Question 1

Timelines can be expressed in terms of

Accepted Answer

A)  years. 
B)  months. 
C)  days. 
D)  any of the above 
A)  years. 
B)  months. 
C)  days. 
D)  any of the above

Question 2

How many years will it take for an initial investment of $200 to grow to $544 if it is invested today at 8% compounded annually?

Accepted Answer

A)  8 years 
B)  10 years 
C)  11 years 
D)  13 years 
A)  8 years 
B)  10 years 
C)  11 years 
D)  13 years

Question 3

Your bank has agreed to loan you $3,000 if you agree to pay a lump sum of $5,775 in five years. What annual rate of interest will you be paying?

Accepted Answer

FVIF[? %, 5 yr] $3,0

Question 4

A friend plans to buy a big-screen TV/entertainment system and can afford to set aside $1,320 toward the purchase today. If your friend can earn 5.0%, compounded yearly, how much can your friend spend in four years on the purchase? Round off to the nearest $1.

Accepted Answer

A)  $1,444 
B)  $1,604 
C)  $1,764 
D)  $1,283 
A)  $1,444 
B)  $1,604 
C)  $1,764 
D)  $1,283

Question 5

You deposit $5,000 today in an account drawing 12% compounded quarterly. How much will you have in the account at the end of 2 1/2 years?

Accepted Answer

A)  $7,401 
B)  $5,523 
C)  $7,128 
D)  $6,720 
A)  $7,401 
B)  $5,523 
C)  $7,128 
D)  $6,720

Question 6

To find the present value of $1000 discounted for 20 years at 8%, when using a financial calculator, the correct entry is

Accepted Answer

A)  N=20, i=.08,PMT=0, FV=1000 solve for PV. 
B)  N=20, i=8,PMT=0, FV=1000 solve for PMT. 
C)  N=20, i=.08,PMT=0, PV=1000 solve for FV. 
D)  N=20, i=8,PMT=0, FV=1000 solve for PV. 
A)  N=20, i=.08,PMT=0, FV=1000 solve for PV. 
B)  N=20, i=8,PMT=0, FV=1000 solve for PMT. 
C)  N=20, i=.08,PMT=0, PV=1000 solve for FV. 
D)  N=20, i=8,PMT=0, FV=1000 solve for PV.

Question 7

The effective annual rate increases when the ________ increases.

Accepted Answer

A)  number of compounding periods in a year 
B)  number of years invested 
C)  quoted rate 
D)  both A and C 
A)  number of compounding periods in a year 
B)  number of years invested 
C)  quoted rate 
D)  both A and C

Question 8

The last amount shown on a timeline represents the future value of all amounts invested up to that point.

Accepted Answer

A) True 
 B)False

Question 9

Briefly discuss how non-annual compounding (more than one compounding period per year) is preferable to annual compounding if you are an investor.

Accepted Answer

Non-annual compounding is preferable to

Question 10

You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment?

Accepted Answer

A)  47% 
B)  4.7% 
C)  19% 
D)  12.8% 
A)  47% 
B)  4.7% 
C)  19% 
D)  12.8%

Question 11

The present value of a single sum

Accepted Answer

A)  increases as the discount rate decreases. 
B)  decreases as the discount rate decreases. 
C)  increases as the number of discount periods increases. 
D)  increases as the discount rate increases. 
E)  none of the above. 
A)  increases as the discount rate decreases. 
B)  decreases as the discount rate decreases. 
C)  increases as the number of discount periods increases. 
D)  increases as the discount rate increases. 
E)  none of the above.

Question 12

What will the dollar amount be if the interest is compounded semiannually for those four years?

Accepted Answer

A)  $3,100 
B)  $3,188 
C)  $3,240 
D)  $3,290 
A)  $3,100 
B)  $3,188 
C)  $3,240 
D)  $3,290

Question 13

What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1).

Accepted Answer

A)  $893 
B)  $3,106 
C)  $429 
D)  $833 
A)  $893 
B)  $3,106 
C)  $429 
D)  $833

Question 14

When calculating either discount rates or the number of periods using a financial calculator, the PV and FV must have opposite signs.

Accepted Answer

A) True 
 B)False

Question 15

You have been offered a credit card with an interest rate of 1.5% per month. This is equivalent to and effective annual rate (EAR) of

Accepted Answer

A)  12.17%. 
B)  18.00%. 
C)  24.00%. 
D)  19.56%. 
A)  12.17%. 
B)  18.00%. 
C)  24.00%. 
D)  19.56%.

Question 16

Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.

Accepted Answer

A) True 
 B)False

Question 17

Earnings per share for XYZ, Inc. grew constantly from $7.99 in 1974 to $12.68 in 1980. What was the compound annual growth rate in earnings-per-share over the period?

