Question 1

How long does it take for your money to double when invested at the rate of 3% (with annual compounding)?

Accepted Answer

A)  Depends on how much money you start with. 
B)  26 years 
C)  23 years 
D)  25 years 
E)  24 years 
A)  Depends on how much money you start with. 
B)  26 years 
C)  23 years 
D)  25 years 
E)  24 years

Question 2

Your grandparents bought their collection of one hundred silver dollars at face value in 1952.If they appreciated at a rate of 3% per year,how much were they worth in 2006?

Accepted Answer

A)  $493.41 
B)  $262.00 
C)  $479.04 
D)  $508.21 
E)  $518.00 
A)  $493.41 
B)  $262.00 
C)  $479.04 
D)  $508.21 
E)  $518.00

Question 3

The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is:

Accepted Answer

A)  $450 
B)  $126 
C)  $889 
D)  $134 
E)  $124 
A)  $450 
B)  $126 
C)  $889 
D)  $134 
E)  $124

Question 4

What is the effective interest rate of 4% compounded quarterly?

Accepted Answer

A)  4.60% 
B)  4.80% 
C)  4.16% 
D)  4.06% 
E)  4.76% 
A)  4.60% 
B)  4.80% 
C)  4.16% 
D)  4.06% 
E)  4.76%

Question 5

A real estate agent wants you to buy a plot of land today for $60,000 and he promises that you can sell it back to him in 7 years for $100,000.If you can earn 9% on alternative investments,then what is the present value of the sales proceeds? Is this a worthwhile investment?

Accepted Answer

A)  $54,703.42; it is not a worthwhile investment. 
B)  $54,703.42; it is a worthwhile investment. 
C)  $61,294.51; it is not a worthwhile investment. 
D)  $61,294.51; it is a worthwhile investment. 
E)  $60,000; not enough information. 
A)  $54,703.42; it is not a worthwhile investment. 
B)  $54,703.42; it is a worthwhile investment. 
C)  $61,294.51; it is not a worthwhile investment. 
D)  $61,294.51; it is a worthwhile investment. 
E)  $60,000; not enough information.

Question 6

You have just won $50,000 on your Scratch and Win ticket,but you won't be awarded the money until your 40th birthday,20 years from now.If the appropriate discount rate is 15%,what is the present value of your winnings?

Accepted Answer

A)  $3,055.01 
B)  $3,513,27 
C)  $2,656.53 
D)  $3,048.78 
E)  $3,067.49 
A)  $3,055.01 
B)  $3,513,27 
C)  $2,656.53 
D)  $3,048.78 
E)  $3,067.49

Question 7

The amount of money that would have to be invested today at a given interest rate over a specific period in order to equal a future amount is called:

Accepted Answer

A)  Future value 
B)  Present value 
C)  Future value interest factor 
D)  Present value interest factor 
A)  Future value 
B)  Present value 
C)  Future value interest factor 
D)  Present value interest factor

Question 8

You have just borrowed $20,000 to buy a new car.The loan agreement calls for 60 monthly payments of $444.89 each to begin one month from today.If the interest is compounded monthly,then what is the effective annual rate on this loan?

Accepted Answer

A)  12.68% 
B)  14.12% 
C)  12.00% 
D)  13.25% 
E)  15.08% 
A)  12.68% 
B)  14.12% 
C)  12.00% 
D)  13.25% 
E)  15.08%

Question 9

Leon's has a "Don't Pay For One Year" event on right now at the store,so you purchase an Italian,hand-stitched leather sofa.You will pay $1,267.99 for the sofa in one year.You have a savings account that pays 3% annual interest.How much must you deposit in your account today in order to have enough money to pay for the sofa in one year?

Accepted Answer

A)  $1,231.06 
B)  $1,267.99 
C)  $1,195.20 
D)  $1,230.56 
E)  $1,337.21 
A)  $1,231.06 
B)  $1,267.99 
C)  $1,195.20 
D)  $1,230.56 
E)  $1,337.21

Question 10

The future value of a dollar ________ as the interest rate increases and ________ the farther in the future an initial deposit is to be received.

Accepted Answer

A)  decreases; decreases 
B)  decreases; increases 
C)  increases; increases 
D)  increases; decreases 
A)  decreases; decreases 
B)  decreases; increases 
C)  increases; increases 
D)  increases; decreases

Question 11

What is the future value of $16.54 after two years if these funds can be invested to earn 5.5%,compounded annually?

Accepted Answer

A)  $18.24 
B)  $18.36 
C)  $18.58 
D)  $18.50 
E)  $18.41 
A)  $18.24 
B)  $18.36 
C)  $18.58 
D)  $18.50 
E)  $18.41

Question 12

Which of the following problems could not be addressed by using compounding or discounting techniques?

