Question 1

When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity payment amount by 2.

Accepted Answer

A) True 
 B)False

Question 2

Lou Lewis borrows $10,000 to be repaid over 10 years at 9%. Repayment of principal in the first year is ______.

Accepted Answer

A) $1,558 
B) $658 
C) $742 
D) $885 
A) $1,558 
B) $658 
C) $742 
D) $885

Question 3

Samuel Johnson invested in gold U.S. coins 10 years ago, paying $216.53 for one-ounce gold "double eagle" coins. He could sell these coins for $734 today. What was his annual rate of return for this investment?

Accepted Answer

None

Question 4

In evaluating capital investment projects, current outlays must be judged against the current value of future benefits.

Accepted Answer

A) True 
 B)False

Question 5

Sharon Smith will receive $1 million in 50 years. The discount rate is 14%. As an alternative, she can receive $1,000 today. Which should she choose?

Accepted Answer

A) The $1 million dollars in 50 years. 
B) $2,000 today. 
C) She should be indifferent between the two choices. 
D) More information is needeD.PV = FV × PVIF (App.B: 14%, 50 periods) 
A) The $1 million dollars in 50 years. 
B) $2,000 today. 
C) She should be indifferent between the two choices. 
D) More information is needeD.PV = FV × PVIF (App.B: 14%, 50 periods)

Question 6

Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years?

Accepted Answer

A) 12% 
B) Between 12% and 13% 
C) About 7% 
D) Greater than 15% 
A) 12% 
B) Between 12% and 13% 
C) About 7% 
D) Greater than 15%

Question 7

To calculate Future or Present Values of an "Annuity Due," we must assume that payments happen twice as often.
Annuities Due simply move TVM calculations back to the beginning of a year, rather than the end.

Accepted Answer

A) True 
 B)False

Question 8

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 15 years beginning one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?

Accepted Answer

A) $11,250 
B) $12,263 
C) $24,003 
D) $23,276 
A) $11,250 
B) $12,263 
C) $24,003 
D) $23,276

Question 9

The concept of time value of money is important to financial decision making because

Accepted Answer

A) it emphasizes earning a return on invested capital. 
B) it recognizes that earning a return makes $1 worth more today than $1 received in the future. 
C) it can be applied to future cash flows in order to compare different streams of income. 
D) All of these options 
A) it emphasizes earning a return on invested capital. 
B) it recognizes that earning a return makes $1 worth more today than $1 received in the future. 
C) it can be applied to future cash flows in order to compare different streams of income. 
D) All of these options

Question 10

As the interest rate increases, the present value of an amount to be received at the end of a fixed period

Accepted Answer

A) increases. 
B) decreases. 
C) remains the same. 
D) Not enough information is given to tell. 
A) increases. 
B) decreases. 
C) remains the same. 
D) Not enough information is given to tell.

Question 11

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for seven years. How much total return will his investment earn during this time period?

Accepted Answer

A) $2,915 
B) $3,570 
C) $6,254 
D) $8,570 
A) $2,915 
B) $3,570 
C) $6,254 
D) $8,570

Question 12

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 15 equal annual payments. What is the principal outstanding after the first loan payment?

Accepted Answer

A) $143,555 
B) $134,560 
C) $141,200 
D) None of these options 
A) $143,555 
B) $134,560 
C) $141,200 
D) None of these options

Question 13

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

Accepted Answer

A) True 
 B)False

Question 14

Marcia Stubern is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing $60,000 annually. She is expected to live for 20 years following her retirement. Her financial advisor thinks she can earn 9% annually. How much does she need to invest at the end of each year before she retires, to prepare for her financial needs after her retirement?

Accepted Answer

Amount to

Question 15

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

Accepted Answer

A) A period of recession 
B) When idle money can earn a positive return 
C) When there is no risk of nonpayment in the future 
D) When current interest rates are different from expected future rates 
A) A period of recession 
B) When idle money can earn a positive return 
C) When there is no risk of nonpayment in the future 
D) When current interest rates are different from expected future rates

Question 16

Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for 10 years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be?
D.A = $2 million/23.115 = $86,524

Accepted Answer

A = PVA/PVIFA(3%, 40

Question 17

Ian would like to save $2,000,000 by the time he retires in 40 years. If he believes that he can achieve a 7% rate of return, how much does he need to deposit each year, starting one year from now, to achieve his goal?

