Question 1

An increase in future value can be caused by an increase in the:

Accepted Answer

A) annual interest rate. 
B) number of compounding periods. 
C) original amount invested. 
D) both A and B. 
E) all of the above. 
A) annual interest rate. 
B) number of compounding periods. 
C) original amount invested. 
D) both A and B. 
E) all of the above.

Question 2

Your bank has agreed to loan you $3,000 if you agree to pay a lump sum of $5,775 in five years.What annual rate of interest will you be paying?

Accepted Answer

FVIF[? %,5 yr] $3,00

Question 3

Briefly discuss how non-annual compounding (more than one compounding period per year)is preferable to annual compounding if you are an investor.

Accepted Answer

Non-annual compounding is preferable to

Question 4

If you were to deposit $2,000 in an IRA that would earn interest of 7.5%,compounded quarterly for 18 years,how much would you have accumulated?

Accepted Answer

A) $9,621 
B) $36,000 
C) $22,419 
D) $12,363 
E) $7,619 
A) $9,621 
B) $36,000 
C) $22,419 
D) $12,363 
E) $7,619

Question 5

What is the present value of an investment that pays $400 at the end of three years and $700 at the end of 10 years if the discount rate is 5%?

Accepted Answer

A) $1,100.00 
B) $675.30 
C) $775.40 
D) $424.60 
A) $1,100.00 
B) $675.30 
C) $775.40 
D) $424.60

Question 6

Why is the concept of the time value of money so important to financial managers?

Accepted Answer

The concept of the time value of money i

Question 7

You just purchased a parcel of land for $10,000.If you expect a 12% annual rate of return on your investment,how much will you sell the land for in 10 years?

Accepted Answer

A) $25,000 
B) $31,060 
C) $38,720 
D) $34,310 
A) $25,000 
B) $31,060 
C) $38,720 
D) $34,310

Question 8

The time value of money is created by:

Accepted Answer

A) the existence of profitable investment alternatives and interest rates. 
B) the fact that the passing of time increases the value of money. 
C) the elimination of the opportunity cost as a consideration. 
D) the fact that the value of saving money for tomorrow could be more or less than spending it today. 
A) the existence of profitable investment alternatives and interest rates. 
B) the fact that the passing of time increases the value of money. 
C) the elimination of the opportunity cost as a consideration. 
D) the fact that the value of saving money for tomorrow could be more or less than spending it today.

Question 9

An investment has a nominal interest rate of 12% annually,but interest on the investment is compounded monthly.Therefore,the annual percentage yield on the investment is:

Accepted Answer

A) 12%. 
B) 12.68%. 
C) 13.89%. 
D) 12.36%. 
A) 12%. 
B) 12.68%. 
C) 13.89%. 
D) 12.36%.

Question 10

Which of the following statements is true about the time value of money?

Accepted Answer

A) The future value of a single sum will be greater if funds earn 5% instead of 10%. 
B) The future value of a single sum will be unaffected by the rate of return at which funds grow. 
C) The future value of a single sum will be greater if funds earn 12% instead of 6%. 
D) The future value of a single sum will be unaffected by the length of time funds are invested. 
A) The future value of a single sum will be greater if funds earn 5% instead of 10%. 
B) The future value of a single sum will be unaffected by the rate of return at which funds grow. 
C) The future value of a single sum will be greater if funds earn 12% instead of 6%. 
D) The future value of a single sum will be unaffected by the length of time funds are invested.

Question 11

Northwest Bank pays a quoted annual (nominal)interest rate of 4.75%.However,it pays interest (compounds)daily using a 365-day year.What is the effective annual rate of return (APY)?

Accepted Answer

A) 4.75% 
B) 5.02% 
C) 3.61% 
D) 4.86% 
A) 4.75% 
B) 5.02% 
C) 3.61% 
D) 4.86%

Question 12

The future value of a lump sum deposited today increases as the number of years of compounding at a positive rate of interest declines.

Accepted Answer

A) True 
 B)False

Question 13

Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.

Accepted Answer

A) True 
 B)False

Question 14

If you want to have $875 in 32 months,how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10).

Accepted Answer

A) $630 
B) $570 
C) $650 
D) $660 
A) $630 
B) $570 
C) $650 
D) $660

Question 15

The future value of $500 deposited into an account paying 8% annually for three years is:

Accepted Answer

A) $500. 
B) $630. 
C) $700. 
D) $620. 
A) $500. 
B) $630. 
C) $700. 
D) $620.

Question 16

Which of the following statements is FALSE?

Accepted Answer

A) Quarterly compounding has a higher annual percentage yield than monthly compounding. 
B) On monthly compounding loans,the annual percentage yield will be less than the nominal or quoted rate of interest. 
C) Compounding essentially means earning interest on interest on an initial balance. 
D) Perpetuities pay an equal payment forever. 
A) Quarterly compounding has a higher annual percentage yield than monthly compounding. 
B) On monthly compounding loans,the annual percentage yield will be less than the nominal or quoted rate of interest. 
C) Compounding essentially means earning interest on interest on an initial balance. 
D) Perpetuities pay an equal payment forever.

