Question 1

What is the value on 1/1/13 of the following cash flows:   Use a 7% discount rate,and round your answer to the nearest $10.

Accepted Answer

A) $153,270 
B) $128,490 
C) $112,350 
D) $107,330 
A) $153,270 
B) $128,490 
C) $112,350 
D) $107,330

Question 2

Congratulations! You are the proud winner of the multi-state Sour Ball Lottery.You are to receive $2,000,000 at the end of each year for the next 20 years.While the Lottery Commission refers to this as a $40,000,000 jackpot,if you choose the "cash option" they will give you much less than that; you can receive a lump sum payment today equal to the present value of the ordinary annuity instead of the 20 annual payments.If the discount rate that the Lottery Commission uses to determine the lump sum payoff is 7%,what is your payoff if you select the cash option?

Accepted Answer

A) $26,945,332 
B) $39,707,503 
C) $42,977,401 
D) $21,188,028 
A) $26,945,332 
B) $39,707,503 
C) $42,977,401 
D) $21,188,028

Question 3

Andre's wonderful parents established a college savings plan for him when he was born.They deposited $50 into the account on the last day of each month.The account has earned 10.9% compounded monthly,tax-free.How much can they withdraw on his 18th birthday to spend on his education?

Accepted Answer

A) $27,560 
B) $30,028 
C) $33,307 
D) $43,730 
A) $27,560 
B) $30,028 
C) $33,307 
D) $43,730

Question 4

When solving time value of money problems using Excel,the type = 0 variable means payments are made at the end of each period,and the type = 1 variable means payments are made at the beginning of each period.

Accepted Answer

A) True 
 B)False

Question 5

What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today,and the discount rate is 9% (round to nearest $1).

Accepted Answer

A) $36,288 
B) $35,712 
C) $25,699 
D) $24,132 
A) $36,288 
B) $35,712 
C) $25,699 
D) $24,132

Question 6

You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400.You auction it on eBay and receive $8,000 for your item.What annual rate of return did you earn?

Accepted Answer

A) 200.00% 
B) 34.93% 
C) 30.47% 
D) 20.00% 
A) 200.00% 
B) 34.93% 
C) 30.47% 
D) 20.00%

Question 7

In order to send your first child to Law School when the time comes,you want to accumulate $40,000 at the end of 18 years.Assuming that your savings account will pay 6% compounded annually,how much would you have to deposit if: a.You want to deposit an equal amount at the end of each year? b.You want to deposit one large lump sum today?

Accepted Answer

a.$1,294.2

Question 8

You can buy a $50 savings bond today for $25 and redeem the bond in 10 years for its full face value of $50.You could also put your money in a money market account that pays 7% interest per year.Which option is better,assuming they are of equal risk?

Accepted Answer

A) The money market account is better because it pays more interest. 
B) The money market account is better because it requires a smaller investment. 
C) The savings bond is better because it earns a higher interest rate. 
D) The money market and savings bond both earn 7% interest,so they are equal in value. 
A) The money market account is better because it pays more interest. 
B) The money market account is better because it requires a smaller investment. 
C) The savings bond is better because it earns a higher interest rate. 
D) The money market and savings bond both earn 7% interest,so they are equal in value.

Question 9

Bill starts a retirement fund at age 21 and plans on depositing equal annual amounts on each birthday,starting at age 21,and ending at age 60.He wants to have $2 million at age 60.John starts his fund on his 30th birthday.He wants to deposit equal annual amounts on each birthday starting on his 30th birthday and ending on his 60th birthday.John wants to have $2 million at age 60.If the investment funds earn 10% per year,calculate the amounts the Bill and John respectively will have to save each year (rounded to the nearest dollar)to meet their goals.Comment on the difference.

Accepted Answer

Bill will need to make deposits of $4,51

Question 10

You have just purchased a share of preferred stock for $50.00.The preferred stock pays an annual dividend of $5.50 per share forever.What is the rate of return on your investment?

Accepted Answer

A) 0.055 
B) 0.010 
C) 0.110 
D) 0.220 
A) 0.055 
B) 0.010 
C) 0.110 
D) 0.220

Question 11

Timelines are used for simple time value of money problems,but cannot be used for more complex problems.

Accepted Answer

A) True 
 B)False

Question 12

Leigh Delight Candy,Inc.is choosing between two bonds in which to invest their cash.One is being offered from Hershey's and will mature in 10 years and pay $30 each quarter.The other alternative is a Mars' bond that will mature in 20 years and pay $30 each quarter.What would be the present value of each bond if the discount rate is 10% compounded quarterly,and each bond pays $1,000 at maturity?

Accepted Answer

Hershey's:

Question 13

Today is your 21st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded quarterly.How much will be in the account on your 50th birthday?

Accepted Answer

A) $159,795 
B) $162,183 
C) $163,832 
D) $164,631 
A) $159,795 
B) $162,183 
C) $163,832 
D) $164,631

Question 14

A bond matures in 20 years,at which time it pays the owner $1,000.It also pays $70 at the end of each of the next 20 years.If similar bonds are currently yielding 7%,what is the market value of the bond?

Accepted Answer

A) over $1,000 
B) under $1,000 
C) exactly $1,000 
D) cannot be determined from the information given 
A) over $1,000 
B) under $1,000 
C) exactly $1,000 
D) cannot be determined from the information given

Question 15

You are thinking of buying a craft emporium.It is expected to generate cash flows of $30,000 per year in years 1 through 5,and $40,000 per year in years 6 through 10.If the appropriate discount rate is 8%,what amount are you willing to pay for the emporium?

