You deposit $20,000 in an account that doubles in 7 years. How many years will it take the account to double again if it earns 14 percent per year?

At age 25 you invest $2,000 that earns 6 percent each year. At age 35 you invest $2,000 that earns 9 percent per year. In which case would you have more money at age 60?

What annual rate of return is implied on a $1,000 loan taken next year when $1,500 must be repaid in year 5?

What is the present value of a $750 payment made in 3 years when the discount rate is 5 percent?

What is the present value of a $7,000 payment made in six years when the discount rate is 4 percent?

You double your money in 5 years. The reason your return is not 20 percent per year is because:

What is the value in year 20 of a $1,000 cash flow made in year 8 if interest rates are 15 percent in years 6 through 13 and increase to 18 percent in the remaining 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?

What annual rate of return is earned on a $895 investment that grows to $1,976 in eight years?

Scenario A: At age 19 you invest $1,500 that earns 8 percent per year. Scenario B: At age 30 you invest $1,500 that earns 13 percent per year. Under which scenario would you have more money at age 55 and what is the dollar difference at age 55 between the two scenarios?

What annual rate of return is earned on a $5,000 investment when it grows to $7,000 in six years?

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

Filters

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

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

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

Which is more valuable, receiving $775 today or receiving $885 in 2.5 years if interest rates are 7.25 percent?

What is the value in year 3 of a $10,000 cash flow made in year 20 if interest rates are 5 percent?

Ten years ago, Hailey invested $1,000 and locked in a 9 percent annual rate for 30 years (end 20 years from now). Aidan can make a 20-year investment today and lock in an 8 percent rate. How much money should he invest now in order to have the same amount of money in 20 years as Hailey?

Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

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

The longer money can earn interest,

You deposit $20,000 in an account that doubles in 7 years. How many years will it take the account to double again if it earns 14 percent per year?

At age 25 you invest $2,000 that earns 6 percent each year. At age 35 you invest $2,000 that earns 9 percent per year. In which case would you have more money at age 60?

What annual rate of return is implied on a $1,000 loan taken next year when $1,500 must be repaid in year 5?

What is the present value of a $750 payment made in 3 years when the discount rate is 5 percent?

What is the present value of a $7,000 payment made in six years when the discount rate is 4 percent?

You double your money in 5 years. The reason your return is not 20 percent per year is because:

What is the value in year 20 of a $1,000 cash flow made in year 8 if interest rates are 15 percent in years 6 through 13 and increase to 18 percent in the remaining 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?

What annual rate of return is earned on a $895 investment that grows to $1,976 in eight years?

Scenario A: At age 19 you invest $1,500 that earns 8 percent per year. Scenario B: At age 30 you invest $1,500 that earns 13 percent per year. Under which scenario would you have more money at age 55 and what is the dollar difference at age 55 between the two scenarios?

What annual rate of return is earned on a $5,000 investment when it grows to $7,000 in six years?

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

Filters