Exam 9: The Time Value of Money

Ambrin Corp. expects to receive $2,000 at the end of each year for 10 years. Then the corporation expects to receive $3,500 per year for the following 10 years, at the end of each year. What is the approximate present value of this 20-year cash flow? Use an 8% discount rate.

(Multiple Choice)

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Question 81

You will deposit $2,000 today. It will grow for five years at 12% interest, but compounded semiannually. You will then withdraw the funds annually over the next four years at the end of each year, with an annual interest rate of 8%. Your annual withdrawal will be approximately ________.

(Multiple Choice)

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Question 82

Higher interest rates reduce the present value amount.

(True/False)

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Question 83

Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment?

(Multiple Choice)

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Question 84

Time value of money considers which of the following item(s) that change the value of money?

(Multiple Choice)

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Question 85

Discounting refers to devaluing the item from the higher future value amount to the present value amount through the consideration of interest.

(True/False)

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Question 86

In determining the future value of a single amount, one must consider

(Multiple Choice)

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Question 87

The present value of a positive future inflow can become negative as discount rates become higher and higher.

(True/False)

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Question 88

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

(True/False)

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Question 89

To save for her newborn son's college education, Lea Wilson will invest $1,000 at the end of each year for the next 20 years. The interest rate is 10%. What is the future value?

(Multiple Choice)

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Question 90

A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be?

(Multiple Choice)

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Question 91

Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she can receive $200,000 today. Which should she choose?

(Multiple Choice)

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Question 92

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What is the principal outstanding after the first loan payment?

(Multiple Choice)

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Question 93

To calculate "Future or Present Values of an "Annuity Due," we must assume that payments happen twice as often.

(True/False)

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Question 94

The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?

(Multiple Choice)

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Question 95

Mr. Bubble wants to sell his bubble machine for $1,000,000, but it might take awhile before it is valued that high. He bought it for $149,000 and is earning annual interest of 10% on the machine. How long will Mr. Bubble have to wait before the machine is valued at $1,000,000?

(Multiple Choice)

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Question 96

Discounted at 10%, $1,000 received at the end of each year for three years is worth less than $2,700 received today.

(True/False)

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Question 97

Carol Thomas will pay out $6,000 at the end of year two and $8,000 at the end of year three. Then Carol will receive $10,000 at the end of year four. With an interest rate of 10%, what is the net value of the payments versus receipts in today's dollars?

(Multiple Choice)

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Question 98

A company wants to find the yield on an investment that requires a certain amount today in which then returns a single amount some time in the future. Which time value of money table would the company use?

(Multiple Choice)

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Question 99

The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.

(True/False)

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Question 100

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Exam 9: The Time Value of Money

Ambrin Corp. expects to receive $2,000 at the end of each year for 10 years. Then the corporation expects to receive $3,500 per year for the following 10 years, at the end of each year. What is the approximate present value of this 20-year cash flow? Use an 8% discount rate.

You will deposit $2,000 today. It will grow for five years at 12% interest, but compounded semiannually. You will then withdraw the funds annually over the next four years at the end of each year, with an annual interest rate of 8%. Your annual withdrawal will be approximately ________.

Higher interest rates reduce the present value amount.

Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment?

Time value of money considers which of the following item(s) that change the value of money?

Discounting refers to devaluing the item from the higher future value amount to the present value amount through the consideration of interest.

In determining the future value of a single amount, one must consider

The present value of a positive future inflow can become negative as discount rates become higher and higher.

The interest factor for the present value of a single amount is the reciprocal of the future value interest factor.

To save for her newborn son's college education, Lea Wilson will invest $1,000 at the end of each year for the next 20 years. The interest rate is 10%. What is the future value?

A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be?

Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she can receive $200,000 today. Which should she choose?

John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What is the principal outstanding after the first loan payment?

To calculate "Future or Present Values of an "Annuity Due," we must assume that payments happen twice as often.

The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?

Mr. Bubble wants to sell his bubble machine for $1,000,000, but it might take awhile before it is valued that high. He bought it for $149,000 and is earning annual interest of 10% on the machine. How long will Mr. Bubble have to wait before the machine is valued at $1,000,000?

Discounted at 10%, $1,000 received at the end of each year for three years is worth less than $2,700 received today.

Carol Thomas will pay out $6,000 at the end of year two and $8,000 at the end of year three. Then Carol will receive $10,000 at the end of year four. With an interest rate of 10%, what is the net value of the payments versus receipts in today's dollars?

A company wants to find the yield on an investment that requires a certain amount today in which then returns a single amount some time in the future. Which time value of money table would the company use?

The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.

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