Question 1

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

Accepted Answer

A) True 
 B)False  True

Question 2

The future value of a $500 investment today at 10% annual interest compounded semiannually for five years is ______.

Accepted Answer

A) $805 
B) $814 
C) $750 
D) $923 
A) $805 
B) $814 
C) $750 
D) $923 B

Question 3

The interest factor for the present value of a single sum is equal to (1 + i)/i.

Accepted Answer

A) True 
 B)False  False

Question 4

The higher the interest rate used in determining the future value of a $1 annuity,

Accepted Answer

A) the smaller the future value at the end of the period. 
B) the greater the future value at the end of a period. 
C) the greater the present value at the beginning of a period. 
D) None of these options.The interest has no effect on the future value of an annuity. 
A) the smaller the future value at the end of the period. 
B) the greater the future value at the end of a period. 
C) the greater the present value at the beginning of a period. 
D) None of these options.The interest has no effect on the future value of an annuity.

Question 5

Dr. Stein has just invested $10,000 for his son (age 7). The money will be used for his son's education 15 years from now. He calculates that he will need $100,000 for his son's education by the time the boy goes to school. What rate of return will Dr. Stein need to achieve this goal?

Accepted Answer

A) Between 9% and 10% 
B) Between 16% and 17% 
C) Between 10% and 11% 
D) Between 15% and 16% 
A) Between 9% and 10% 
B) Between 16% and 17% 
C) Between 10% and 11% 
D) Between 15% and 16%

Question 6

Football player Walter Johnson signs a contract calling for payments of $250,000 per year, to begin 10 years from now and then continue for five more years. To find the present value of this contract, which table or tables should you use?

Accepted Answer

A) The future value of $1 
B) The future value of an annuity of $1 and the future value of $1 
C) The present value of an annuity of $1 and the present value of $1 
D) None of these options 
A) The future value of $1 
B) The future value of an annuity of $1 and the future value of $1 
C) The present value of an annuity of $1 and the present value of $1 
D) None of these options

Question 7

To find the yield on investment that requires the payment of a single amount initially, and which then return a single amount some time in the future, the most efficient table one could use is

Accepted Answer

A) the present value of $1. 
B) the future value of an annuity of $1. 
C) present value of an annuity of $1. 
D) None of these 
A) the present value of $1. 
B) the future value of an annuity of $1. 
C) present value of an annuity of $1. 
D) None of these

Question 8

The present value of a positive future inflow can become negative as discount rates become higher and higher.

Accepted Answer

A) True 
 B)False

Question 9

An annuity is a series of consecutive payments of equal amount.
If even ONE of a stream of payments is not the same, we cannot use the "shortcut" of annuity tables and calculations.

Accepted Answer

A) True 
 B)False

Question 10

Dan would like to save $1,500,000 by the time he retires in 25 years and believes he can earn an annual return of 8%. How much does he need to invest in each of the following years to achieve his goal?

Accepted Answer

A) $20,518 
B) $40,850 
C) $18,900 
D) $58,000 
E) $25,304 
A) $20,518 
B) $40,850 
C) $18,900 
D) $58,000 
E) $25,304

Question 11

The future value of an ordinary annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

Accepted Answer

A) True 
 B)False

Question 12

As the discount rate becomes higher and higher, the present value of inflows approaches

Accepted Answer

A) 0. 
B) minus infinity. 
C) plus infinity. 
D) More information is needed. 
A) 0. 
B) minus infinity. 
C) plus infinity. 
D) More information is needed.

Question 13

The interest factor for the future value of a single sum is equal to (1 + n)i.

Accepted Answer

A) True 
 B)False

Question 14

In determining the interest factor (IF) for the present value of $1, one could use the reciprocal of that IF for the future value of $1 at the same rate and time period.

Accepted Answer

A) True 
 B)False

Question 15

Higher interest rates (discount rates) reduce the present value of amounts to be received in the future.

Accepted Answer

A) True 
 B)False

Question 16

The interest factor for the future value of an annuity is simply the sum of the interest factors for the future value using the same number of periods.

Accepted Answer

A) True 
 B)False

Question 17

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 18

The time value of money concept becomes less critical as the prime rate of lending increases.

Accepted Answer

A) True 
 B)False

Question 19

The interest factor for a future value (FVIF) is equal to (1 + i)n.

Accepted Answer

A) True 
 B)False

Question 20

Pedro Gonzalez will invest $5,000 at the beginning of each year for the next nine years. The interest rate is 8%. What is the future value?

Accepted Answer

A) $58,471 
B) $62,440 
C) $67,435 
D) $72,435 
A) $58,471 
B) $62,440 
C) $67,435 
D) $72,435

Exam 9: The Time Value of Money

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

The future value of a $500 investment today at 10% annual interest compounded semiannually for five years is ______.

The interest factor for the present value of a single sum is equal to (1 + i)/i.

The higher the interest rate used in determining the future value of a $1 annuity,

Dr. Stein has just invested $10,000 for his son (age 7). The money will be used for his son's education 15 years from now. He calculates that he will need $100,000 for his son's education by the time the boy goes to school. What rate of return will Dr. Stein need to achieve this goal?

Football player Walter Johnson signs a contract calling for payments of $250,000 per year, to begin 10 years from now and then continue for five more years. To find the present value of this contract, which table or tables should you use?

To find the yield on investment that requires the payment of a single amount initially, and which then return a single amount some time in the future, the most efficient table one could use is

The present value of a positive future inflow can become negative as discount rates become higher and higher.

An annuity is a series of consecutive payments of equal amount. If even ONE of a stream of payments is not the same, we cannot use the "shortcut" of annuity tables and calculations.

Dan would like to save $1,500,000 by the time he retires in 25 years and believes he can earn an annual return of 8%. How much does he need to invest in each of the following years to achieve his goal?

The future value of an ordinary annuity assumes that the payments are received at the end of the year and that the last payment does not compound.

As the discount rate becomes higher and higher, the present value of inflows approaches

The interest factor for the future value of a single sum is equal to (1 + n)i.

In determining the interest factor (IF) for the present value of $1, one could use the reciprocal of that IF for the future value of $1 at the same rate and time period.

Higher interest rates (discount rates) reduce the present value of amounts to be received in the future.

The interest factor for the future value of an annuity is simply the sum of the interest factors for the future value using the same number of periods.

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

The time value of money concept becomes less critical as the prime rate of lending increases.

The interest factor for a future value (FVIF) is equal to (1 + i)n.

Pedro Gonzalez will invest $5,000 at the beginning of each year for the next nine years. The interest rate is 8%. What is the future value?

The Goals and Activities of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

External Growth Through Mergers

International Financial Management

Filters

The interest factor for the future value of a single sum is equal to (1 + n)ⁱ.

The interest factor for a future value (FV_IF) is equal to (1 + i)ⁿ.