Question 1

A timeline represents the value of a sum invested now at the end of a series of time periods.

Accepted Answer

A) True 
 B)False

Question 2

When using a financial calculator, which of the following is a correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 2% compounded quarterly?

Accepted Answer

A) N=16, i=.005, PV=−$200, PMT=0, solve for FV 
B) N=4, i=.5, PV=$200, PMT=0, solve for FV 
C) N=16, i=.5, PV=−$200, PMT=0, solve for FV 
D) N=16, i=.03, FV=$200, PMT=0, solve for PV 
A) N=16, i=.005, PV=−$200, PMT=0, solve for FV 
B) N=4, i=.5, PV=$200, PMT=0, solve for FV 
C) N=16, i=.5, PV=−$200, PMT=0, solve for FV 
D) N=16, i=.03, FV=$200, PMT=0, solve for PV

Question 3

When using a financial calculator, which of the following is the correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 3%?

Accepted Answer

A) N=4, i=.03, PV=−200, PMT=0, solve for FV 
B) N=4, i=3, PV=−200, PMT=0, solve for FV 
C) N=4, i=3, PV=0, PMT=$200, solve for FV 
D) N=4, i=3, FV=200, PMT=0, solve for PV 
A) N=4, i=.03, PV=−200, PMT=0, solve for FV 
B) N=4, i=3, PV=−200, PMT=0, solve for FV 
C) N=4, i=3, PV=0, PMT=$200, solve for FV 
D) N=4, i=3, FV=200, PMT=0, solve for PV

Question 4

A friend plans to buy a gaming system and can afford to set aside $1320 towards 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) $1444 
B) $1604 
C) $1764 
D) $1283 
A) $1444 
B) $1604 
C) $1764 
D) $1283

Question 5

Timelines used to visualise cash flows normally represent present values on the left and future values on the right.

Accepted Answer

A) True 
 B)False

Question 6

All else constant, the present value of an investment will increase if the investment is discounted at a [blank] interest rate.

Accepted Answer

lower Multiple choice: Choose

Question 7

If you put $6000 in a savings account that yields a 1% rate of interest compounded daily, what will the investment be worth at the end of one year?

Accepted Answer

A) $6060.00 
B) $6060.30 
C) $6006.03 
D) $6760.95 
A) $6060.00 
B) $6060.30 
C) $6006.03 
D) $6760.95

Question 8

How much money must be put into a bank account yielding 5.5% (compounded annually)in order to have $250 at the end of five years (round to the nearest $1)?

Accepted Answer

A) $237 
B) $191 
C) $187 
D) $179 
A) $237 
B) $191 
C) $187 
D) $179

Question 9

Which of the following is the formula for present value?

Accepted Answer

A) FVn = P(1 + i)n 
B) FVn = (1 + i)/P 
C) FVn = P/(1 + i)n 
D) FVn = P(1 + i)−n 
A) FVn = P(1 + i)n 
B) FVn = (1 + i)/P 
C) FVn = P/(1 + i)n 
D) FVn = P(1 + i)−n

Question 10

A monthly credit card interest rate of 1.5% is equal to and effective annual rate of 19.56%.

Accepted Answer

A) True 
 B)False

Question 11

What is the present value of an investment that pays $400 at the end of three years and $700 at the end of 10 years if the discount rate is 5%?

Accepted Answer

A) $1100.00 
B) $675.30 
C) $775.40 
D) $424.60 
A) $1100.00 
B) $675.30 
C) $775.40 
D) $424.60

Question 12

The annual percentage rate on two different investments will equal the effective annual rate on the two investments only if interest on both investments is compounded annually.

Accepted Answer

A) True 
 B)False

Question 13

If you put $700 in a savings account with a 10% nominal rate of interest compounded monthly, what will the investment be worth in 21 months (round to the nearest dollar)?

Accepted Answer

A) $827 
B) $833 
C) $828 
D) $1176 
A) $827 
B) $833 
C) $828 
D) $1176

Question 14

A diagram for visualising future cash flows is known as [blank].

Accepted Answer

A) a future value vector 
B) a cash flow chart 
C) an FV/PV plot 
D) a timeline 
A) a future value vector 
B) a cash flow chart 
C) an FV/PV plot 
D) a timeline

Question 15

The effective annual rate increases when the number of compounding periods in a year and the [blank] increases.

Accepted Answer

A) periodic rate 
B) number of years invested 
C) quoted rate 
D) future value interest factor 
A) periodic rate 
B) number of years invested 
C) quoted rate 
D) future value interest factor

Question 16

Using a financial calculator, which of the following would be a correct way to find how long it would take for a sum to triple at a rate of 3%?

Accepted Answer

A) i=5, PV=−1, PMT=0, FV=3, solve for N 
B) i=5, PV=1, PMT=0, FV=3, solve for N 
C) i=.05, PV=−1, PMT=0, FV=3, solve for N 
D) Financial calculators cannot be used to solve this problem. 
A) i=5, PV=−1, PMT=0, FV=3, solve for N 
B) i=5, PV=1, PMT=0, FV=3, solve for N 
C) i=.05, PV=−1, PMT=0, FV=3, solve for N 
D) Financial calculators cannot be used to solve this problem.

Question 17

A timeline typically represents cash flows as an exponential growth curve.

Accepted Answer

A) True 
 B)False

Question 18

An increase in future value can be caused by [blank].

Accepted Answer

A) a decrease in the: annual interest rate 
B) an increase in the: number of compounding periods 
C) deferring the original investment by one or more periods 
D) extending the compound period 
A) a decrease in the: annual interest rate 
B) an increase in the: number of compounding periods 
C) deferring the original investment by one or more periods 
D) extending the compound period

Question 19

Rashmi's grandmother deposited $100 in an investment account for her when she was born, 25 years ago.The account is now worth $1500.What was the average rate of return on the account?

Accepted Answer

A) 6.00% 
B) 16.67% 
C) 15.00% 
D) 11.44% 
A) 6.00% 
B) 16.67% 
C) 15.00% 
D) 11.44%

Question 20

At 8% compounded annually, how long will it take $750 to double?

Accepted Answer

A) 6.5 years 
B) 48 months 
C) 9 years 
D) 12 years 
A) 6.5 years 
B) 48 months 
C) 9 years 
D) 12 years

Exam 5: Time Value of Moneythe Basics

A timeline represents the value of a sum invested now at the end of a series of time periods.

When using a financial calculator, which of the following is a correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 2% compounded quarterly?

When using a financial calculator, which of the following is the correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 3%?

A friend plans to buy a gaming system and can afford to set aside $1320 towards 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.

Timelines used to visualise cash flows normally represent present values on the left and future values on the right.

All else constant, the present value of an investment will increase if the investment is discounted at a [blank] interest rate.

If you put $6000 in a savings account that yields a 1% rate of interest compounded daily, what will the investment be worth at the end of one year?

How much money must be put into a bank account yielding 5.5% (compounded annually)in order to have $250 at the end of five years (round to the nearest $1)?

Which of the following is the formula for present value?

A monthly credit card interest rate of 1.5% is equal to and effective annual rate of 19.56%.

What is the present value of an investment that pays $400 at the end of three years and $700 at the end of 10 years if the discount rate is 5%?

The annual percentage rate on two different investments will equal the effective annual rate on the two investments only if interest on both investments is compounded annually.

If you put $700 in a savings account with a 10% nominal rate of interest compounded monthly, what will the investment be worth in 21 months (round to the nearest dollar)?

A diagram for visualising future cash flows is known as [blank].

The effective annual rate increases when the number of compounding periods in a year and the [blank] increases.

Using a financial calculator, which of the following would be a correct way to find how long it would take for a sum to triple at a rate of 3%?

A timeline typically represents cash flows as an exponential growth curve.

An increase in future value can be caused by [blank].

Rashmi's grandmother deposited $100 in an investment account for her when she was born, 25 years ago.The account is now worth $1500.What was the average rate of return on the account?

At 8% compounded annually, how long will it take $750 to double?

Getting Startedprinciples of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes and Cash Flows

Financial Analysissizing up Firm Performance

The Time Value of Moneyannuities and Other Topics

Risk and Returnan Introduction: History of Financial Market Returns

Risk and Returncapital Market Theory

Debt Valuation and Interest Rates

Shares Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluations

The Cost of Capital

Analysis and Impact of Leverage

Capital Structure Policy

Dividend and Share-Buyback Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

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