Question 1

The more frequently the interest payments are compounded, the larger the future value of $1 for a given time period.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following investments will have the highest future value?

Accepted Answer

A)  $1,300 invested at an annual interest rate of 10% for 5 years 
B)  $1,000 invested at an quarterly interest rate of 2.25% for 10 years 
C)  $1,300 invested at an quarterly interest rate of 2.25% for 5 years 
D)  $1,000 invested at an annual interest rate of 10% for 10 years 
A)  $1,300 invested at an annual interest rate of 10% for 5 years 
B)  $1,000 invested at an quarterly interest rate of 2.25% for 10 years 
C)  $1,300 invested at an quarterly interest rate of 2.25% for 5 years 
D)  $1,000 invested at an annual interest rate of 10% for 10 years D

Question 3

When discount rate:

Accepted Answer

A)  increases, the present value of a future cash flow decreases. 
B)  increases, the present value of a future cash flow increases. 
C)  decreases, the present value of a future cash flow will remain the same. 
D)  decreases, the present value of a future cash flow decreases. 
A)  increases, the present value of a future cash flow decreases. 
B)  increases, the present value of a future cash flow increases. 
C)  decreases, the present value of a future cash flow will remain the same. 
D)  decreases, the present value of a future cash flow decreases. A

Question 4

When discount rate:

Accepted Answer

A)  decreases, the present value of the future cash flow does not change. 
B)  decreases, the present value of any future cash flow increases. 
C)  increases, the present value of any future cash flow increases. 
D)  increases, the present value of any future cash flow does not change. 
A)  decreases, the present value of the future cash flow does not change. 
B)  decreases, the present value of any future cash flow increases. 
C)  increases, the present value of any future cash flow increases. 
D)  increases, the present value of any future cash flow does not change.

Question 5

Which of the following statements is true of the rule of 72?

Accepted Answer

A)  It can be used to determine the amount of time it takes to double an investment. 
B)  It is fairly accurate for interest rates between 25 and 50 percent. 
C)  It states that the time to double your money (TDM) approximately equals 72/i, where i represents the years it takes to double your investment. 
D)  It can be used to estimate approximate compound interest earned for a period of 72 days. 
A)  It can be used to determine the amount of time it takes to double an investment. 
B)  It is fairly accurate for interest rates between 25 and 50 percent. 
C)  It states that the time to double your money (TDM) approximately equals 72/i, where i represents the years it takes to double your investment. 
D)  It can be used to estimate approximate compound interest earned for a period of 72 days.

Question 6

Leroy Diaz plans to invest some money today so that he will receive $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today?

Accepted Answer

A)  $5,276 
B)  $6,722 
C)  $6,897 
D)  $7,140 
A)  $5,276 
B)  $6,722 
C)  $6,897 
D)  $7,140

Question 7

Bovic Inc. is a growing company with sales of $1.25 million this year. The company expects to grow at an annual rate of 25 percent for the next three years, followed by a growth of 20 percent per year for the next two years. What will be Bovic's sales at the end of five years? (Round to the nearest percent.)

Accepted Answer

A)  $2,160,000 
B)  $3,515,625 
C)  $1,875,000 
D)  $2,929,688 
A)  $2,160,000 
B)  $3,515,625 
C)  $1,875,000 
D)  $2,929,688

Question 8

If Bank A pays interest on a monthly basis and Bank B pays the same interest on a quarterly basis, then investing $1,000 in Bank B will lead to a higher future value than investing the same amount in Bank A.

Accepted Answer

A) True 
 B)False

Question 9

Future value focuses on the valuation of cash flows received over time, while present value focuses only on the valuation of cash flows received at a point in time.

Accepted Answer

A) True 
 B)False

Question 10

Jacob's friend, Albert, borrows today with a promise to repay $7,418.87 in four years. If Jacob could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Albert today? (Round to nearest dollar.)

Accepted Answer

A)  $6,000 
B)  $7,035 
C)  $6,500 
D)  $7,150 
A)  $6,000 
B)  $7,035 
C)  $6,500 
D)  $7,150

Question 11

Lorene Buckley wants to invest $3,500 today in a money market fund that pays a quarterly interest at 5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Lorene have at the end of seven years? (Round to the nearest dollar.)

Accepted Answer

A)  $5,091 
B)  $3,849 
C)  $4,956 
D)  $5,075 
A)  $5,091 
B)  $3,849 
C)  $4,956 
D)  $5,075

Question 12

Compound growth occurs when the initial value of a number increases or decreases each period by the factor (1 + growth rate).

Accepted Answer

A) True 
 B)False

Question 13

The future value of an investment of $5,000 earning an annual interest of 10 percent equals $6,000 at the end of one year.

Accepted Answer

A) True 
 B)False

Question 14

Compound interest increases as the number of year decreases.

Accepted Answer

A) True 
 B)False

Question 15

Shawn Bowker invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest on interest be after two years?

Accepted Answer

A)  $1,218.63 
B)  $1,150.00 
C)  $33.06 
D)  $68.63 
A)  $1,218.63 
B)  $1,150.00 
C)  $33.06 
D)  $68.63

Question 16

Manufic, a detergent manufacturer, has announced this year's net income as $832,500. It expects its net earnings to grow at a rate of 15 percent per year for the next two years, before dropping to 12 percent for each of the following two years. What is the firm's net income after four years? (Round to the nearest dollar.)

Accepted Answer

A)  $1,381,071 
B)  $1,266,128 
C)  $1,233,099 
D)  $1,072,260 
A)  $1,381,071 
B)  $1,266,128 
C)  $1,233,099 
D)  $1,072,260

Question 17

Transent Foods announced that its current sales is $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.)

Accepted Answer

A)  7 years 
B)  6 years 
C)  8 years 
D)  10 years 
A)  7 years 
B)  6 years 
C)  8 years 
D)  10 years

Question 18

Albend Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually. How many years will it take for his investment to grow to $10,000? (Round off to the nearest year.)

Accepted Answer

A)  8 years 
B)  11 years 
C)  10 years 
D)  12 years 
A)  8 years 
B)  11 years 
C)  10 years 
D)  12 years

Question 19

Paul Springer plans to save for a down payment for a house in 10 years. He will be able to invest $12,000 today in a money market account that will pay him an interest of 5.50 percent on a monthly basis. How much will he have at the end of 10 years?

Accepted Answer

A)  $12,640 
B)  $20,773 
C)  $24,859 
D)  $23,080 
A)  $12,640 
B)  $20,773 
C)  $24,859 
D)  $23,080

Question 20

Richard McLean wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years?

Accepted Answer

A)  $695.98 
B)  $65.98 
C)  $630.00 
D)  $157.50 
A)  $695.98 
B)  $65.98 
C)  $630.00 
D)  $157.50

The more frequently the interest payments are compounded, the larger the future value of $1 for a given time period.

Which of the following investments will have the highest future value?

When discount rate:

When discount rate:

Which of the following statements is true of the rule of 72?

Leroy Diaz plans to invest some money today so that he will receive $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today?

If Bank A pays interest on a monthly basis and Bank B pays the same interest on a quarterly basis, then investing $1,000 in Bank B will lead to a higher future value than investing the same amount in Bank A.

Future value focuses on the valuation of cash flows received over time, while present value focuses only on the valuation of cash flows received at a point in time.

Jacob's friend, Albert, borrows today with a promise to repay $7,418.87 in four years. If Jacob could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Albert today? (Round to nearest dollar.)

Lorene Buckley wants to invest $3,500 today in a money market fund that pays a quarterly interest at 5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Lorene have at the end of seven years? (Round to the nearest dollar.)

Compound growth occurs when the initial value of a number increases or decreases each period by the factor (1 + growth rate).

The future value of an investment of $5,000 earning an annual interest of 10 percent equals $6,000 at the end of one year.

Compound interest increases as the number of year decreases.

Shawn Bowker invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest on interest be after two years?

Transent Foods announced that its current sales is $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.)

Albend Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually. How many years will it take for his investment to grow to $10,000? (Round off to the nearest year.)

Paul Springer plans to save for a down payment for a house in 10 years. He will be able to invest $12,000 today in a money market account that will pay him an interest of 5.50 percent on a monthly basis. How much will he have at the end of 10 years?

Richard McLean wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years?

The Financial Manager and the Firm

The Financial System and the Level of Interest Rates

The Financial System and the Level of Interest Rates

Analyzing Financial Statements

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Stock Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics

The Cost of Capital

Working Capital Management

How Firms Raise Capital

Capital Structure Policy

Dividends, Stock Repurchases, and Payout Policy

Business Formation, Growth, and Valuation

Financial Planning and Managing Growth

Options and Corporate Finance

International Financial Management

Filters

Exam 5: The Time Value of Money

The more frequently the interest payments are compounded, the larger the future value of $1 for a given time period.

Which of the following investments will have the highest future value?

When discount rate:

When discount rate:

Which of the following statements is true of the rule of 72?

Leroy Diaz plans to invest some money today so that he will receive $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today?

If Bank A pays interest on a monthly basis and Bank B pays the same interest on a quarterly basis, then investing $1,000 in Bank B will lead to a higher future value than investing the same amount in Bank A.

Future value focuses on the valuation of cash flows received over time, while present value focuses only on the valuation of cash flows received at a point in time.

Jacob's friend, Albert, borrows today with a promise to repay $7,418.87 in four years. If Jacob could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Albert today? (Round to nearest dollar.)

Lorene Buckley wants to invest $3,500 today in a money market fund that pays a quarterly interest at 5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Lorene have at the end of seven years? (Round to the nearest dollar.)

Compound growth occurs when the initial value of a number increases or decreases each period by the factor (1 + growth rate).

The future value of an investment of $5,000 earning an annual interest of 10 percent equals $6,000 at the end of one year.

Compound interest increases as the number of year decreases.

Shawn Bowker invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest on interest be after two years?

Transent Foods announced that its current sales is $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.)

Albend Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually. How many years will it take for his investment to grow to $10,000? (Round off to the nearest year.)

Paul Springer plans to save for a down payment for a house in 10 years. He will be able to invest $12,000 today in a money market account that will pay him an interest of 5.50 percent on a monthly basis. How much will he have at the end of 10 years?

Richard McLean wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years?

The Financial Manager and the Firm

The Financial System and the Level of Interest Rates

The Financial System and the Level of Interest Rates

Analyzing Financial Statements

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Stock Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics

The Cost of Capital

Working Capital Management

How Firms Raise Capital

Capital Structure Policy

Dividends, Stock Repurchases, and Payout Policy

Business Formation, Growth, and Valuation

Financial Planning and Managing Growth

Options and Corporate Finance

International Financial Management

Filters