Question 1

Which of the following is NOT true when developing a time line?

Accepted Answer

A)  Cash inflows are designated with a positive number. 
B)  Cash outflows are designated with a positive number. 
C)  The cost is known as the interest rate. 
D)  The time line shows the magnitude of cash flows at different points in time. 
A)  Cash inflows are designated with a positive number. 
B)  Cash outflows are designated with a positive number. 
C)  The cost is known as the interest rate. 
D)  The time line shows the magnitude of cash flows at different points in time.

Question 2

Moving cash flows from one point in time to another requires us to use

Accepted Answer

A)  only present value equations. 
B)  only future value equations. 
C)  both present value and future value equations. 
D)  the Rule of 72. 
A)  only present value equations. 
B)  only future value equations. 
C)  both present value and future value equations. 
D)  the Rule of 72.

Question 3

What annual rate of return is earned on an $895 investment that grows to $1,976 in eight years?

Accepted Answer

A)  9.14 percent 
B)  9.97 percent 
C)  10.41 percent 
D)  11.73 percent 
A)  9.14 percent 
B)  9.97 percent 
C)  10.41 percent 
D)  11.73 percent

Question 4

A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year.What would be the second year future value?

Accepted Answer

A)  $351.00 
B)  $353.10 
C)  $602.17 
D)  $651.00 
A)  $351.00 
B)  $353.10 
C)  $602.17 
D)  $651.00

Question 5

What is the value in year 5 of a $600 cash flow made in year 10 when interest rates are 5 percent?

Accepted Answer

A)  $368.35 
B)  $450.00 
C)  $470.12 
D)  $570.00 
A)  $368.35 
B)  $450.00 
C)  $470.12 
D)  $570.00

Question 6

Five years ago,sales were $4 million.Today your company's sales are $10 million.What annual rate have sales been growing?

Accepted Answer

A)  1.5 percent 
B)  12.65 percent 
C)  16.65 percent 
D)  20.11 percent 
A)  1.5 percent 
B)  12.65 percent 
C)  16.65 percent 
D)  20.11 percent

Question 7

Assume you borrow $500 from a payday lender.The terms are that you must pay a fee of $75 in advance (today)and one year from now you need to repay $750.What implied interest rate are you paying?

Accepted Answer

A)  43.09 percent 
B)  55.78 percent 
C)  76.47 percent 
D)  81.03 percent 
A)  43.09 percent 
B)  55.78 percent 
C)  76.47 percent 
D)  81.03 percent

Question 8

What is the value in year 6 of a $9,000 cash flow made in year 14 if interest rates are 7 percent in years "4 through 9" and increase to 10 percent after that?

Accepted Answer

A)  $4,252.19 
B)  $4,417.46 
C)  $4,561.71 
D)  $45,798.53 
A)  $4,252.19 
B)  $4,417.46 
C)  $4,561.71 
D)  $45,798.53

Question 9

You invested $1,000 in the stock market one year ago.Today,the investment is valued at $1,250.What return did you earn? What return would you suffer next year for your investment to be valued at the original $1,000?

Accepted Answer

A)  +25 percent, −20 percent, respectively 
B)  −25 percent, +20 percent, respectively 
C)  125 percent, −25 percent, respectively 
D)  125 percent, −20 percent, respectively 
A)  +25 percent, −20 percent, respectively 
B)  −25 percent, +20 percent, respectively 
C)  125 percent, −25 percent, respectively 
D)  125 percent, −20 percent, respectively

Question 10

How are future values affected by changes in interest rates?

Accepted Answer

A)  The lower the interest rate, the larger the future value will be. 
B)  The higher the interest rate, the larger the future value will be. 
C)  Future values are not affected by changes in interest rates. 
D)  One would need to know the present value in order to determine the impact. 
A)  The lower the interest rate, the larger the future value will be. 
B)  The higher the interest rate, the larger the future value will be. 
C)  Future values are not affected by changes in interest rates. 
D)  One would need to know the present value in order to determine the impact.

Question 11

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7,and increase to 13 percent in the remaining years?