Accepted Answer

A)  Finding an amount to be invested today to provide a given level of income during retirement 
B)  Determining how long it should take the population of China to double 
C)  Finding the growth rate in a firm's dividend payments 
D)  Calculating the length of time needed for the supply and demand for lendable funds to equate if interest rates are above the equilibrium level 
E)  Deciding whether a bank paying interest compounded annually is giving you a better deal than a rate that compounds daily 
A)  Finding an amount to be invested today to provide a given level of income during retirement 
B)  Determining how long it should take the population of China to double 
C)  Finding the growth rate in a firm's dividend payments 
D)  Calculating the length of time needed for the supply and demand for lendable funds to equate if interest rates are above the equilibrium level 
E)  Deciding whether a bank paying interest compounded annually is giving you a better deal than a rate that compounds daily

Question 13

You wish to deposit $7,000 in an account at the Shylock Bank.The bank pays interest at a nominal annual rate of 10% compounded monthly.What is the future value in the account after seven years?

Accepted Answer

A)  $14,055.44 
B)  $13,975.47 
C)  $13,641.02 
D)  $13,336.23 
E)  $14,726.68 
A)  $14,055.44 
B)  $13,975.47 
C)  $13,641.02 
D)  $13,336.23 
E)  $14,726.68

Question 14

You have the opportunity to purchase an insurance policy for your newborn son.You must make the payments shown in the table.After his fifth birthday no more payments are required.If your son reaches the age of 60,then the insurance company will pay him $90,000.Alternatively,you could invest the money in a savings account.Your banker promises to pay you interest at the rate of 8% for the first 5 years (from now until your son's fifth birthday),but only promises 4% every year after that.Should you buy the policy or invest in the savings account?

Accepted Answer

A)  Yes, buy the policy. 
B)  No, do not buy the policy. 
C)  The policy and the savings account have the same future value. 
A)  Yes, buy the policy. 
B)  No, do not buy the policy. 
C)  The policy and the savings account have the same future value.

Question 15

Drexel Corporation has been enjoying a phenomenal rate of growth since its inception one year ago.Currently,its assets total $100,000.If growth continues at the current rate of 12% compounded quarterly,what will total assets be in 2 1/2 years? (Round to the nearest whole dollar)

Accepted Answer

A)  $142,571 
B)  $126,678 
C)  $148,016 
D)  $136,855 
E)  $134,392 
A)  $142,571 
B)  $126,678 
C)  $148,016 
D)  $136,855 
E)  $134,392

Question 16

The future value of $200 received today and deposited at 8 percent compounded semi-annually for three years is:

Accepted Answer

A)  $380 
B)  $158 
C)  $253 
D)  $252 
E)  $248 
A)  $380 
B)  $158 
C)  $253 
D)  $252 
E)  $248

Question 17

If a United States saving bond can be purchased for $14.60 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?

Accepted Answer

A)  6 percent 
B)  7 percent 
C)  8 percent 
D)  9 percent 
E)  10 percent 
A)  6 percent 
B)  7 percent 
C)  8 percent 
D)  9 percent 
E)  10 percent

Question 18

You currently have $48,000 in your bank account,which pays annual interest of 5%,and you are saving up to buy a brand new $150,000 Jaguar convertible.In how many years will you have enough money to buy the car?

Accepted Answer

A)  26.0 years 
B)  25.0 years 
C)  18.0 years 
D)  20.0 years 
E)  24.0 years 
A)  26.0 years 
B)  25.0 years 
C)  18.0 years 
D)  20.0 years 
E)  24.0 years

Question 19

A recent advertisement in the financial section of a magazine carried the following claim: "Invest your money with us at 14 percent,compounded annually,and we guarantee to double your money sooner than you imagine." Ignoring taxes,how long would it take to double your money at a nominal rate of 14 percent,compounded annually?

Accepted Answer

A)  3.66 years 
B)  5.29 years 
C)  7.00 years 
D)  10.24 years 
E)  14.00 years 
A)  3.66 years 
B)  5.29 years 
C)  7.00 years 
D)  10.24 years 
E)  14.00 years

Question 20

What is the future value of $124.49 after earning simple interest for five years at an annual rate of 10%?

Accepted Answer

A)  $162.25 
B)  $186.74 
C)  $200.49 
D)  $136.94 
E)  $175.00 
A)  $162.25 
B)  $186.74 
C)  $200.49 
D)  $136.94 
E)  $175.00

How long does it take for your money to double when invested at the rate of 3% (with annual compounding)?

Your grandparents bought their collection of one hundred silver dollars at face value in 1952.If they appreciated at a rate of 3% per year,how much were they worth in 2006?

The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is:

What is the effective interest rate of 4% compounded quarterly?

