Question 1

________ is the amount earned on a deposit that has become the part of the principal at the end of a specified time period.

Accepted Answer

A) Discount interest 
B) Compound interest 
C) Primary interest 
D) Future value 
A) Discount interest 
B) Compound interest 
C) Primary interest 
D) Future value

Question 2

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero.

Accepted Answer

A) True 
 B)False

Question 3

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is ________.

Accepted Answer

A) $28,973 
B) $31,291 
C) $14,494 
D) $13,420 
A) $28,973 
B) $31,291 
C) $14,494 
D) $13,420

Question 4

If a United States Savings bond can be purchased for $29.50 and has a maturity value of $100 at the end of 25 years,what is the annual rate of return on the bond?

Accepted Answer

A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent 
A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent

Question 5

Janice would like to send her parents on a cruise for their 25th wedding anniversary.She has priced the cruise at $15,000,and she has 5 years to accumulate this money.How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?

Accepted Answer

A) $1,862 
B) $2,457 
C) $3,000 
D) $2,234 
A) $1,862 
B) $2,457 
C) $3,000 
D) $2,234

Question 6

A college received a contribution to its endowment fund of $2 million.It can never touch the principal,but can use the earnings.At an assumed interest rate of 9.5 percent,how much can the college earn to help its operations each year?

Accepted Answer

A) $95,000 
B) $19,000 
C) $190,000 
D) $18,000 
A) $95,000 
B) $19,000 
C) $190,000 
D) $18,000

Question 7

The future value of $200 received today and deposited at 8 percent for three years is approximately ________.

Accepted Answer

A) $248 
B) $252 
C) $159 
D) $253 
A) $248 
B) $252 
C) $159 
D) $253

Question 8

You inherited an investment portfolio worth $1 million.The portfolio earns a return of 9% per year.You want to withdraw money from this portfolio once per year starting one year from today,and you want to continue making withdrawals forever.Furthermore,you want to increase your withdrawals at 3% per year to keep up with inflation.How large can your first withdrawal be?

Accepted Answer

Here we want to create a growing perpetu

Question 9

If a United States Savings 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 
A) 6 percent 
B) 7 percent 
C) 8 percent 
D) 9 percent

Question 10

Herbert has opened a retirement fund account which pays 7 percent interest and requires $5,000 annual deposits.Herbert will retire in 15 years and expects 10 years of retirement life.What is the maximum annual retirement benefit Herbert can get during his retirement years?

Accepted Answer

I = 7%,PMT = $5,000,N = 15,PV

Question 11

Which of the following is TRUE of annuities?

Accepted Answer

A) An ordinary annuity is an equal payment paid or received at the beginning of each period. 
B) An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period. 
C) An annuity due is an equal stream of cash flows that is paid or received at the beginning of each period. 
D) An ordinary annuity is an equal payment paid or received at the end of each period that increases by an equal amount each period. 
A) An ordinary annuity is an equal payment paid or received at the beginning of each period. 
B) An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period. 
C) An annuity due is an equal stream of cash flows that is paid or received at the beginning of each period. 
D) An ordinary annuity is an equal payment paid or received at the end of each period that increases by an equal amount each period.

Question 12

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate.

Accepted Answer

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

Question 13

The annual rate of return is referred to as the ________.

Accepted Answer

A) discount rate 
B) marginal rate 
C) risk-free rate 
D) marginal cost 
A) discount rate 
B) marginal rate 
C) risk-free rate 
D) marginal cost

Question 14

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

Accepted Answer

A) future value 
B) present value 
C) future value of an annuity 
D) compounded value 
A) future value 
B) present value 
C) future value of an annuity 
D) compounded value

Question 15

What annual rate of return would Jia need to earn if she deposits $20,000 per year into an account beginning one year from today in order to have a total of $1,000,000 in 30 years?

Accepted Answer

A) 2.3% 
B) 3.3% 
C) 1.3% 
D) 4.3% 
A) 2.3% 
B) 3.3% 
C) 1.3% 
D) 4.3%

Question 16

Adam borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments.The actual end-of-year payment is ________.