Accepted Answer

A)  $1,538.62 
B)  $1,691.47 
C)  $1,714.31 
D)  $1,799.42 
A)  $1,538.62 
B)  $1,691.47 
C)  $1,714.31 
D)  $1,799.42

Question 12

An average home in Chicago costs $295,000.If house prices are expected to grow at an average rate of 3 percent per year,what will a house cost in five years?

Accepted Answer

A)  $328,995.61 
B)  $338,941.27 
C)  $341,985.85 
D)  $347,028.19 
A)  $328,995.61 
B)  $338,941.27 
C)  $341,985.85 
D)  $347,028.19

Question 13

How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5 percent interest per year?

Accepted Answer

A)  $135.00 
B)  $140.71 
C)  $735.00 
D)  $814.20 
A)  $135.00 
B)  $140.71 
C)  $735.00 
D)  $814.20

Question 14

You are considering an investment that is expected to pay 5 percent in year 1,7 percent in years 2 and 3 and 9 percent in year 4.If you invest $2,000 today,what will this investment be worth at the end of the fourth year?

Accepted Answer

A)  $2,501.42 
B)  $2,693.71 
C)  $2,713.04 
D)  $2,620.68 
A)  $2,501.42 
B)  $2,693.71 
C)  $2,713.04 
D)  $2,620.68

Question 15

Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones.Due to poor planning,the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000.You already have two years' supply on hand.It would cost you $7,500 today to store the chips until your firm needs them in two years.What implied interest rate would you be earning if you purchased and store the chips?

Accepted Answer

A)  6.57 percent 
B)  8.73 percent 
C)  9.54 percent 
D)  18.23 percent 
A)  6.57 percent 
B)  8.73 percent 
C)  9.54 percent 
D)  18.23 percent

Question 16

You have $100,000 in your account.Assuming no additional deposits are made and your account earns 15 percent per year,how long will it take for the account to have a balance of $500,000?

Accepted Answer

A)  10.28 years 
B)  11.09 years 
C)  11.52 years 
D)  12.64 years 
A)  10.28 years 
B)  11.09 years 
C)  11.52 years 
D)  12.64 years

Question 17

You invested $1,000 for five years in an account that earns 5 percent.However,today you learn that you are able to move the account into an investment that earns 10 percent.Which of the following statements is correct?

Accepted Answer

A)  If you select the investment earning 10 percent, you will double your profit. 
B)  If you select the investment earning 10 percent, you will more than double your profit. 
C)  If you select the investment earning 10 percent, your profit will be less than double. 
D)  None of the statements is correct. 
A)  If you select the investment earning 10 percent, you will double your profit. 
B)  If you select the investment earning 10 percent, you will more than double your profit. 
C)  If you select the investment earning 10 percent, your profit will be less than double. 
D)  None of the statements is correct.

Question 18

What is the value in year 4 of a $9,000 cash flow made in year 13 if interest rates are 7 percent in years "4 through 9" and increase to 11 percent after that?

Accepted Answer

A)  $4,226.99 
B)  $4,472.06 
C)  $4,698.17 
D)  $4,716.52 
A)  $4,226.99 
B)  $4,472.06 
C)  $4,698.17 
D)  $4,716.52

Question 19

A firm's net income last year was $2.65 million.Its net income grew 8 percent during the last "5" years.If that growth rate continues,how long will it take for the firm's net income to double?

Accepted Answer

A)  6.6 years 
B)  7.1 years 
C)  8.2 years 
D)  9 years 
A)  6.6 years 
B)  7.1 years 
C)  8.2 years 
D)  9 years

Question 20

Which of the following statements is correct?

Accepted Answer

A)  $100 to be received in the future is worth more than that today since it could be invested and earn interest. 
B)  $100 to be received in the future is worth less than that today since it could be invested and earn interest. 
C)  The Rule of 72 calculates the compounded return on investments. 
D)  Discounting is finding the future value of an original investment. 
A)  $100 to be received in the future is worth more than that today since it could be invested and earn interest. 
B)  $100 to be received in the future is worth less than that today since it could be invested and earn interest. 
C)  The Rule of 72 calculates the compounded return on investments. 
D)  Discounting is finding the future value of an original investment.

