Question 1

Lou Lewis borrows $10,000 to be completely repaid over 10 years at 8%. Repayment of principal in the first year is ________.

Accepted Answer

A)  $1,493 
B)  $693 
C)  $690 
D)  $885 
A)  $1,493 
B)  $693 
C)  $690 
D)  $885

Question 2

The future value is the same concept as the way money grows in a bank account.

Accepted Answer

A) True 
 B)False

Question 3

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 4

The time value of money concept becomes less critical as the prime rate of lending increases.

Accepted Answer

A) True 
 B)False

Question 5

To save for a new car, Samuel Smith will invest $3,000 at the end of each year for the next 5 years. The interest rate is 8%. What is the future value?

Accepted Answer

A)  $15,000 
B)  $2,980 
C)  $17,601 
D)  $13,518 
A)  $15,000 
B)  $2,980 
C)  $17,601 
D)  $13,518

Question 6

Dan would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest in each of the following years to achieve his goal?

Accepted Answer

A)  $13,241 
B)  $133,239 
C)  $10,727 
D)  $52,450 
A)  $13,241 
B)  $133,239 
C)  $10,727 
D)  $52,450

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Cash flow decisions that ignore time value of money will probably not be as accurate as those decisions that do consider time value of money.

Accepted Answer

A) True 
 B)False

Question 9

The concept of time value of money is important to financial decision making because

Accepted Answer

A)  it emphasizes earning a return on invested capital. 
B)  it recognizes that earning a return makes $1 today worth more than $1 received in the future. 
C)  it can be applied to future cash flows in order to compare different streams of income. 
D)  All of these options are true. 
A)  it emphasizes earning a return on invested capital. 
B)  it recognizes that earning a return makes $1 today worth more than $1 received in the future. 
C)  it can be applied to future cash flows in order to compare different streams of income. 
D)  All of these options are true.

Question 10

Calculation of the yield of an investment provides the total return over multiple years.

Accepted Answer

A) True 
 B)False

Question 11

An annuity may best 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, regardless of amount. 
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, regardless of amount. 
D)  a series of consecutive payments of equal amounts.

Question 12

Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement in 20 years. How much will she have available for retirement if she can make 8% on her investment?

Accepted Answer

A)  $2,150 
B)  $457,620 
C)  $46,610 
D)  $217,250 
A)  $2,150 
B)  $457,620 
C)  $46,610 
D)  $217,250

Question 13

The higher the interest rate used in determining the future value of a $1 annuity,

Accepted Answer

A)  the smaller the future value at the end of the period. 
B)  the greater the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  None of these options. The interest has no effect on the future value of an annuity. 
A)  the smaller the future value at the end of the period. 
B)  the greater the future value at the end of a period. 
C)  the greater the present value at the beginning of a period. 
D)  None of these options. The interest has no effect on the future value of an annuity.

Question 14

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

Accepted Answer

A)  $3,675 
B)  $1,800 
C)  $6,254 
D)  $8,570 
A)  $3,675 
B)  $1,800 
C)  $6,254 
D)  $8,570

Question 15

If a father and mother set aside a certain amount each year for their daughter's college fund, which table would be used to determine the amount necessary to be put away each year in order to reach a certain goal once the daughter attends college?

Accepted Answer

A)  The present value of $1 
B)  The future value of $1. 
C)  The future value of an annuity of $1. 
D)  Present value of an annuity of $1. 
A)  The present value of $1 
B)  The future value of $1. 
C)  The future value of an annuity of $1. 
D)  Present value of an annuity of $1.

Question 16

If Allison has saved $1,000,000 upon retirement, how much money can she live on each year if she can earn 4% per year and will end with $0 when she expects to die 30 years after retirement?

Accepted Answer

A)  $40,000 
B)  $20,953 
C)  $17,830 
D)  $57,830 
A)  $40,000 
B)  $20,953 
C)  $17,830 
D)  $57,830

Question 17

The future value of a $500 investment today at 8% annual interest compounded semiannually for five years is ________.

Accepted Answer

A)  $805 
B)  $814 
C)  $740 
D)  $923 
A)  $805 
B)  $814 
C)  $740 
D)  $923

Question 18

Time value of money can be calculated in a few different ways such as time value of money tables, calculator, excel, and/or equation, which all come up with a very similar answer.

Accepted Answer

A) True 
 B)False

Question 19

Time value of money considers many changes to the value of the dollar such as interest, inflation, deflation, etc.

Accepted Answer

A) True 
 B)False

Question 20

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)  More information is needed to answer the question. 
A)  0. 
B)  the present value of the inflows. 
C)  infinity. 
D)  More information is needed to answer the question.

Exam 9: The Time Value of Money

Lou Lewis borrows $10,000 to be completely repaid over 10 years at 8%. Repayment of principal in the first year is ________.

The future value is the same concept as the way money grows in a bank account.

The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.

The time value of money concept becomes less critical as the prime rate of lending increases.

To save for a new car, Samuel Smith will invest $3,000 at the end of each year for the next 5 years. The interest rate is 8%. What is the future value?

Dan would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest in each of the following years to achieve his goal?

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

Cash flow decisions that ignore time value of money will probably not be as accurate as those decisions that do consider time value of money.

The concept of time value of money is important to financial decision making because

Calculation of the yield of an investment provides the total return over multiple years.

An annuity may best be defined as

Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement in 20 years. How much will she have available for retirement if she can make 8% on her investment?

The higher the interest rate used in determining the future value of a $1 annuity,

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

If a father and mother set aside a certain amount each year for their daughter's college fund, which table would be used to determine the amount necessary to be put away each year in order to reach a certain goal once the daughter attends college?

If Allison has saved $1,000,000 upon retirement, how much money can she live on each year if she can earn 4% per year and will end with $0 when she expects to die 30 years after retirement?

The future value of a $500 investment today at 8% annual interest compounded semiannually for five years is ________.

Time value of money can be calculated in a few different ways such as time value of money tables, calculator, excel, and/or equation, which all come up with a very similar answer.

Time value of money considers many changes to the value of the dollar such as interest, inflation, deflation, etc.

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

The Goals and Activities 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_.