Question 1

The interest factor for a future value (FVIF) is equal to (1 + i)n.

Accepted Answer

A) True 
 B)False

Question 2

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much return will his investment earn during this time period?

Accepted Answer

A)  $2,915 
B)  $3,570 
C)  $6,254 
D)  $8,570 
A)  $2,915 
B)  $3,570 
C)  $6,254 
D)  $8,570

Question 3

Carol Thomas will pay out $6,000 at the end of the year 2, $8,000 at the end of year 3, and receive $10,000 at the end of year 4. With an interest rate of 13 percent, what is the net value of the payments vs. receipts in today's dollars?

Accepted Answer

A)  $7,326. 
B)  $10,242. 
C)  $16,372. 
D)  $4,112. 
A)  $7,326. 
B)  $10,242. 
C)  $16,372. 
D)  $4,112.

Question 4

Mr. Smith has just invested $10,000 for his son (age 7). The money will be used for his son's education 15 years from now. He calculates that he will need $100,000 for his son's education by the time the boy goes to school. What rate of return will Dr. Stein need to achieve this goal?

Accepted Answer

A)  between 9% and 10% 
B)  between 16% and 17% 
C)  between 10% and 11% 
D)  between 15% and 16% 
A)  between 9% and 10% 
B)  between 16% and 17% 
C)  between 10% and 11% 
D)  between 15% and 16%

Question 5

In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

Accepted Answer

A) True 
 B)False

Question 6

Jeff believes he will need $60,000 annual income during retirement. If he can achieve a 6% return during retirement and believes he will live 20 years after retirement, how much does he need to save by the time he retires?

Accepted Answer

A)  $724,055 
B)  $1,600,000 
C)  $688,200 
D)  $209,320 
A)  $724,055 
B)  $1,600,000 
C)  $688,200 
D)  $209,320

Question 7

You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays $30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond?

Accepted Answer

The answer of You have an opportunity to buy a...

Question 8

Compounding refers to the growth process that turns $1 today into a greater value several periods in the future.

Accepted Answer

A) True 
 B)False

Question 9

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 10

Using semi-annual compounding rather than annual compounding will increase the future value of an annuity.

Accepted Answer

A) True 
 B)False

Question 11

Sponge Bob will receive a payment of $5,000 per year for 7 years beginning three years from today. At a discount rate of 9 percent, what is the present value of this deferred annuity?

Accepted Answer

Using Appendix D, a seven period annuity

Question 12

You will deposit $2,000 today. It will grow for 6 years at 10% interest compounded semiannually. You will then withdraw the funds annually over the next 4 years. The annual interest rate is 8%. Your annual withdrawal will be:

Accepted Answer

A)  $2,340 
B)  $4,332 
C)  $797 
D)  $1,085 
A)  $2,340 
B)  $4,332 
C)  $797 
D)  $1,085

Question 13

A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be?
Present value of $1 PVIF= .215
Future value of $1 FVIF= 4.661
Present value of annuity PVIFA= 9.818
Future value of annuity FVIFA= 45.762

Accepted Answer

A)  $1,584 
B)  $7,384 
C)  $15,555 
D)  $15,588 
A)  $1,584 
B)  $7,384 
C)  $15,555 
D)  $15,588

Question 14

Lou Lewis borrows $10,000 to be repaid over 10 years at 9 percent. Repayment of principal in the first year is:

Accepted Answer

A)  $1,558 
B)  $658 
C)  $742 
D)  $885 
A)  $1,558 
B)  $658 
C)  $742 
D)  $885

Question 15

An annuity may be defined as

Accepted Answer

A)  a payment at a fixed interest rate. 
B)  a series of payments of unequal amount. 
C)  a series of yearly payments. 
D)  a series of consecutive payments of equal amounts. 
A)  a payment at a fixed interest rate. 
B)  a series of payments of unequal amount. 
C)  a series of yearly payments. 
D)  a series of consecutive payments of equal amounts.

Question 16

The future value of a $500 investment today at 10 percent annual interest compounded semiannually for 5 years is

Accepted Answer

A)  $805 
B)  $814 
C)  $750 
D)  $923 
A)  $805 
B)  $814 
C)  $750 
D)  $923

Question 17

As the compounding rate becomes lower and lower, the future value of inflows approaches

Accepted Answer

A)  0 
B)  the present value of the inflows 
C)  infinity 
D)  need more information 
A)  0 
B)  the present value of the inflows 
C)  infinity 
D)  need more information

Question 18

A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $73,425 to your credit in the plan. The plan anticipates earning 9% interest. Given the following information, how much will your annual benefits be?
Present value of $1 PVIF= .178
Future value of $1 FVIF= 5.604
Present value of annuity PVIFA= 9.129
Future value of annuity FVIFA= 51.16

Accepted Answer

A)  $1,435 
B)  $13,070 
C)  $8,043 
D)  $13,102 
A)  $1,435 
B)  $13,070 
C)  $8,043 
D)  $13,102

Question 19

If you invest $10,000 at 10% interest, how much will you have in 10 years?

