Exam 5: Time Value of Money

Jose is investing for his daughter's college education. He expects to need $30,000 in 10 years, $31,000 in 11 years, $32,000 in 12 years, and $33,000 in 13 years. If Jose can earn 6% annually on his investment, what single amount does he need to invest today to provide for his daughter's college education?

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(Multiple Choice)

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Question 1

Correct Answer:

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Which of the following properly describes the present value of an ordinary annuity?

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(Multiple Choice)

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Question 2

Correct Answer:

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An infinite annuity is called a perpetuity.

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(True/False)

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Question 3

Correct Answer:

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True

Suppose you are borrowing money at a 10% annual nominal interest rate. To pay as little as possible, which one of the following compounding periods should you prefer?

(Multiple Choice)

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Question 4

If an interest rate is compounded monthly, the annual nominal rate is greater than the effective annual rate.

(True/False)

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Question 5

What happens to the present value of an annuity as the interest rate increases?

(Multiple Choice)

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Question 6

An investment that pays $1,000 in a year, $1,500 in two years, and $2,000 in three years can properly be described as an annuity.

(True/False)

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Question 7

An investment promises to return $1,000 at the end of each of the next 5 years and then $2,000 at the end of each of the next 10 years years 6 through 15). What is the value of this investment today at a 4% interest rate?

(Multiple Choice)

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Question 8

Everything else being the same, the higher the interest rate, the higher the present value.

(True/False)

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Question 9

You have invested $5,000 into a certificate of deposit for 5 years. It pays a 6% annual nominal rate, compounded semiannually. What is the value of the certificate of deposit at the end of 5 years?

(Multiple Choice)

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Question 10

Hyun just turned 25 today. By her 60^th birthday she would like to have $1,000,000 saved. She plans to invest equal annual payments beginning with her 26^th birthday and ending on her 60^th birthday. If all invested funds earn 8% annually, how much does she need to invest each year to have exactly $1,000,000 by her 60^th birthday?

(Multiple Choice)

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Question 11

What is the present value of $7,500 to be received in 8 years if 6% is the proper discount rate?

(Multiple Choice)

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Question 12

Which of the following properly describes the present value of an annuity due?

(Multiple Choice)

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Question 13

A money multiplier certificate is selling for $8,000 today and promises to be worth $10,000 in 3 years. What is the rate of return on this investment?

(Multiple Choice)

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Question 14

What is the future value of $1,500 invested at a 5% rate for 7 years?

(Multiple Choice)

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Question 15

You plan to invest $2,000 annually. The first $2,000 will be invested on your 22^nd birthday and the last $2,000 will be invested on your 49^th birthday. What is the value of this investment on your 50^th birthday if all invested funds earn 8% annually?

(Multiple Choice)

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Question 16

The future value of an annuity due is on the same date as the last payment.

(True/False)

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Question 17

The process of computing the present value of a future value is called discounting.

(True/False)

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Question 18

Odarta can afford to pay $12,000 at the end of each of the next 30 years to repay a home loan. If the interest rate is 5.50%, what is the most Odarta can borrow?

(Multiple Choice)

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Question 19

Which of the following properly describes the future value of an annuity due?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 30

Which of the following properly describes the present value of an ordinary annuity?

An infinite annuity is called a perpetuity.

Suppose you are borrowing money at a 10% annual nominal interest rate. To pay as little as possible, which one of the following compounding periods should you prefer?

If an interest rate is compounded monthly, the annual nominal rate is greater than the effective annual rate.

What happens to the present value of an annuity as the interest rate increases?

An investment that pays $1,000 in a year, $1,500 in two years, and $2,000 in three years can properly be described as an annuity.

An investment promises to return $1,000 at the end of each of the next 5 years and then $2,000 at the end of each of the next 10 years years 6 through 15). What is the value of this investment today at a 4% interest rate?

Everything else being the same, the higher the interest rate, the higher the present value.

You have invested $5,000 into a certificate of deposit for 5 years. It pays a 6% annual nominal rate, compounded semiannually. What is the value of the certificate of deposit at the end of 5 years?

What is the present value of $7,500 to be received in 8 years if 6% is the proper discount rate?

Which of the following properly describes the present value of an annuity due?

A money multiplier certificate is selling for $8,000 today and promises to be worth $10,000 in 3 years. What is the rate of return on this investment?

What is the future value of $1,500 invested at a 5% rate for 7 years?

You plan to invest $2,000 annually. The first $2,000 will be invested on your 22^nd birthday and the last $2,000 will be invested on your 49^th birthday. What is the value of this investment on your 50^th birthday if all invested funds earn 8% annually?

The future value of an annuity due is on the same date as the last payment.

The process of computing the present value of a future value is called discounting.

Odarta can afford to pay $12,000 at the end of each of the next 30 years to repay a home loan. If the interest rate is 5.50%, what is the most Odarta can borrow?

Which of the following properly describes the future value of an annuity due?

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

The Relationship Between Risk and Return

Fixed Income Securities: Bonds and Preferred Stock

Common Stock

Cost of Capital

Introduction to Capital Budgeting and Cash Flow Estimation

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters

Exam 5: Time Value of Money

Which of the following properly describes the present value of an ordinary annuity?

An infinite annuity is called a perpetuity.

Suppose you are borrowing money at a 10% annual nominal interest rate. To pay as little as possible, which one of the following compounding periods should you prefer?

If an interest rate is compounded monthly, the annual nominal rate is greater than the effective annual rate.

What happens to the present value of an annuity as the interest rate increases?

An investment that pays $1,000 in a year, $1,500 in two years, and $2,000 in three years can properly be described as an annuity.

An investment promises to return $1,000 at the end of each of the next 5 years and then $2,000 at the end of each of the next 10 years years 6 through 15). What is the value of this investment today at a 4% interest rate?

Everything else being the same, the higher the interest rate, the higher the present value.

You have invested $5,000 into a certificate of deposit for 5 years. It pays a 6% annual nominal rate, compounded semiannually. What is the value of the certificate of deposit at the end of 5 years?

What is the present value of $7,500 to be received in 8 years if 6% is the proper discount rate?

Which of the following properly describes the present value of an annuity due?

A money multiplier certificate is selling for $8,000 today and promises to be worth $10,000 in 3 years. What is the rate of return on this investment?

What is the future value of $1,500 invested at a 5% rate for 7 years?

You plan to invest $2,000 annually. The first $2,000 will be invested on your 22nd birthday and the last $2,000 will be invested on your 49th birthday. What is the value of this investment on your 50th birthday if all invested funds earn 8% annually?

The future value of an annuity due is on the same date as the last payment.

The process of computing the present value of a future value is called discounting.

Odarta can afford to pay $12,000 at the end of each of the next 30 years to repay a home loan. If the interest rate is 5.50%, what is the most Odarta can borrow?

Which of the following properly describes the future value of an annuity due?

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

The Relationship Between Risk and Return

Fixed Income Securities: Bonds and Preferred Stock

Common Stock

Cost of Capital

Introduction to Capital Budgeting and Cash Flow Estimation

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters

You plan to invest $2,000 annually. The first $2,000 will be invested on your 22^nd birthday and the last $2,000 will be invested on your 49^th birthday. What is the value of this investment on your 50^th birthday if all invested funds earn 8% annually?