Question 17

If you are an investor,which of the following would you prefer?

Accepted Answer

A) Earnings on funds invested would compound annually. 
B) Earnings on funds invested would compound daily. 
C) Earnings on funds invested would compound monthly. 
D) Earnings on funds invested would compound quarterly. 
A) Earnings on funds invested would compound annually. 
B) Earnings on funds invested would compound daily. 
C) Earnings on funds invested would compound monthly. 
D) Earnings on funds invested would compound quarterly.

Question 18

An increase in ________ will decrease present value.

Accepted Answer

A) the discount rate per period 
B) the original amount invested 
C) the number of periods 
D) both A and C 
E) all of the above 
A) the discount rate per period 
B) the original amount invested 
C) the number of periods 
D) both A and C 
E) all of the above

Question 19

The annual percentage yield is also referred to as the:

Accepted Answer

A) quoted rate. 
B) nominal rate. 
C) effective annual rate. 
D) all of the above. 
A) quoted rate. 
B) nominal rate. 
C) effective annual rate. 
D) all of the above.

Question 20

The present value of $400 to be received at the end of 10 years,if the discount rate is 5%,is:

Accepted Answer

A) $400.00. 
B) $248.40. 
C) $313.60. 
D) $245.60. 
A) $400.00. 
B) $248.40. 
C) $313.60. 
D) $245.60.

An increase in future value can be caused by an increase in the:

Your bank has agreed to loan you $3,000 if you agree to pay a lump sum of $5,775 in five years.What annual rate of interest will you be paying?

Briefly discuss how non-annual compounding (more than one compounding period per year)is preferable to annual compounding if you are an investor.

If you were to deposit $2,000 in an IRA that would earn interest of 7.5%,compounded quarterly for 18 years,how much would you have accumulated?

What is the present value of an investment that pays $400 at the end of three years and $700 at the end of 10 years if the discount rate is 5%?

Why is the concept of the time value of money so important to financial managers?

You just purchased a parcel of land for $10,000.If you expect a 12% annual rate of return on your investment,how much will you sell the land for in 10 years?

The time value of money is created by:

An investment has a nominal interest rate of 12% annually,but interest on the investment is compounded monthly.Therefore,the annual percentage yield on the investment is:

Which of the following statements is true about the time value of money?

Northwest Bank pays a quoted annual (nominal)interest rate of 4.75%.However,it pays interest (compounds)daily using a 365-day year.What is the effective annual rate of return (APY)?

The future value of a lump sum deposited today increases as the number of years of compounding at a positive rate of interest declines.

Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.

If you want to have $875 in 32 months,how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10).

The future value of $500 deposited into an account paying 8% annually for three years is:

Which of the following statements is FALSE?

If you are an investor,which of the following would you prefer?

An increase in ________ will decrease present value.

The annual percentage yield is also referred to as the:

The present value of $400 to be received at the end of 10 years,if the discount rate is 5%,is:

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 5: Time Value of Money-The Basics

An increase in future value can be caused by an increase in the:

Your bank has agreed to loan you $3,000 if you agree to pay a lump sum of $5,775 in five years.What annual rate of interest will you be paying?

Briefly discuss how non-annual compounding (more than one compounding period per year)is preferable to annual compounding if you are an investor.

If you were to deposit $2,000 in an IRA that would earn interest of 7.5%,compounded quarterly for 18 years,how much would you have accumulated?

What is the present value of an investment that pays $400 at the end of three years and $700 at the end of 10 years if the discount rate is 5%?

Why is the concept of the time value of money so important to financial managers?

You just purchased a parcel of land for $10,000.If you expect a 12% annual rate of return on your investment,how much will you sell the land for in 10 years?

The time value of money is created by:

An investment has a nominal interest rate of 12% annually,but interest on the investment is compounded monthly.Therefore,the annual percentage yield on the investment is:

Which of the following statements is true about the time value of money?

Northwest Bank pays a quoted annual (nominal)interest rate of 4.75%.However,it pays interest (compounds)daily using a 365-day year.What is the effective annual rate of return (APY)?

The future value of a lump sum deposited today increases as the number of years of compounding at a positive rate of interest declines.

Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.

If you want to have $875 in 32 months,how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10).

The future value of $500 deposited into an account paying 8% annually for three years is:

Which of the following statements is FALSE?

If you are an investor,which of the following would you prefer?

An increase in ________ will decrease present value.

The annual percentage yield is also referred to as the:

The present value of $400 to be received at the end of 10 years,if the discount rate is 5%,is:

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters