Question 1

It is easy to choose a discount rate in an international setting due to stability of inflation.

Accepted Answer

A) True 
 B)False

Question 2

How much money must be put into a bank account yielding 5.5% (compounded annually)in order to have $250 at the end of five years (round to nearest $1)?

Accepted Answer

A) $237 
B) $191 
C) $187 
D) $179 
A) $237 
B) $191 
C) $187 
D) $179

Question 3

All else constant,the future value of an investment will increase if:

Accepted Answer

A) the investment involves more risk. 
B) the investment is compounded for fewer years. 
C) the investment is compounded at a higher interest rate. 
D) both B & C. 
A) the investment involves more risk. 
B) the investment is compounded for fewer years. 
C) the investment is compounded at a higher interest rate. 
D) both B & C.

Question 4

As the compound interest rate increases,the present value of future cash flows decreases.

Accepted Answer

A) True 
 B)False

Question 5

What will the dollar amount be if the interest is compounded semiannually for those four years?

Accepted Answer

A) $3,100 
B) $3,188 
C) $3,240 
D) $3,290 
A) $3,100 
B) $3,188 
C) $3,240 
D) $3,290

Question 6

The future value of $200 deposited today in an account for four years paying semiannual interest when the annual interest rate is 12% is:

Accepted Answer

A) $309.40. 
B) $318.80. 
C) $320.20. 
D) $296.00. 
A) $309.40. 
B) $318.80. 
C) $320.20. 
D) $296.00.

Question 7

How much money do I need to place into a bank account which pays a 6% rate in order to have $500 at the end of seven years?

Accepted Answer

A) $332.53 
B) $381.82 
C) $423.77 
D) $489.52 
A) $332.53 
B) $381.82 
C) $423.77 
D) $489.52

Question 8

An investment has a nominal interest rate of 12% annually,but interest on the investment is compounded semiannually.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 9

Which of the following provides the lowest return to an investor?

Accepted Answer

A) 12%,compounded annually 
B) 12%,compounded semiannually 
C) 12%,compounded quarterly 
D) 12%,compounded monthly 
E) 12%,compounded daily 
A) 12%,compounded annually 
B) 12%,compounded semiannually 
C) 12%,compounded quarterly 
D) 12%,compounded monthly 
E) 12%,compounded daily

Question 10

The present value of $1,000 to be received at the end of five years,if the discount rate is 10%,is:

Accepted Answer

A) $621. 
B) $784. 
C) $614. 
D) $500. 
A) $621. 
B) $784. 
C) $614. 
D) $500.

Question 11

The discount rate for the time value of money should reflect delaying consumption.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) The effective annual rate (APR)of a loan is always the same as the quoted rate. 
B) The payments of an ordinary annuity are made or received at the end of each period. 
C) The effective annual rate (APR)of a loan is always equal to or greater than the quoted rate. 
D) A perpetuity is a series of equal payments,which are made for an infinite period of time. 
A) The effective annual rate (APR)of a loan is always the same as the quoted rate. 
B) The payments of an ordinary annuity are made or received at the end of each period. 
C) The effective annual rate (APR)of a loan is always equal to or greater than the quoted rate. 
D) A perpetuity is a series of equal payments,which are made for an infinite period of time.

Question 13

How many periods would it take for the deposit to grow to $6,798 if the interest is compounded semiannually?

Accepted Answer

A) 17 
B) 19 
C) 21 
D) 25 
A) 17 
B) 19 
C) 21 
D) 25

Question 14

Three years from now,Barbara Waters will purchase a laptop computer that will cost $2,250.Assume that Barbara can earn 6.25% (compounded monthly)on her money.How much should she set aside today for the purchase? Round off to the nearest $1.

Accepted Answer

A) $1,250 
B) $900 
C) $1,866 
D) $3,775 
A) $1,250 
B) $900 
C) $1,866 
D) $3,775

Question 15

At 8% compounded annually,how long will it take $750 to double?

Accepted Answer

A) 6.5 years 
B) 48 months 
C) 9 years 
D) 12 years 
A) 6.5 years 
B) 48 months 
C) 9 years 
D) 12 years

Question 16

Which of the following formulas represents the future value of $500 invested at 8% compounded quarterly for five years?

Accepted Answer

A) 500(1 + .08)5 
B) 500(1 + .08)20 
C) 500(1 + .02)5 
D) 500(1 + .02)20 
A) 500(1 + .08)5 
B) 500(1 + .08)20 
C) 500(1 + .02)5 
D) 500(1 + .02)20

Question 17

Dawn Swift discovered that 20 years ago,the average tuition for one year at an Ivy League school was $4,500.Today,the average cost is $29,000.What is the growth rate in tuition cost over this 20-year period? Round off to the nearest 0.1%.

Accepted Answer

A) 15.5% 
B) 4.2% 
C) 9.8% 
D) 10.6% 
A) 15.5% 
B) 4.2% 
C) 9.8% 
D) 10.6%

Question 18

Which of the following is the formula for compound value?

Accepted Answer

A) FVn = P(1 + i)n 
B) FVn = (1 + i)/P 
C) FVn = P/(1 + i)n 
D) FVn = P(1 + i)-n 
A) FVn = P(1 + i)n 
B) FVn = (1 + i)/P 
C) FVn = P/(1 + i)n 
D) FVn = P(1 + i)-n

Question 19

If you want to have $10,000 in 10 years,which of the following formulas represents how much money you must put in a savings account today? Assume that the savings account pays 6% and it is compounded monthly.

Accepted Answer

A) 10,000/(1 + .05)10 
B) 10,000/(1 + .005)120 
C) 10,000/(1 + .06)10 
D) 10,000/(1 + .006)120 
A) 10,000/(1 + .05)10 
B) 10,000/(1 + .005)120 
C) 10,000/(1 + .06)10 
D) 10,000/(1 + .006)120

Question 20

The future value of a single sum:

Accepted Answer

A) increases as the compound rate decreases. 
B) decreases as the compound rate increases. 
C) increases as the number of compound periods decreases. 
D) increases as the compound rate increases. 
E) none of the above. 
A) increases as the compound rate decreases. 
B) decreases as the compound rate increases. 
C) increases as the number of compound periods decreases. 
D) increases as the compound rate increases. 
E) none of the above.

It is easy to choose a discount rate in an international setting due to stability of inflation.

How much money must be put into a bank account yielding 5.5% (compounded annually)in order to have $250 at the end of five years (round to nearest $1)?

All else constant,the future value of an investment will increase if:

As the compound interest rate increases,the present value of future cash flows decreases.

What will the dollar amount be if the interest is compounded semiannually for those four years?

The future value of $200 deposited today in an account for four years paying semiannual interest when the annual interest rate is 12% is:

How much money do I need to place into a bank account which pays a 6% rate in order to have $500 at the end of seven years?

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

Which of the following provides the lowest return to an investor?

The present value of $1,000 to be received at the end of five years,if the discount rate is 10%,is:

The discount rate for the time value of money should reflect delaying consumption.

Which of the following statements is FALSE?

How many periods would it take for the deposit to grow to $6,798 if the interest is compounded semiannually?

Three years from now,Barbara Waters will purchase a laptop computer that will cost $2,250.Assume that Barbara can earn 6.25% (compounded monthly)on her money.How much should she set aside today for the purchase? Round off to the nearest $1.

At 8% compounded annually,how long will it take $750 to double?

Which of the following formulas represents the future value of $500 invested at 8% compounded quarterly for five years?

Dawn Swift discovered that 20 years ago,the average tuition for one year at an Ivy League school was $4,500.Today,the average cost is $29,000.What is the growth rate in tuition cost over this 20-year period? Round off to the nearest 0.1%.

Which of the following is the formula for compound value?

If you want to have $10,000 in 10 years,which of the following formulas represents how much money you must put in a savings account today? Assume that the savings account pays 6% and it is compounded monthly.

The future value of a single sum:

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

It is easy to choose a discount rate in an international setting due to stability of inflation.

How much money must be put into a bank account yielding 5.5% (compounded annually)in order to have $250 at the end of five years (round to nearest $1)?

All else constant,the future value of an investment will increase if:

As the compound interest rate increases,the present value of future cash flows decreases.

What will the dollar amount be if the interest is compounded semiannually for those four years?

The future value of $200 deposited today in an account for four years paying semiannual interest when the annual interest rate is 12% is:

How much money do I need to place into a bank account which pays a 6% rate in order to have $500 at the end of seven years?

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

Which of the following provides the lowest return to an investor?

The present value of $1,000 to be received at the end of five years,if the discount rate is 10%,is:

The discount rate for the time value of money should reflect delaying consumption.

Which of the following statements is FALSE?

How many periods would it take for the deposit to grow to $6,798 if the interest is compounded semiannually?

Three years from now,Barbara Waters will purchase a laptop computer that will cost $2,250.Assume that Barbara can earn 6.25% (compounded monthly)on her money.How much should she set aside today for the purchase? Round off to the nearest $1.

At 8% compounded annually,how long will it take $750 to double?

Which of the following formulas represents the future value of $500 invested at 8% compounded quarterly for five years?

Dawn Swift discovered that 20 years ago,the average tuition for one year at an Ivy League school was $4,500.Today,the average cost is $29,000.What is the growth rate in tuition cost over this 20-year period? Round off to the nearest 0.1%.

Which of the following is the formula for compound value?

If you want to have $10,000 in 10 years,which of the following formulas represents how much money you must put in a savings account today? Assume that the savings account pays 6% and it is compounded monthly.

The future value of a single sum:

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