Question 1

What is the present value of the following cash flow stream at a rate of 12.0%? ​
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  ​

Accepted Answer

A) $ 9,699 
B) $10,210 
C) $10,747 
D) $11,284 
E) $11,849 
A) $ 9,699 
B) $10,210 
C) $10,747 
D) $11,284 
E) $11,849

Question 2

Your Aunt Ruth has $500,000 invested at 6.5%,and she plans to retire.She wants to withdraw $40,000 at the beginning of each year,starting immediately.How many years will it take to exhaust her funds,i.e.,run the account down to zero?

Accepted Answer

A) 18.62 
B) 19.60 
C) 20.63 
D) 21.71 
E) 22.86 
A) 18.62 
B) 19.60 
C) 20.63 
D) 21.71 
E) 22.86

Question 3

The greater the number of compounding periods within a year,then (1)the greater the future value of a lump sum investment at Time 0 and (2)the greater the present value of a given lump sum to be received at some future date.

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%,compounded semiannually?

Accepted Answer

A) $3,089 
B) $3,251 
C) $3,422 
D) $3,602 
E) $3,782 
A) $3,089 
B) $3,251 
C) $3,422 
D) $3,602 
E) $3,782

Question 6

Janice has $5,000 invested in a bank that pays 3.8% annually.How long will it take for her funds to triple?

Accepted Answer

A) 23.99 
B) 25.26 
C) 26.58 
D) 27.98 
E) 29.46 
A) 23.99 
B) 25.26 
C) 26.58 
D) 27.98 
E) 29.46

Question 7

How much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?

Accepted Answer

A) $438.03 
B) $461.08 
C) $485.35 
D) $510.89 
E) $537.78 
A) $438.03 
B) $461.08 
C) $485.35 
D) $510.89 
E) $537.78

Question 8

Ten years ago,Lucas Inc.earned $0.50 per share.Its earnings this year were $2.20.What was the growth rate in earnings per share (EPS)over the 10-year period?

Accepted Answer

A) 15.17% 
B) 15.97% 
C) 16.77% 
D) 17.61% 
E) 18.49% 
A) 15.17% 
B) 15.97% 
C) 16.77% 
D) 17.61% 
E) 18.49%

Question 9

Suppose the U.S.Treasury offers to sell you a bond for $3,000.No payments will be made until the bond matures 10 years from now,at which time it will be redeemed for $5,000.What interest rate would you earn if you bought this bond at the offer price?

Accepted Answer

A) 3.82% 
B) 4.25% 
C) 4.72% 
D) 5.24% 
E) 5.77% 
A) 3.82% 
B) 4.25% 
C) 4.72% 
D) 5.24% 
E) 5.77%

Question 10

Sue now has $125.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Accepted Answer

A) $205.83 
B) $216.67 
C) $228.07 
D) $240.08 
E) $252.08 
A) $205.83 
B) $216.67 
C) $228.07 
D) $240.08 
E) $252.08

Question 11

Suppose you just won the state lottery,and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000,with the first payment coming one year from today.What rate of return is built into the annuity? Disregard taxes.

Accepted Answer

A) 7.12% 
B) 7.49% 
C) 7.87% 
D) 8.26% 
E) 8.67% 
A) 7.12% 
B) 7.49% 
C) 7.87% 
D) 8.26% 
E) 8.67%

Question 12

Which of the following statements regarding a 15-year (180-month)$125,000,fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

Accepted Answer

A) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years. 
B) Because the outstanding balance declines over time, the monthly payments will also decline over time. 
C) Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant. 
D) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year. 
E) The outstanding balance declines at a faster rate in the later years of the loan's life. 
A) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years. 
B) Because the outstanding balance declines over time, the monthly payments will also decline over time. 
C) Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant. 
D) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year. 
E) The outstanding balance declines at a faster rate in the later years of the loan's life.

Question 13

Your grandmother just died and left you $100,000 in a trust fund that pays 6.5% interest.You must spend the money on your college education,and you must withdraw the money in 4 equal installments,beginning immediately.How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?

