Question 1

The rate of interest actually paid or earned,also called the annual percentage rate (APR),is the ________ interest rate.

Accepted Answer

A) effective 
B) nominal 
C) discounted 
D) continuous 
A) effective 
B) nominal 
C) discounted 
D) continuous

Question 2

The future value of a $10,000 annuity due deposited at 12 percent compounded annually for each of the next 5 years is ________.

Accepted Answer

A) $36,050 
B) $63,528 
C) $40,376 
D) $71,152 
A) $36,050 
B) $63,528 
C) $40,376 
D) $71,152

Question 3

In general,with an amortized loan,the payment amount remains constant over the life of the loan,the principal portion of each payment grows over the life of the loan,and the interest portion of each payment declines over the life of the loan.

Accepted Answer

A) True 
 B)False

Question 4

Suzy wants to buy a house but does not want to get a loan.The average price of her dream house is $500,000 and its price is growing at 5 percent per year.How much should Suzy invest in a project at the end of each year for the next 5 years in order to accumulate enough money to buy her dream house with cash at the end of the fifth year? Assume the project pays 12 percent rate of return.

Accepted Answer

FV = 500,000(1.05)⁵ =

Question 5

When computing the number of deposits needed to accumulate to a future sum,it will take longer if the interest rate decreases,holding the future value and deposit size constant.

Accepted Answer

A) True 
 B)False

Question 6

A certain investment promises to pay you $2,500 per year forever with the first payment starting 5 years from now.If you can earn a 5% return on similar investments,what's the most you would pay for this investment today?

Accepted Answer

A) $50,000 
B) $39,176 
C) $41,135 
D) $37,311 
A) $50,000 
B) $39,176 
C) $41,135 
D) $37,311

Question 7

For any interest rate and for any period of time,the more frequently interest is compounded,the greater the amount of money that has to be invested today in order to accumulate a given future amount.

Accepted Answer

A) True 
 B)False

Question 8

Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years.

Accepted Answer

FV = PV (1

Question 9

What is the rate of return on an investment of $16,278 if the company expects to receive $3,000 per year for the next 10 years?

Accepted Answer

A) 18 percent 
B) 13 percent 
C) 8 percent 
D) 3 percent 
A) 18 percent 
B) 13 percent 
C) 8 percent 
D) 3 percent

Question 10

The future value of an annuity of $1,000 each quarter for 10 years,deposited at 12 percent compounded quarterly is ________.

Accepted Answer

A) $17,549 
B) $75,401 
C) $93,049 
D) $11,200 
A) $17,549 
B) $75,401 
C) $93,049 
D) $11,200

Question 11

You have provided your friend with a service worth $8,500.Your friend offers you the following sequence of end-of-year cash flows instead of paying $8,500 today.Should you accept his offer if your opportunity cost is 8 percent?

Accepted Answer

The answer of You have provided your friend with a...

Question 12

When computing an interest or growth rate,the rate will increase with an increase in future value,holding present value and the number of periods constant.

Accepted Answer

A) True 
 B)False

Question 13

Aunt Tillie has deposited $33,000 today in an account which will earn 10 percent annually.She plans to leave the funds in this account for seven years earning interest.If the goal of this deposit is to cover a future obligation of $65,000,what recommendation would you make to Aunt Tillie?

Accepted Answer

FV = 33,000(1.1)⁷ = $64,307.66 Aunt Tilli

Question 14

Danny Joe borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments.The interest paid in the first year is ________.

Accepted Answer

A) $1,155 
B) $2,481 
C) $144 
D) $1,327 
A) $1,155 
B) $2,481 
C) $144 
D) $1,327

Question 15

The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.

Accepted Answer

A) $178,571 
B) $285,000 
C) $350,000 
D) $219,298 
A) $178,571 
B) $285,000 
C) $350,000 
D) $219,298

Question 16

A lottery administrator has just completed the state's most recent $50 million lottery.Receipts from lottery sales were $50 million and the payout will be $5 million at the end of each year for 10 years.The expenses of running the lottery were $800,000.The state can earn an annual compound rate of 8 percent on any funds invested.
(a)Calculate the gross profit to the state from this lottery.
(b)Calculate the net profit to the state from this lottery (no taxes).

Accepted Answer

The answer of A lottery administrator has just completed the...

Question 17

For any positive interest rate,the future value of $100 increases with the passage of time.Thus,the longer the period of time,the greater the future value.

Accepted Answer

A) True 
 B)False

Question 18

An ordinary annuity is an annuity in which cash flows occur at the beginning of each period.

Accepted Answer

A) True 
 B)False

Question 19

Ken borrows $15,000 from a bank at 10 percent annually compounded interest to be repaid in six equal installments.Calculate the interest paid in the second year.