Accepted Answer

$12.68 = $7.99 FVIF[

Question 18

As the discount rate increases, the present value of future cash flows increases.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is FALSE?

Accepted Answer

A)  A dollar received one year from now will be worth more than a dollar received today. 
B)  A dollar received one year from now will be worth more than a dollar received two years from now. 
C)  Compounding essentially means earning interest on interest on an initial balance. 
D)  Perpetuities pay an equal payment forever. 
A)  A dollar received one year from now will be worth more than a dollar received today. 
B)  A dollar received one year from now will be worth more than a dollar received two years from now. 
C)  Compounding essentially means earning interest on interest on an initial balance. 
D)  Perpetuities pay an equal payment forever.

Question 20

California Investors recently advertised the following claim: Invest your money with us at 21%, compounded annually, and we guarantee to double your money sooner than you imagine. Ignoring taxes, how long would it take to double your money at a nominal rate of 21%, compounded annually?

Accepted Answer

A)  330 years 
B)  3.6 years 
C)  9.5 years 
D)  4.8 years 
A)  330 years 
B)  3.6 years 
C)  9.5 years 
D)  4.8 years

Timelines can be expressed in terms of

How many years will it take for an initial investment of $200 to grow to $544 if it is invested today at 8% compounded annually?

Your bank has agreed to loan you $3,000 if you agree to pay a lump sum of $5,775 in five years. What annual rate of interest will you be paying?

A friend plans to buy a big-screen TV/entertainment system and can afford to set aside $1,320 toward the purchase today. If your friend can earn 5.0%, compounded yearly, how much can your friend spend in four years on the purchase? Round off to the nearest $1.

You deposit $5,000 today in an account drawing 12% compounded quarterly. How much will you have in the account at the end of 2 1/2 years?

To find the present value of $1000 discounted for 20 years at 8%, when using a financial calculator, the correct entry is

The effective annual rate increases when the ________ increases.

The last amount shown on a timeline represents the future value of all amounts invested up to that point.

Briefly discuss how non-annual compounding (more than one compounding period per year) is preferable to annual compounding if you are an investor.

You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment?

The present value of a single sum

What will the dollar amount be if the interest is compounded semiannually for those four years?

What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1).

When calculating either discount rates or the number of periods using a financial calculator, the PV and FV must have opposite signs.

You have been offered a credit card with an interest rate of 1.5% per month. This is equivalent to and effective annual rate (EAR) of

Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.

Earnings per share for XYZ, Inc. grew constantly from $7.99 in 1974 to $12.68 in 1980. What was the compound annual growth rate in earnings-per-share over the period?

As the discount rate increases, the present value of future cash flows increases.

Which of the following statements is FALSE?

California Investors recently advertised the following claim: Invest your money with us at 21%, compounded annually, and we guarantee to double your money sooner than you imagine. Ignoring taxes, how long would it take to double your money at a nominal rate of 21%, compounded annually?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 5: Time Value of Money-The Basics

Timelines can be expressed in terms of

How many years will it take for an initial investment of $200 to grow to $544 if it is invested today at 8% compounded annually?

Your bank has agreed to loan you $3,000 if you agree to pay a lump sum of $5,775 in five years. What annual rate of interest will you be paying?

A friend plans to buy a big-screen TV/entertainment system and can afford to set aside $1,320 toward the purchase today. If your friend can earn 5.0%, compounded yearly, how much can your friend spend in four years on the purchase? Round off to the nearest $1.

You deposit $5,000 today in an account drawing 12% compounded quarterly. How much will you have in the account at the end of 2 1/2 years?

To find the present value of $1000 discounted for 20 years at 8%, when using a financial calculator, the correct entry is

The effective annual rate increases when the ________ increases.

The last amount shown on a timeline represents the future value of all amounts invested up to that point.

Briefly discuss how non-annual compounding (more than one compounding period per year) is preferable to annual compounding if you are an investor.

You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment?

The present value of a single sum

What will the dollar amount be if the interest is compounded semiannually for those four years?

What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1).

When calculating either discount rates or the number of periods using a financial calculator, the PV and FV must have opposite signs.

You have been offered a credit card with an interest rate of 1.5% per month. This is equivalent to and effective annual rate (EAR) of

Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.

Earnings per share for XYZ, Inc. grew constantly from $7.99 in 1974 to $12.68 in 1980. What was the compound annual growth rate in earnings-per-share over the period?

As the discount rate increases, the present value of future cash flows increases.

Which of the following statements is FALSE?

California Investors recently advertised the following claim: Invest your money with us at 21%, compounded annually, and we guarantee to double your money sooner than you imagine. Ignoring taxes, how long would it take to double your money at a nominal rate of 21%, compounded annually?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters