Question 1

More frequent compounding results in ____ future values and ____ present values than less frequent compounding at the same nominal interest rate.

Accepted Answer

A)  higher, higher 
B)  lower, higher 
C)  higher, lower 
D)  lower, lower 
A)  higher, higher 
B)  lower, higher 
C)  higher, lower 
D)  lower, lower

Question 2

A thirty year $200,000.00 mortgage has a monthly payment of $1,199.10 based on a rate of 6% APR. After making 180 payments over fifteen years, how much of the mortgage do you still owe?

Accepted Answer

A)  $100,000.00 
B)  $57,901.85 
C)  $142,098.15 
D)  $112,567.83 
A)  $100,000.00 
B)  $57,901.85 
C)  $142,098.15 
D)  $112,567.83

Question 3

Find the present value of a perpetuity of $1,500 per year, given a 20% opportunity cost.

Accepted Answer

A)  $800 
B)  $3,000 
C)  $300 
D)  $6,000 
E)  $7,500 
A)  $800 
B)  $3,000 
C)  $300 
D)  $6,000 
E)  $7,500

Question 4

What amount received at the end of 20-years is equivalent to $100 today, given an interest rate of 14%?

Accepted Answer

A)  $87,346 
B)  $1,152 
C)  $1,638 
D)  $1.374 
E)  $91,029 
A)  $87,346 
B)  $1,152 
C)  $1,638 
D)  $1.374 
E)  $91,029

Question 5

Which of the following phrases would not be utilized if the payments were an annuity due?

Accepted Answer

A)  End-of-period payments 
B)  Starting immediately 
C)  Starting now 
D)  Starting today 
A)  End-of-period payments 
B)  Starting immediately 
C)  Starting now 
D)  Starting today

Question 6

If money has a time value, then the future value of an investment will always be more than the original amount invested and the present value of an investment will always be less than the anticipated future sum of money.

Accepted Answer

A) True 
 B)False

Question 7

If you deposit $3500 in a bank account paying 6% interest and leave it there for fifteen years, how much will you have?

Accepted Answer

A)  $1,460.55 
B)  $3,399.27 
C)  $8,388.10 
D)  $81,466.00 
A)  $1,460.55 
B)  $3,399.27 
C)  $8,388.10 
D)  $81,466.00

Question 8

An increase in the number of time periods reduces the present value of an annuity if all other variables are held constant.

Accepted Answer

A) True 
 B)False

Question 9

Opportunity cost is the:

Accepted Answer

A)  benefit that would have been available from the next best use of money. 
B)  prime rate for large firms. 
C)  unemployment rate. 
D)  rate on standard savings accounts. 
A)  benefit that would have been available from the next best use of money. 
B)  prime rate for large firms. 
C)  unemployment rate. 
D)  rate on standard savings accounts.

Question 10

Assume you want to pay off your $10,000, 30-month car loan after only the first 12 months of payments. With interest at 12% compounded monthly, how much will you need pay off the loan in full at the end of the first year?

Accepted Answer

A)  $5,639 
B)  $6,354 
C)  $4,361 
D)  $7,425 
A)  $5,639 
B)  $6,354 
C)  $4,361 
D)  $7,425

Question 11

After watching "Who Wants to Be a Millionaire," you have decided you want to join the millionaire's club. Your goal is to have $1,000,000 in 35 years. If you can invest in a mutual fund that you project will earn a 10% return, how much must you invest each year to meet your goal? (Round to nearest $)

Accepted Answer

A)  $2,852 
B)  $3,690 
C)  $4,357 
D)  $5,119 
A)  $2,852 
B)  $3,690 
C)  $4,357 
D)  $5,119

Question 12

If you deposit $250 each quarter in a bank account that pays interest at 16% compounded quarterly, how much will you have at the end of five years?

Accepted Answer

A)  $3397.58 
B)  $1354.08 
C)  $7444.53 
D)  $6074.25 
A)  $3397.58 
B)  $1354.08 
C)  $7444.53 
D)  $6074.25

Question 13

Holding all other variables constant, an increase in the interest rate will cause ____ to decrease.

Accepted Answer

A)  future values 
B)  present values 
C)  annuity payments 
D)  growth rates 
A)  future values 
B)  present values 
C)  annuity payments 
D)  growth rates

Question 14

Joan is saving to open her own dress shop in 10 years. She currently has $10,000. In addition, she plans to save $2,000 per year for the next 5 years and $3,000 per year for the following 5 years. How much will Joan have in 10 years if she earns a 10 % return on her savings?

Accepted Answer

A)  $76,129 
B)  $63,925 
C)  $44,255 
D)  $159,370 
A)  $76,129 
B)  $63,925 
C)  $44,255 
D)  $159,370

Question 15

An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?

Accepted Answer

A)  $429,600 
B)  $438,144 
C)  $408,672 
D)  None of the above 
A)  $429,600 
B)  $438,144 
C)  $408,672 
D)  None of the above

Question 16

You wish to save $500,000 in the next 25 years. You notice that a corporate bond fund that earns about 11 percent per year and decide to invest in it. How much must you save each year to obtain your goal?

Accepted Answer

A)  $20,000.00 
B)  $3,749.98 
C)  $4,370.13 
D)  $2,000.00 
A)  $20,000.00 
B)  $3,749.98 
C)  $4,370.13 
D)  $2,000.00

Question 17

The term knom represents the effective annual rate of interest.

Accepted Answer

A) True 
 B)False

Question 18

What is the rate of return on an investment if you lend $1,000 and are repaid $1,254.70 two years later?

Accepted Answer

A)  12% 
B)  25% 
C)  6% 
D)  18% 
E)  4% 
A)  12% 
B)  25% 
C)  6% 
D)  18% 
E)  4%

Question 19

What is the amount of the equal annual installments for a 10-year, $10,000 loan with a 20% rate of interest?

Accepted Answer

A)  $2,225 
B)  $3,863 
C)  $2,385 
D)  $1,917 
E)  $2,000 
A)  $2,225 
B)  $3,863 
C)  $2,385 
D)  $1,917 
E)  $2,000

Question 20

The future value factor for an annuity of n periods can be obtained by adding the future value factors for amounts for 1 through n periods.

Accepted Answer

A) True 
 B)False

More frequent compounding results in future values and present values than less frequent compounding at the same nominal interest rate.

A thirty year $200,000.00 mortgage has a monthly payment of $1,199.10 based on a rate of 6% APR. After making 180 payments over fifteen years, how much of the mortgage do you still owe?

Find the present value of a perpetuity of $1,500 per year, given a 20% opportunity cost.

What amount received at the end of 20-years is equivalent to $100 today, given an interest rate of 14%?

Which of the following phrases would not be utilized if the payments were an annuity due?

If money has a time value, then the future value of an investment will always be more than the original amount invested and the present value of an investment will always be less than the anticipated future sum of money.

If you deposit $3500 in a bank account paying 6% interest and leave it there for fifteen years, how much will you have?

An increase in the number of time periods reduces the present value of an annuity if all other variables are held constant.

Opportunity cost is the:

Assume you want to pay off your $10,000, 30-month car loan after only the first 12 months of payments. With interest at 12% compounded monthly, how much will you need pay off the loan in full at the end of the first year?

If you deposit $250 each quarter in a bank account that pays interest at 16% compounded quarterly, how much will you have at the end of five years?

Holding all other variables constant, an increase in the interest rate will cause ____ to decrease.

Joan is saving to open her own dress shop in 10 years. She currently has $10,000. In addition, she plans to save $2,000 per year for the next 5 years and $3,000 per year for the following 5 years. How much will Joan have in 10 years if she earns a 10 % return on her savings?

An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?

You wish to save $500,000 in the next 25 years. You notice that a corporate bond fund that earns about 11 percent per year and decide to invest in it. How much must you save each year to obtain your goal?

The term k_nom represents the effective annual rate of interest.

What is the rate of return on an investment if you lend $1,000 and are repaid $1,254.70 two years later?

What is the amount of the equal annual installments for a 10-year, $10,000 loan with a 20% rate of interest?

The future value factor for an annuity of n periods can be obtained by adding the future value factors for amounts for 1 through n periods.

Foundations

Financial Background: a Review of Accounting, Financial Statements, and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System, Corporate Governance, and Interest

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends

The Management of Working Capital Multiple Choice Questions

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

Exam 6: Time Value of Money

More frequent compounding results in ____ future values and ____ present values than less frequent compounding at the same nominal interest rate.

A thirty year $200,000.00 mortgage has a monthly payment of $1,199.10 based on a rate of 6% APR. After making 180 payments over fifteen years, how much of the mortgage do you still owe?

Find the present value of a perpetuity of $1,500 per year, given a 20% opportunity cost.

What amount received at the end of 20-years is equivalent to $100 today, given an interest rate of 14%?

Which of the following phrases would not be utilized if the payments were an annuity due?

If money has a time value, then the future value of an investment will always be more than the original amount invested and the present value of an investment will always be less than the anticipated future sum of money.

If you deposit $3500 in a bank account paying 6% interest and leave it there for fifteen years, how much will you have?

An increase in the number of time periods reduces the present value of an annuity if all other variables are held constant.

Opportunity cost is the:

Assume you want to pay off your $10,000, 30-month car loan after only the first 12 months of payments. With interest at 12% compounded monthly, how much will you need pay off the loan in full at the end of the first year?

If you deposit $250 each quarter in a bank account that pays interest at 16% compounded quarterly, how much will you have at the end of five years?

Holding all other variables constant, an increase in the interest rate will cause ____ to decrease.

Joan is saving to open her own dress shop in 10 years. She currently has $10,000. In addition, she plans to save $2,000 per year for the next 5 years and $3,000 per year for the following 5 years. How much will Joan have in 10 years if she earns a 10 % return on her savings?

An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?

You wish to save $500,000 in the next 25 years. You notice that a corporate bond fund that earns about 11 percent per year and decide to invest in it. How much must you save each year to obtain your goal?

The term knom represents the effective annual rate of interest.

What is the rate of return on an investment if you lend $1,000 and are repaid $1,254.70 two years later?

What is the amount of the equal annual installments for a 10-year, $10,000 loan with a 20% rate of interest?

The future value factor for an annuity of n periods can be obtained by adding the future value factors for amounts for 1 through n periods.

Foundations

Financial Background: a Review of Accounting, Financial Statements, and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System, Corporate Governance, and Interest

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends

The Management of Working Capital Multiple Choice Questions

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

More frequent compounding results in future values and present values than less frequent compounding at the same nominal interest rate.

The term k_nom represents the effective annual rate of interest.