Accepted Answer

PPV = 15000,I = 10,N = 2,FV =

Question 20

A charitable foundation has $500,000 invested in an account that earns 7%.The foundation has promised to begin making annual payments to beneficiaries in one year,and the first payment will be $25,000.The foundation has promised that future payments will grow at a constant rate forever.At what rate can the foundation afford to increase payments assuming that it makes no additional deposits into the account?

Accepted Answer

A) 0%; it can't afford to increase payments forever without adding more money to the account. 
B) 1% 
C) 2% 
D) 3% 
A) 0%; it can't afford to increase payments forever without adding more money to the account. 
B) 1% 
C) 2% 
D) 3%

The rate of interest actually paid or earned,also called the annual percentage rate (APR),is the ________ interest rate.

The future value of a $10,000 annuity due deposited at 12 percent compounded annually for each of the next 5 years is ________.

In general,with an amortized loan,the payment amount remains constant over the life of the loan,the principal portion of each payment grows over the life of the loan,and the interest portion of each payment declines over the life of the loan.

When computing the number of deposits needed to accumulate to a future sum,it will take longer if the interest rate decreases,holding the future value and deposit size constant.

A certain investment promises to pay you $2,500 per year forever with the first payment starting 5 years from now.If you can earn a 5% return on similar investments,what's the most you would pay for this investment today?

For any interest rate and for any period of time,the more frequently interest is compounded,the greater the amount of money that has to be invested today in order to accumulate a given future amount.

Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years.

What is the rate of return on an investment of $16,278 if the company expects to receive $3,000 per year for the next 10 years?

The future value of an annuity of $1,000 each quarter for 10 years,deposited at 12 percent compounded quarterly is ________.

You have provided your friend with a service worth $8,500.Your friend offers you the following sequence of end-of-year cash flows instead of paying $8,500 today.Should you accept his offer if your opportunity cost is 8 percent?

When computing an interest or growth rate,the rate will increase with an increase in future value,holding present value and the number of periods constant.

Aunt Tillie has deposited $33,000 today in an account which will earn 10 percent annually.She plans to leave the funds in this account for seven years earning interest.If the goal of this deposit is to cover a future obligation of $65,000,what recommendation would you make to Aunt Tillie?

Danny Joe borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments.The interest paid in the first year is ________.

The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.

For any positive interest rate,the future value of $100 increases with the passage of time.Thus,the longer the period of time,the greater the future value.

An ordinary annuity is an annuity in which cash flows occur at the beginning of each period.

Ken borrows $15,000 from a bank at 10 percent annually compounded interest to be repaid in six equal installments.Calculate the interest paid in the second year.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Long- and Short-Term Financial Planning

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows and Risk Refinements

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Filters

Exam 5: Time Value of Money

The rate of interest actually paid or earned,also called the annual percentage rate (APR),is the ________ interest rate.

The future value of a $10,000 annuity due deposited at 12 percent compounded annually for each of the next 5 years is ________.

In general,with an amortized loan,the payment amount remains constant over the life of the loan,the principal portion of each payment grows over the life of the loan,and the interest portion of each payment declines over the life of the loan.

When computing the number of deposits needed to accumulate to a future sum,it will take longer if the interest rate decreases,holding the future value and deposit size constant.

A certain investment promises to pay you $2,500 per year forever with the first payment starting 5 years from now.If you can earn a 5% return on similar investments,what's the most you would pay for this investment today?

For any interest rate and for any period of time,the more frequently interest is compounded,the greater the amount of money that has to be invested today in order to accumulate a given future amount.

Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years.

What is the rate of return on an investment of $16,278 if the company expects to receive $3,000 per year for the next 10 years?

The future value of an annuity of $1,000 each quarter for 10 years,deposited at 12 percent compounded quarterly is ________.

You have provided your friend with a service worth $8,500.Your friend offers you the following sequence of end-of-year cash flows instead of paying $8,500 today.Should you accept his offer if your opportunity cost is 8 percent?

When computing an interest or growth rate,the rate will increase with an increase in future value,holding present value and the number of periods constant.

Aunt Tillie has deposited $33,000 today in an account which will earn 10 percent annually.She plans to leave the funds in this account for seven years earning interest.If the goal of this deposit is to cover a future obligation of $65,000,what recommendation would you make to Aunt Tillie?

Danny Joe borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments.The interest paid in the first year is ________.

The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.

For any positive interest rate,the future value of $100 increases with the passage of time.Thus,the longer the period of time,the greater the future value.

An ordinary annuity is an annuity in which cash flows occur at the beginning of each period.

Ken borrows $15,000 from a bank at 10 percent annually compounded interest to be repaid in six equal installments.Calculate the interest paid in the second year.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Long- and Short-Term Financial Planning

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows and Risk Refinements

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Filters