Which of the following is NOT true when developing a time line?

Moving cash flows from one point in time to another requires us to use

What annual rate of return is earned on an $895 investment that grows to $1,976 in eight years?

A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year.What would be the second year future value?

What is the value in year 5 of a $600 cash flow made in year 10 when interest rates are 5 percent?

Five years ago,sales were $4 million.Today your company's sales are $10 million.What annual rate have sales been growing?

Assume you borrow $500 from a payday lender.The terms are that you must pay a fee of $75 in advance (today)and one year from now you need to repay $750.What implied interest rate are you paying?

What is the value in year 6 of a $9,000 cash flow made in year 14 if interest rates are 7 percent in years "4 through 9" and increase to 10 percent after that?

You invested $1,000 in the stock market one year ago.Today,the investment is valued at $1,250.What return did you earn? What return would you suffer next year for your investment to be valued at the original $1,000?

How are future values affected by changes in interest rates?

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7,and increase to 13 percent in the remaining years?

An average home in Chicago costs $295,000.If house prices are expected to grow at an average rate of 3 percent per year,what will a house cost in five years?

How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5 percent interest per year?

You are considering an investment that is expected to pay 5 percent in year 1,7 percent in years 2 and 3 and 9 percent in year 4.If you invest $2,000 today,what will this investment be worth at the end of the fourth year?

You have $100,000 in your account.Assuming no additional deposits are made and your account earns 15 percent per year,how long will it take for the account to have a balance of $500,000?

You invested $1,000 for five years in an account that earns 5 percent.However,today you learn that you are able to move the account into an investment that earns 10 percent.Which of the following statements is correct?

What is the value in year 4 of a $9,000 cash flow made in year 13 if interest rates are 7 percent in years "4 through 9" and increase to 11 percent after that?

A firm's net income last year was $2.65 million.Its net income grew 8 percent during the last "5" years.If that growth rate continues,how long will it take for the firm's net income to double?

Which of the following statements is correct?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters

Exam 4: Time Value of Money 1: Analyzing Single Cash Flows

Which of the following is NOT true when developing a time line?

Moving cash flows from one point in time to another requires us to use

What annual rate of return is earned on an $895 investment that grows to $1,976 in eight years?

A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year.What would be the second year future value?

What is the value in year 5 of a $600 cash flow made in year 10 when interest rates are 5 percent?

Five years ago,sales were $4 million.Today your company's sales are $10 million.What annual rate have sales been growing?

Assume you borrow $500 from a payday lender.The terms are that you must pay a fee of $75 in advance (today)and one year from now you need to repay $750.What implied interest rate are you paying?

What is the value in year 6 of a $9,000 cash flow made in year 14 if interest rates are 7 percent in years "4 through 9" and increase to 10 percent after that?

You invested $1,000 in the stock market one year ago.Today,the investment is valued at $1,250.What return did you earn? What return would you suffer next year for your investment to be valued at the original $1,000?

How are future values affected by changes in interest rates?

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7,and increase to 13 percent in the remaining years?

An average home in Chicago costs $295,000.If house prices are expected to grow at an average rate of 3 percent per year,what will a house cost in five years?

How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5 percent interest per year?

You are considering an investment that is expected to pay 5 percent in year 1,7 percent in years 2 and 3 and 9 percent in year 4.If you invest $2,000 today,what will this investment be worth at the end of the fourth year?

You have $100,000 in your account.Assuming no additional deposits are made and your account earns 15 percent per year,how long will it take for the account to have a balance of $500,000?

You invested $1,000 for five years in an account that earns 5 percent.However,today you learn that you are able to move the account into an investment that earns 10 percent.Which of the following statements is correct?

What is the value in year 4 of a $9,000 cash flow made in year 13 if interest rates are 7 percent in years "4 through 9" and increase to 11 percent after that?

A firm's net income last year was $2.65 million.Its net income grew 8 percent during the last "5" years.If that growth rate continues,how long will it take for the firm's net income to double?

Which of the following statements is correct?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters