Question 1

Your bank offers a 10-year certificate of deposit (CD)that pays 6.5% interest,compounded annually.If you invest $2,000 in the CD,how much will you have when it matures?

Accepted Answer

A) $3,754.27 
B) $3,941.99 
C) $4,139.09 
D) $4,346.04 
E) $4,563.34 
A) $3,754.27 
B) $3,941.99 
C) $4,139.09 
D) $4,346.04 
E) $4,563.34

Question 2

The going rate of interest on a 5-year treasury bond is 4.25%.You have one that will pay $2,500 five years from now.How much is the bond worth today?

Accepted Answer

A) $1,928.78 
B) $2,030.30 
C) $2,131.81 
D) $2,238.40 
E) $2,350.32 
A) $1,928.78 
B) $2,030.30 
C) $2,131.81 
D) $2,238.40 
E) $2,350.32

Question 3

Suppose a State of North Carolina bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 5.5%,how much is the bond worth today?

Accepted Answer

A) $585.43 
B) $614.70 
C) $645.44 
D) $677.71 
E) $711.59 
A) $585.43 
B) $614.70 
C) $645.44 
D) $677.71 
E) $711.59

Question 4

How much would $100,growing at 5% per year,be worth after 75 years?

Accepted Answer

A) $3,689.11 
B) $3,883.27 
C) $4,077.43 
D) $4,281.30 
E) $4,495.37 
A) $3,689.11 
B) $3,883.27 
C) $4,077.43 
D) $4,281.30 
E) $4,495.37

Question 5

A time line is meaningful even if all cash flows do not occur annually.

Accepted Answer

A) True 
 B)False

Question 6

When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

Accepted Answer

A) True 
 B)False

Question 7

Your aunt wants to retire and has $375,000.She expects to live for another 25 years,and she also expects to earn 7.5% on her invested funds.How much could she withdraw at the beginning of each of the next 25 years and end up with zero in the account?

Accepted Answer

A) $28,243.21 
B) $29,729.70 
C) $31,294.42 
D) $32,859.14 
E) $34,502.10 
A) $28,243.21 
B) $29,729.70 
C) $31,294.42 
D) $32,859.14 
E) $34,502.10

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A) If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity. 
B) The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. 
C) If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. 
D) The cash flows for an annuity due must all occur at the ends of the periods. 
E) The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month. 
A) If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity. 
B) The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. 
C) If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. 
D) The cash flows for an annuity due must all occur at the ends of the periods. 
E) The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

Question 9

If we are given a periodic interest rate,say a monthly rate,we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following bank accounts has the highest effective annual return?

Accepted Answer

A) An account that pays 8% nominal interest with daily (365-day) compounding. 
B) An account that pays 8% nominal interest with monthly compounding. 
C) An account that pays 8% nominal interest with annual compounding. 
D) An account that pays 7% nominal interest with daily (365-day) compounding. 
E) An account that pays 7% nominal interest with monthly compounding. 
A) An account that pays 8% nominal interest with daily (365-day) compounding. 
B) An account that pays 8% nominal interest with monthly compounding. 
C) An account that pays 8% nominal interest with annual compounding. 
D) An account that pays 7% nominal interest with daily (365-day) compounding. 
E) An account that pays 7% nominal interest with monthly compounding.

Question 11

The store where you bought new home furnishings offers you two alternative payment plans.The first plan requires a $4,000 immediate up-front payment.The second plan requires you to make monthly payments of $137.41,payable at the end of each month for 3 years.What nominal annual interest rate is built into the monthly payment plan?

Accepted Answer

A) 12.31% 
B) 12.96% 
C) 13.64% 
D) 14.36% 
E) 15.08% 
A) 12.31% 
B) 12.96% 
C) 13.64% 
D) 14.36% 
E) 15.08%

Question 12

A U.S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%,semiannual compounding.Which of the following statements is CORRECT?

Accepted Answer

A) The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity. 
B) The periodic interest rate is greater than 3%. 
C) The periodic rate is less than 3%. 
D) The present value would be greater if the lump sum were discounted back for more periods. 
E) The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually. 
A) The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity. 
B) The periodic interest rate is greater than 3%. 
C) The periodic rate is less than 3%. 
D) The present value would be greater if the lump sum were discounted back for more periods. 
E) The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually.

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A) Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts. 
B) A time line is not meaningful unless all cash flows occur annually. 
C) Time lines are not useful for visualizing complex problems prior to doing actual calculations. 
D) Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly. 
E) Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods. 
A) Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts. 
B) A time line is not meaningful unless all cash flows occur annually. 
C) Time lines are not useful for visualizing complex problems prior to doing actual calculations. 
D) Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly. 
E) Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.

Question 14

Your bank offers a savings account that pays 3.5% interest,compounded annually.How much will $500 invested today be worth at the end of 25 years?

Accepted Answer

A) $1,122.54 
B) $1,181.62 
C) $1,240.70 
D) $1,302.74 
E) $1,367.88 
A) $1,122.54 
B) $1,181.62 
C) $1,240.70 
D) $1,302.74 
E) $1,367.88

Question 15

What is the present value of the following cash flow stream at a rate of 8.0%?

Accepted Answer

A) $7,917 
B) $8,333 
C) $8,772 
D) $9,233 
E) $9,695 
A) $7,917 
B) $8,333 
C) $8,772 
D) $9,233 
E) $9,695

Question 16

The payment made each period on an amortized loan is constant,and it consists of some interest and some principal.The closer we are to the end of the loan's life,the smaller the percentage of the payment that will be a repayment of principal.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A) A time line is not meaningful unless all cash flows occur annually. 
B) Time lines are not useful for visualizing complex problems prior to doing actual calculations. 
C) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. 
D) Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. 
E) Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity. 
A) A time line is not meaningful unless all cash flows occur annually. 
B) Time lines are not useful for visualizing complex problems prior to doing actual calculations. 
C) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. 
D) Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. 
E) Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

Question 18

All other things held constant,the present value of a given annual annuity decreases as the number of periods per year increases.

Accepted Answer

A) True 
 B)False

Question 19

You are hoping to buy a new boat 3 years from now,and you plan to save $4,200 per year,beginning one year from today.You will deposit your savings in an account that pays 5.2% interest.How much will you have just after you make the 3rd deposit,3 years from now?

Accepted Answer

A) $11,973 
B) $12,603 
C) $13,267 
D) $13,930 
E) $14,626 
A) $11,973 
B) $12,603 
C) $13,267 
D) $13,930 
E) $14,626

Question 20

A $150,000 loan is to be amortized over 6 years,with annual end-of-year payments.Which of these statements is CORRECT?

Accepted Answer

A) The proportion of interest versus principal repayment would be the same for each of the 7 payments. 
B) The annual payments would be larger if the interest rate were lower. 
C) If the loan were amortized over 10 years rather than 6 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 6-year amortization plan. 
D) The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower. 
E) The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher. 
A) The proportion of interest versus principal repayment would be the same for each of the 7 payments. 
B) The annual payments would be larger if the interest rate were lower. 
C) If the loan were amortized over 10 years rather than 6 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 6-year amortization plan. 
D) The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower. 
E) The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.

Exam 28: Time Value of Money

Your bank offers a 10-year certificate of deposit (CD)that pays 6.5% interest,compounded annually.If you invest $2,000 in the CD,how much will you have when it matures?

The going rate of interest on a 5-year treasury bond is 4.25%.You have one that will pay $2,500 five years from now.How much is the bond worth today?

Suppose a State of North Carolina bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 5.5%,how much is the bond worth today?

How much would $100,growing at 5% per year,be worth after 75 years?

A time line is meaningful even if all cash flows do not occur annually.

When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

Your aunt wants to retire and has $375,000.She expects to live for another 25 years,and she also expects to earn 7.5% on her invested funds.How much could she withdraw at the beginning of each of the next 25 years and end up with zero in the account?

Which of the following statements is CORRECT?

If we are given a periodic interest rate,say a monthly rate,we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year.

Which of the following bank accounts has the highest effective annual return?

A U.S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%,semiannual compounding.Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Your bank offers a savings account that pays 3.5% interest,compounded annually.How much will $500 invested today be worth at the end of 25 years?

What is the present value of the following cash flow stream at a rate of 8.0%?

The payment made each period on an amortized loan is constant,and it consists of some interest and some principal.The closer we are to the end of the loan's life,the smaller the percentage of the payment that will be a repayment of principal.

Which of the following statements is CORRECT?

All other things held constant,the present value of a given annual annuity decreases as the number of periods per year increases.

You are hoping to buy a new boat 3 years from now,and you plan to save $4,200 per year,beginning one year from today.You will deposit your savings in an account that pays 5.2% interest.How much will you have just after you make the 3rd deposit,3 years from now?

A $150,000 loan is to be amortized over 6 years,with annual end-of-year payments.Which of these statements is CORRECT?

An Overview of Financial Management and the Financial Environment

Risk and Return: Part I

Risk and Return: Part Ii

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Rules

Cash Flow Estimation and Risk Analysis

Real Options

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings, investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Basic Financial Tools: a Review

Pension Plan Management

Financial Management in Not-For-Profit Businesses

a Values of the Areas Under the Standard Normal

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