Accepted Answer

A)  $13,860 
B)  $25,940 
C)  $3,860 
D)  $80,712 
A)  $13,860 
B)  $25,940 
C)  $3,860 
D)  $80,712

Question 20

In determining the future value of an annuity, the final payment is not compounded at all.

Accepted Answer

A) True 
 B)False

The interest factor for a future value (FV_IF) is equal to (1 + i)ⁿ.

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much return will his investment earn during this time period?

Carol Thomas will pay out $6,000 at the end of the year 2, $8,000 at the end of year 3, and receive $10,000 at the end of year 4. With an interest rate of 13 percent, what is the net value of the payments vs. receipts in today's dollars?

Mr. Smith has just invested $10,000 for his son (age 7). The money will be used for his son's education 15 years from now. He calculates that he will need $100,000 for his son's education by the time the boy goes to school. What rate of return will Dr. Stein need to achieve this goal?

In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

Jeff believes he will need $60,000 annual income during retirement. If he can achieve a 6% return during retirement and believes he will live 20 years after retirement, how much does he need to save by the time he retires?

You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays $30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond?

Compounding refers to the growth process that turns $1 today into a greater value several periods in the future.

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

Using semi-annual compounding rather than annual compounding will increase the future value of an annuity.

Sponge Bob will receive a payment of $5,000 per year for 7 years beginning three years from today. At a discount rate of 9 percent, what is the present value of this deferred annuity?

You will deposit $2,000 today. It will grow for 6 years at 10% interest compounded semiannually. You will then withdraw the funds annually over the next 4 years. The annual interest rate is 8%. Your annual withdrawal will be:

A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be? Present value of $1 PV_IF= .215 Future value of $1 FV_IF= 4.661 Present value of annuity PV_IFA= 9.818 Future value of annuity FV_IFA= 45.762

Lou Lewis borrows $10,000 to be repaid over 10 years at 9 percent. Repayment of principal in the first year is:

An annuity may be defined as

The future value of a $500 investment today at 10 percent annual interest compounded semiannually for 5 years is

As the compounding rate becomes lower and lower, the future value of inflows approaches

If you invest $10,000 at 10% interest, how much will you have in 10 years?

In determining the future value of an annuity, the final payment is not compounded at all.

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

External Growth Through Mergers

International Financial Management

Filters

Exam 9: The Time Value of Money

The interest factor for a future value (FVIF) is equal to (1 + i)n.

Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much return will his investment earn during this time period?

Carol Thomas will pay out $6,000 at the end of the year 2, $8,000 at the end of year 3, and receive $10,000 at the end of year 4. With an interest rate of 13 percent, what is the net value of the payments vs. receipts in today's dollars?

Mr. Smith has just invested $10,000 for his son (age 7). The money will be used for his son's education 15 years from now. He calculates that he will need $100,000 for his son's education by the time the boy goes to school. What rate of return will Dr. Stein need to achieve this goal?

In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

Jeff believes he will need $60,000 annual income during retirement. If he can achieve a 6% return during retirement and believes he will live 20 years after retirement, how much does he need to save by the time he retires?

You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays $30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond?

Compounding refers to the growth process that turns $1 today into a greater value several periods in the future.

The amount of annual payments necessary to accumulate a desired total can be found by reference to the present value of an annuity table.

Using semi-annual compounding rather than annual compounding will increase the future value of an annuity.

Sponge Bob will receive a payment of $5,000 per year for 7 years beginning three years from today. At a discount rate of 9 percent, what is the present value of this deferred annuity?

You will deposit $2,000 today. It will grow for 6 years at 10% interest compounded semiannually. You will then withdraw the funds annually over the next 4 years. The annual interest rate is 8%. Your annual withdrawal will be:

A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be? Present value of $1 PVIF= .215 Future value of $1 FVIF= 4.661 Present value of annuity PVIFA= 9.818 Future value of annuity FVIFA= 45.762

Lou Lewis borrows $10,000 to be repaid over 10 years at 9 percent. Repayment of principal in the first year is:

An annuity may be defined as

The future value of a $500 investment today at 10 percent annual interest compounded semiannually for 5 years is

As the compounding rate becomes lower and lower, the future value of inflows approaches

If you invest $10,000 at 10% interest, how much will you have in 10 years?

In determining the future value of an annuity, the final payment is not compounded at all.

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

External Growth Through Mergers

International Financial Management

Filters

The interest factor for a future value (FV_IF) is equal to (1 + i)ⁿ.

A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be? Present value of $1 PV_IF= .215 Future value of $1 FV_IF= 4.661 Present value of annuity PV_IFA= 9.818 Future value of annuity FV_IFA= 45.762