Accepted Answer

A) $942 
B) $1,125 
C) $1,482 
D) $2,641 
A) $942 
B) $1,125 
C) $1,482 
D) $2,641

Question 17

A local brokerage firm is offering a zero-coupon certificate of deposit for $10,000.At maturity,three years from now,the investor will receive $14,000.What is the rate of return on this investment?

Accepted Answer

A) 14 percent 
B) 13 percent 
C) 12 percent 
D) 11 percent 
A) 14 percent 
B) 13 percent 
C) 12 percent 
D) 11 percent

Question 18

Calculate the present value of $5,800 received at the end of year 1,$6,400 received at the end of year 2,and $8,700 at the end of year 3,assuming an opportunity cost of 13 percent.

Accepted Answer

PV = 5,800(1.13)^-1 + 6

Question 19

Everything else being equal,the higher the discount rate,the higher the present value.

Accepted Answer

A) True 
 B)False

Question 20

You have been offered a project paying $300 at the beginning of each year for the next 20 years.What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment?

Accepted Answer

A) $2,739 
B) $2,985 
C) $15,348 
D) $16,729 
A) $2,739 
B) $2,985 
C) $15,348 
D) $16,729

________ is the amount earned on a deposit that has become the part of the principal at the end of a specified time period.

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero.

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is ________.

If a United States Savings bond can be purchased for $29.50 and has a maturity value of $100 at the end of 25 years,what is the annual rate of return on the bond?

A college received a contribution to its endowment fund of $2 million.It can never touch the principal,but can use the earnings.At an assumed interest rate of 9.5 percent,how much can the college earn to help its operations each year?

The future value of $200 received today and deposited at 8 percent for three years is approximately ________.

If a United States Savings 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?

Herbert has opened a retirement fund account which pays 7 percent interest and requires $5,000 annual deposits.Herbert will retire in 15 years and expects 10 years of retirement life.What is the maximum annual retirement benefit Herbert can get during his retirement years?

Which of the following is TRUE of annuities?

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate.

The annual rate of return is referred to as the ________.

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

What annual rate of return would Jia need to earn if she deposits $20,000 per year into an account beginning one year from today in order to have a total of $1,000,000 in 30 years?

Adam borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments.The actual end-of-year payment is ________.

A local brokerage firm is offering a zero-coupon certificate of deposit for $10,000.At maturity,three years from now,the investor will receive $14,000.What is the rate of return on this investment?

Calculate the present value of $5,800 received at the end of year 1,$6,400 received at the end of year 2,and $8,700 at the end of year 3,assuming an opportunity cost of 13 percent.

Everything else being equal,the higher the discount rate,the higher the present value.

You have been offered a project paying $300 at the beginning of each year for the next 20 years.What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment?

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

________ is the amount earned on a deposit that has become the part of the principal at the end of a specified time period.

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero.

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is ________.

If a United States Savings bond can be purchased for $29.50 and has a maturity value of $100 at the end of 25 years,what is the annual rate of return on the bond?

A college received a contribution to its endowment fund of $2 million.It can never touch the principal,but can use the earnings.At an assumed interest rate of 9.5 percent,how much can the college earn to help its operations each year?

The future value of $200 received today and deposited at 8 percent for three years is approximately ________.

If a United States Savings 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?

Herbert has opened a retirement fund account which pays 7 percent interest and requires $5,000 annual deposits.Herbert will retire in 15 years and expects 10 years of retirement life.What is the maximum annual retirement benefit Herbert can get during his retirement years?

Which of the following is TRUE of annuities?

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate.

The annual rate of return is referred to as the ________.

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

What annual rate of return would Jia need to earn if she deposits $20,000 per year into an account beginning one year from today in order to have a total of $1,000,000 in 30 years?

Adam borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments.The actual end-of-year payment is ________.

A local brokerage firm is offering a zero-coupon certificate of deposit for $10,000.At maturity,three years from now,the investor will receive $14,000.What is the rate of return on this investment?

Calculate the present value of $5,800 received at the end of year 1,$6,400 received at the end of year 2,and $8,700 at the end of year 3,assuming an opportunity cost of 13 percent.

Everything else being equal,the higher the discount rate,the higher the present value.

You have been offered a project paying $300 at the beginning of each year for the next 20 years.What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment?

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