Accepted Answer

A) $12,065 
B) $37,500 
C) $5,790 
D) $10,018 
A) $12,065 
B) $37,500 
C) $5,790 
D) $10,018

Question 18

Kathy has $50,000 to invest today and would like to determine whether it is realistic for her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years?

Accepted Answer

A) About 12% 
B) About 13% 
C) About 9% 
D) About 10% 
A) About 12% 
B) About 13% 
C) About 9% 
D) About 10%

Question 19

To determine the current worth of four annual payments of $1,000 at 4%, one would refer to a table for the present value of $1.

Accepted Answer

A) True 
 B)False

Question 20

How much must you invest at 8% interest in order to see your investment grow to $8,000 in 10 years?

Accepted Answer

A) $3,070 
B) $3,704 
C) $3,105 
D) None of these options 
A) $3,070 
B) $3,704 
C) $3,105 
D) None of these options

When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity payment amount by 2.

Lou Lewis borrows $10,000 to be repaid over 10 years at 9%. Repayment of principal in the first year is ______.

Samuel Johnson invested in gold U.S. coins 10 years ago, paying $216.53 for one-ounce gold "double eagle" coins. He could sell these coins for $734 today. What was his annual rate of return for this investment?

In evaluating capital investment projects, current outlays must be judged against the current value of future benefits.

Sharon Smith will receive $1 million in 50 years. The discount rate is 14%. As an alternative, she can receive $1,000 today. Which should she choose?

Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years?

To calculate Future or Present Values of an "Annuity Due," we must assume that payments happen twice as often. Annuities Due simply move TVM calculations back to the beginning of a year, rather than the end.

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 15 years beginning one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?

The concept of time value of money is important to financial decision making because

As the interest rate increases, the present value of an amount to be received at the end of a fixed period

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for seven years. How much total return will his investment earn during this time period?

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 15 equal annual payments. What is the principal outstanding after the first loan payment?

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for 10 years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be? D.A = $2 million/23.115 = $86,524

Ian would like to save $2,000,000 by the time he retires in 40 years. If he believes that he can achieve a 7% rate of return, how much does he need to deposit each year, starting one year from now, to achieve his goal?

Kathy has $50,000 to invest today and would like to determine whether it is realistic for her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years?

To determine the current worth of four annual payments of $1,000 at 4%, one would refer to a table for the present value of $1.

How much must you invest at 8% interest in order to see your investment grow to $8,000 in 10 years?

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

Exam 9: The Time Value of Money

When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity payment amount by 2.

Lou Lewis borrows $10,000 to be repaid over 10 years at 9%. Repayment of principal in the first year is ______.

Samuel Johnson invested in gold U.S. coins 10 years ago, paying $216.53 for one-ounce gold "double eagle" coins. He could sell these coins for $734 today. What was his annual rate of return for this investment?

In evaluating capital investment projects, current outlays must be judged against the current value of future benefits.

Sharon Smith will receive $1 million in 50 years. The discount rate is 14%. As an alternative, she can receive $1,000 today. Which should she choose?

Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years?

To calculate Future or Present Values of an "Annuity Due," we must assume that payments happen twice as often. Annuities Due simply move TVM calculations back to the beginning of a year, rather than the end.

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 15 years beginning one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?

The concept of time value of money is important to financial decision making because

As the interest rate increases, the present value of an amount to be received at the end of a fixed period

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for seven years. How much total return will his investment earn during this time period?

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 15 equal annual payments. What is the principal outstanding after the first loan payment?

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for 10 years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be? D.A = $2 million/23.115 = $86,524

Ian would like to save $2,000,000 by the time he retires in 40 years. If he believes that he can achieve a 7% rate of return, how much does he need to deposit each year, starting one year from now, to achieve his goal?

Kathy has $50,000 to invest today and would like to determine whether it is realistic for her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years?

To determine the current worth of four annual payments of $1,000 at 4%, one would refer to a table for the present value of $1.

How much must you invest at 8% interest in order to see your investment grow to $8,000 in 10 years?

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