Accepted Answer

A) $24,736 
B) $26,038 
C) $27,409 
D) $28,779 
E) $30,218 
A) $24,736 
B) $26,038 
C) $27,409 
D) $28,779 
E) $30,218

Question 14

Your sister turned 35 today,and she is planning to save $7,000 per year for retirement,with the first deposit to be made one year from today.She will invest in a mutual fund that's expected to provide a return of 7.5% per year.She plans to retire 30 years from today,when she turns 65,and she expects to live for 25 years after retirement,to age 90.Under these assumptions,how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

Accepted Answer

A) $58,601 
B) $61,686 
C) $64,932 
D) $68,179 
E) $71,588 
A) $58,601 
B) $61,686 
C) $64,932 
D) $68,179 
E) $71,588

Question 15

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 in situations where some of the cash flows occur annually but others occur quarterly. 
D) Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods. 
E) Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts. 
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 in situations where some of the cash flows occur annually but others occur quarterly. 
D) Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods. 
E) Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.

Question 16

Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

Accepted Answer

A) $5,178.09 
B) $5,436.99 
C) $5,708.84 
D) $5,994.28 
E) $6,294.00 
A) $5,178.09 
B) $5,436.99 
C) $5,708.84 
D) $5,994.28 
E) $6,294.00

Question 17

A time line is not meaningful unless all cash flows occur annually.

Accepted Answer

A) True 
 B)False

Question 18

How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%?

Accepted Answer

A) $1,067.95 
B) $1,124.16 
C) $1,183.33 
D) $1,245.61 
E) $1,311.17 
A) $1,067.95 
B) $1,124.16 
C) $1,183.33 
D) $1,245.61 
E) $1,311.17

Question 19

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 20

Suppose an Exxon Corporation bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 4.25%,how much is the bond worth today?

Accepted Answer

A) $2,819.52 
B) $2,967.92 
C) $3,116.31 
D) $3,272.13 
E) $3,435.74 
A) $2,819.52 
B) $2,967.92 
C) $3,116.31 
D) $3,272.13 
E) $3,435.74

Exam 5: Time Value of Money

What is the present value of the following cash flow stream at a rate of 12.0%? ​ ​ ​

Your Aunt Ruth has $500,000 invested at 6.5%,and she plans to retire.She wants to withdraw $40,000 at the beginning of each year,starting immediately.How many years will it take to exhaust her funds,i.e.,run the account down to zero?

The greater the number of compounding periods within a year,then (1)the greater the future value of a lump sum investment at Time 0 and (2)the greater the present value of a given lump sum to be received at some future date.

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?

What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%,compounded semiannually?

Janice has $5,000 invested in a bank that pays 3.8% annually.How long will it take for her funds to triple?

How much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?

Ten years ago,Lucas Inc.earned $0.50 per share.Its earnings this year were $2.20.What was the growth rate in earnings per share (EPS)over the 10-year period?

Suppose the U.S.Treasury offers to sell you a bond for $3,000.No payments will be made until the bond matures 10 years from now,at which time it will be redeemed for $5,000.What interest rate would you earn if you bought this bond at the offer price?

Sue now has $125.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Suppose you just won the state lottery,and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000,with the first payment coming one year from today.What rate of return is built into the annuity? Disregard taxes.

Which of the following statements regarding a 15-year (180-month)$125,000,fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

Which of the following statements is CORRECT?

Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

A time line is not meaningful unless all cash flows occur annually.

How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%?

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

Suppose an Exxon Corporation bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 4.25%,how much is the bond worth today?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements, cash Flow, and Taxes

Analysis of Financial Statements

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock, leasing, warrants, and Convertibles

Mergers and Acquisitions

Continuous Compounding and Discounting

Zero Coupon Bonds

Bankruptcy and Reorganization

Calculating Beta Coefficients

Using the Capm to Estimate the Risk-Adjusted Cost of Capital

Techniques for Measuring Beta Risk

Degree of Leverage

Filters

What is the present value of the following cash flow stream at a rate of 12.0%?

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