Accepted Answer

A) $135,288 
B) $167,943 
C) $215,048 
D) $228,476 
A) $135,288 
B) $167,943 
C) $215,048 
D) $228,476

Question 16

The present value of a deferred annuity .

Accepted Answer

A) True 
 B)False

Question 17

Auto Loans R Them loans you $24,000 for four years to buy a car.The loan must be repaid in 48 equal monthly payments.The annual interest rate on the loan is 9 percent.What is the monthly payment?

Accepted Answer

A) $500.92 
B) $543.79 
C) $563.82 
D) $597.24 
A) $500.92 
B) $543.79 
C) $563.82 
D) $597.24

Question 18

If you put $10,000 in an investment that returns 11 percent compounded monthly what would you have after 10 years (round to nearest $1)?

Accepted Answer

A) $29,892 
B) $27,559 
C) $25,486 
D) $22,489 
A) $29,892 
B) $27,559 
C) $25,486 
D) $22,489

Question 19

You inherit $300,000 from your parents and want to use the money to supplement your retirement.You receive the money on your 65th birthday,the day you retire.You want to withdraw equal amounts at the end of each of the next 20 years.What constant amount can you withdraw each month and have nothing remaining at the end of 20 years if you are earning 7% interest compounded monthly?

Accepted Answer

A) $1,200 
B) $1,829 
C) $2,326 
D) $2,943 
A) $1,200 
B) $1,829 
C) $2,326 
D) $2,943

Question 20

The same underlying formula is used for computing both the future value and present value.

Accepted Answer

A) True 
 B)False

What is the value on 1/1/13 of the following cash flows: Use a 7% discount rate,and round your answer to the nearest $10.

Andre's wonderful parents established a college savings plan for him when he was born.They deposited $50 into the account on the last day of each month.The account has earned 10.9% compounded monthly,tax-free.How much can they withdraw on his 18^th birthday to spend on his education?

When solving time value of money problems using Excel,the type = 0 variable means payments are made at the end of each period,and the type = 1 variable means payments are made at the beginning of each period.

What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today,and the discount rate is 9% (round to nearest $1).

You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400.You auction it on eBay and receive $8,000 for your item.What annual rate of return did you earn?

You can buy a $50 savings bond today for $25 and redeem the bond in 10 years for its full face value of $50.You could also put your money in a money market account that pays 7% interest per year.Which option is better,assuming they are of equal risk?

You have just purchased a share of preferred stock for $50.00.The preferred stock pays an annual dividend of $5.50 per share forever.What is the rate of return on your investment?

Timelines are used for simple time value of money problems,but cannot be used for more complex problems.

Today is your 21^st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded quarterly.How much will be in the account on your 50^th birthday?

A bond matures in 20 years,at which time it pays the owner $1,000.It also pays $70 at the end of each of the next 20 years.If similar bonds are currently yielding 7%,what is the market value of the bond?

You are thinking of buying a craft emporium.It is expected to generate cash flows of $30,000 per year in years 1 through 5,and $40,000 per year in years 6 through 10.If the appropriate discount rate is 8%,what amount are you willing to pay for the emporium?

The present value of a deferred annuity .

Auto Loans R Them loans you $24,000 for four years to buy a car.The loan must be repaid in 48 equal monthly payments.The annual interest rate on the loan is 9 percent.What is the monthly payment?

If you put $10,000 in an investment that returns 11 percent compounded monthly what would you have after 10 years (round to nearest $1)?

The same underlying formula is used for computing both the future value and present value.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 5: The Time Value of Money

What is the value on 1/1/13 of the following cash flows: Use a 7% discount rate,and round your answer to the nearest $10.

Andre's wonderful parents established a college savings plan for him when he was born.They deposited $50 into the account on the last day of each month.The account has earned 10.9% compounded monthly,tax-free.How much can they withdraw on his 18th birthday to spend on his education?

When solving time value of money problems using Excel,the type = 0 variable means payments are made at the end of each period,and the type = 1 variable means payments are made at the beginning of each period.

What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today,and the discount rate is 9% (round to nearest $1).

You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400.You auction it on eBay and receive $8,000 for your item.What annual rate of return did you earn?

You can buy a $50 savings bond today for $25 and redeem the bond in 10 years for its full face value of $50.You could also put your money in a money market account that pays 7% interest per year.Which option is better,assuming they are of equal risk?

You have just purchased a share of preferred stock for $50.00.The preferred stock pays an annual dividend of $5.50 per share forever.What is the rate of return on your investment?

Timelines are used for simple time value of money problems,but cannot be used for more complex problems.

Today is your 21st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded quarterly.How much will be in the account on your 50th birthday?

A bond matures in 20 years,at which time it pays the owner $1,000.It also pays $70 at the end of each of the next 20 years.If similar bonds are currently yielding 7%,what is the market value of the bond?

You are thinking of buying a craft emporium.It is expected to generate cash flows of $30,000 per year in years 1 through 5,and $40,000 per year in years 6 through 10.If the appropriate discount rate is 8%,what amount are you willing to pay for the emporium?

The present value of a deferred annuity .

Auto Loans R Them loans you $24,000 for four years to buy a car.The loan must be repaid in 48 equal monthly payments.The annual interest rate on the loan is 9 percent.What is the monthly payment?

If you put $10,000 in an investment that returns 11 percent compounded monthly what would you have after 10 years (round to nearest $1)?

The same underlying formula is used for computing both the future value and present value.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Andre's wonderful parents established a college savings plan for him when he was born.They deposited $50 into the account on the last day of each month.The account has earned 10.9% compounded monthly,tax-free.How much can they withdraw on his 18^th birthday to spend on his education?

Today is your 21^st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded quarterly.How much will be in the account on your 50^th birthday?