Question 1

Present value factors for amounts are reciprocals of future value factors for amounts.

Accepted Answer

A) True 
 B)False

Question 2

If the present value of a given sum is equal to its future value, then:

Accepted Answer

A)  the discount rate must be very high. 
B)  there is no inflation. 
C)  the discount rate must be zero. 
D)  none of the above are correct. 
A)  the discount rate must be very high. 
B)  there is no inflation. 
C)  the discount rate must be zero. 
D)  none of the above are correct.

Question 3

What is the rate of interest on a $10,000 loan that is to be repaid in 10 equal annual installments of $1,917.

Accepted Answer

A)  8% 
B)  10% 
C)  14% 
D)  16% 
E)  15% 
A)  8% 
B)  10% 
C)  14% 
D)  16% 
E)  15%

Question 4

The present value of the cash flows expected to come from owning a share of stock:

Accepted Answer

A)  is the maximum price an investor should be willing to pay for the share. 
B)  is the minimum price an investor should be willing to pay for the share. 
C)  is not related to the price that an investor should be willing to pay for the share. 
D)  All of the above 
A)  is the maximum price an investor should be willing to pay for the share. 
B)  is the minimum price an investor should be willing to pay for the share. 
C)  is not related to the price that an investor should be willing to pay for the share. 
D)  All of the above

Question 5

The Florida lottery agrees to pay the winner $250,000 at the end of each year for the next 20 years. What is the future value of this prize if each payment is put in an account earning 9 percent?

Accepted Answer

A)  $2.28 million 
B)  $12.79 million 
C)  $14.32 million 
D)  $5.00 million 
A)  $2.28 million 
B)  $12.79 million 
C)  $14.32 million 
D)  $5.00 million

Question 6

Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?

Accepted Answer

A)  $12,107 
B)  $11,465 
C)  $9,901 
D)  $14,727 
A)  $12,107 
B)  $11,465 
C)  $9,901 
D)  $14,727

Question 7

Using an annual interest rate of 9%, how long will it take a deposit of $1,000 to grow to $3,000, assuming no additional deposits are made?

Accepted Answer

A)  8.04 years 
B)  10.00 years 
C)  11.11 years 
D)  12.75 years 
E)  13.50 years 
A)  8.04 years 
B)  10.00 years 
C)  11.11 years 
D)  12.75 years 
E)  13.50 years

Question 8

The present value of an annuity is equal to the sum of the present values of each of the cash flows in the annuity.

Accepted Answer

A) True 
 B)False

Question 9

Holding all other variables constant, an increase in the discount rate would increase a present value.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following formulas can be used to solve amount problems?

Accepted Answer

A)  FVn = PV[FVFk,n] 
B)  FVn = PV[1+k]n 
C)  PV = FV[1+k]-n 
D)  PV = FVn[PVFk,n] 
E)  All of the above 
A)  FVn = PV[FVFk,n] 
B)  FVn = PV[1+k]n 
C)  PV = FV[1+k]-n 
D)  PV = FVn[PVFk,n] 
E)  All of the above

Question 11

You have just borrowed $30,000 to buy a new car. The loan agreement calls for 48 monthly payments of $704.55 each to begin one month from today. If the interest is compounded monthly, then what is the effective annual rate (EAR) on this loan?

Accepted Answer

A)  6.17% 
B)  7.06% 
C)  6.00% 
D)  6.67% 
E)  7.54% 
A)  6.17% 
B)  7.06% 
C)  6.00% 
D)  6.67% 
E)  7.54%

Question 12

Both the timing and the amount of cash flows that come from an investment determine its desirability.

Accepted Answer

A) True 
 B)False

Question 13

Suppose your savings account pays an annual rate of 3% compounded monthly. What is the yield on this account?

Accepted Answer

A)  2.25% 
B)  2.68% 
C)  3.04% 
D)  3.27% 
A)  2.25% 
B)  2.68% 
C)  3.04% 
D)  3.27%

Question 14

Find the present value of $100 to be received at the end of two years if the discount rate is 12% compounded monthly.

Accepted Answer

A)  $66.50 
B)  $78.76 
C)  $68.80 
D)  $91.80 
E)  $79.75 
A)  $66.50 
B)  $78.76 
C)  $68.80 
D)  $91.80 
E)  $79.75

Question 15

The present value of an investment will always be larger than its expected future value when interest is compounded.

Accepted Answer

A) True 
 B)False

Question 16

At an effective interest rate of 12%, a single sum invested today will double itself in approximately:

Accepted Answer

A)  8 years. 
B)  12 years. 
C)  6 years. 
D)  insufficient data to determine answer. 
A)  8 years. 
B)  12 years. 
C)  6 years. 
D)  insufficient data to determine answer.

Question 17

The importance of the timing of future payments is positively related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 18

At a 0% interest the present value factor for an annuity is equal to the number of payments in the annuity.

Accepted Answer

A) True 
 B)False

Question 19

The present value of five uneven cash flows is $2,145. At a nominal rate of 10% compounded annually, what is the fifth payment if payment one is $500, payment two is $600, and payments three and four are $400?

Accepted Answer

A)  $245 
B)  $1,000 
C)  $500 
D)  $600 
A)  $245 
B)  $1,000 
C)  $500 
D)  $600

Question 20

The effective rate of interest will always be ____ the nominal rate.

Accepted Answer

A)  greater than 
B)  equal to 
C)  less than 
D)  equal to or greater than 
A)  greater than 
B)  equal to 
C)  less than 
D)  equal to or greater than

Present value factors for amounts are reciprocals of future value factors for amounts.

If the present value of a given sum is equal to its future value, then:

What is the rate of interest on a $10,000 loan that is to be repaid in 10 equal annual installments of $1,917.

The present value of the cash flows expected to come from owning a share of stock:

The Florida lottery agrees to pay the winner $250,000 at the end of each year for the next 20 years. What is the future value of this prize if each payment is put in an account earning 9 percent?

Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?

Using an annual interest rate of 9%, how long will it take a deposit of $1,000 to grow to $3,000, assuming no additional deposits are made?

The present value of an annuity is equal to the sum of the present values of each of the cash flows in the annuity.

Holding all other variables constant, an increase in the discount rate would increase a present value.

Which of the following formulas can be used to solve amount problems?

You have just borrowed $30,000 to buy a new car. The loan agreement calls for 48 monthly payments of $704.55 each to begin one month from today. If the interest is compounded monthly, then what is the effective annual rate (EAR) on this loan?

Both the timing and the amount of cash flows that come from an investment determine its desirability.

Suppose your savings account pays an annual rate of 3% compounded monthly. What is the yield on this account?

Find the present value of $100 to be received at the end of two years if the discount rate is 12% compounded monthly.

The present value of an investment will always be larger than its expected future value when interest is compounded.

At an effective interest rate of 12%, a single sum invested today will double itself in approximately:

The importance of the timing of future payments is positively related to the interest rate.

At a 0% interest the present value factor for an annuity is equal to the number of payments in the annuity.

The present value of five uneven cash flows is $2,145. At a nominal rate of 10% compounded annually, what is the fifth payment if payment one is $500, payment two is $600, and payments three and four are $400?

The effective rate of interest will always be ____ the nominal rate.

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

Present value factors for amounts are reciprocals of future value factors for amounts.

If the present value of a given sum is equal to its future value, then:

What is the rate of interest on a $10,000 loan that is to be repaid in 10 equal annual installments of $1,917.

The present value of the cash flows expected to come from owning a share of stock:

The Florida lottery agrees to pay the winner $250,000 at the end of each year for the next 20 years. What is the future value of this prize if each payment is put in an account earning 9 percent?

Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?

Using an annual interest rate of 9%, how long will it take a deposit of $1,000 to grow to $3,000, assuming no additional deposits are made?

The present value of an annuity is equal to the sum of the present values of each of the cash flows in the annuity.

Holding all other variables constant, an increase in the discount rate would increase a present value.

Which of the following formulas can be used to solve amount problems?

You have just borrowed $30,000 to buy a new car. The loan agreement calls for 48 monthly payments of $704.55 each to begin one month from today. If the interest is compounded monthly, then what is the effective annual rate (EAR) on this loan?

Both the timing and the amount of cash flows that come from an investment determine its desirability.

Suppose your savings account pays an annual rate of 3% compounded monthly. What is the yield on this account?

Find the present value of $100 to be received at the end of two years if the discount rate is 12% compounded monthly.

The present value of an investment will always be larger than its expected future value when interest is compounded.

At an effective interest rate of 12%, a single sum invested today will double itself in approximately:

The importance of the timing of future payments is positively related to the interest rate.

At a 0% interest the present value factor for an annuity is equal to the number of payments in the annuity.

The present value of five uneven cash flows is $2,145. At a nominal rate of 10% compounded annually, what is the fifth payment if payment one is $500, payment two is $600, and payments three and four are $400?

The effective rate of interest will always be ____ the nominal rate.

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