A real estate agent wants you to buy a plot of land today for $60,000 and he promises that you can sell it back to him in 7 years for $100,000.If you can earn 9% on alternative investments,then what is the present value of the sales proceeds? Is this a worthwhile investment?

You have just won $50,000 on your Scratch and Win ticket,but you won't be awarded the money until your 40th birthday,20 years from now.If the appropriate discount rate is 15%,what is the present value of your winnings?

The amount of money that would have to be invested today at a given interest rate over a specific period in order to equal a future amount is called:

You have just borrowed $20,000 to buy a new car.The loan agreement calls for 60 monthly payments of $444.89 each to begin one month from today.If the interest is compounded monthly,then what is the effective annual rate on this loan?

The future value of a dollar as the interest rate increases and the farther in the future an initial deposit is to be received.

What is the future value of $16.54 after two years if these funds can be invested to earn 5.5%,compounded annually?

Which of the following problems could not be addressed by using compounding or discounting techniques?

You wish to deposit $7,000 in an account at the Shylock Bank.The bank pays interest at a nominal annual rate of 10% compounded monthly.What is the future value in the account after seven years?

Drexel Corporation has been enjoying a phenomenal rate of growth since its inception one year ago.Currently,its assets total $100,000.If growth continues at the current rate of 12% compounded quarterly,what will total assets be in 2 1/2 years? (Round to the nearest whole dollar)

The future value of $200 received today and deposited at 8 percent compounded semi-annually for three years is:

If a United States saving bond can be purchased for $14.60 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?

You currently have $48,000 in your bank account,which pays annual interest of 5%,and you are saving up to buy a brand new $150,000 Jaguar convertible.In how many years will you have enough money to buy the car?

What is the future value of $124.49 after earning simple interest for five years at an annual rate of 10%?

Overview of Finance

Financial Statements and Ratio Analysis

Time Value of Money - Streams and Valuations

Risk and Return - Introduction

Portfolio Theory

Interest Rates and Bond Valuation

Stock Valuation and Market Efficiency

Capital Budgeting Techniques

Capital Budgeting - Cash Flows

Cost of Capital

Capital Structure

Dividends, repurchases, and Splits

Financial Planning

The Management of Working Capital

International Finance

Filters

Exam 3: Time Value of Money - Introduction

How long does it take for your money to double when invested at the rate of 3% (with annual compounding)?

Your grandparents bought their collection of one hundred silver dollars at face value in 1952.If they appreciated at a rate of 3% per year,how much were they worth in 2006?

The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is:

What is the effective interest rate of 4% compounded quarterly?

A real estate agent wants you to buy a plot of land today for $60,000 and he promises that you can sell it back to him in 7 years for $100,000.If you can earn 9% on alternative investments,then what is the present value of the sales proceeds? Is this a worthwhile investment?

You have just won $50,000 on your Scratch and Win ticket,but you won't be awarded the money until your 40th birthday,20 years from now.If the appropriate discount rate is 15%,what is the present value of your winnings?

The amount of money that would have to be invested today at a given interest rate over a specific period in order to equal a future amount is called:

You have just borrowed $20,000 to buy a new car.The loan agreement calls for 60 monthly payments of $444.89 each to begin one month from today.If the interest is compounded monthly,then what is the effective annual rate on this loan?

The future value of a dollar ________ as the interest rate increases and ________ the farther in the future an initial deposit is to be received.

What is the future value of $16.54 after two years if these funds can be invested to earn 5.5%,compounded annually?

Which of the following problems could not be addressed by using compounding or discounting techniques?

You wish to deposit $7,000 in an account at the Shylock Bank.The bank pays interest at a nominal annual rate of 10% compounded monthly.What is the future value in the account after seven years?

Drexel Corporation has been enjoying a phenomenal rate of growth since its inception one year ago.Currently,its assets total $100,000.If growth continues at the current rate of 12% compounded quarterly,what will total assets be in 2 1/2 years? (Round to the nearest whole dollar)

The future value of $200 received today and deposited at 8 percent compounded semi-annually for three years is:

If a United States saving bond can be purchased for $14.60 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?

You currently have $48,000 in your bank account,which pays annual interest of 5%,and you are saving up to buy a brand new $150,000 Jaguar convertible.In how many years will you have enough money to buy the car?

What is the future value of $124.49 after earning simple interest for five years at an annual rate of 10%?

Overview of Finance

Financial Statements and Ratio Analysis

Time Value of Money - Streams and Valuations

Risk and Return - Introduction

Portfolio Theory

Interest Rates and Bond Valuation

Stock Valuation and Market Efficiency

Capital Budgeting Techniques

Capital Budgeting - Cash Flows

Cost of Capital

Capital Structure

Dividends, repurchases, and Splits

Financial Planning

The Management of Working Capital

International Finance

Filters

The future value of a dollar as the interest rate increases and the farther in the future an initial deposit is to be received.