Question 1

When performing time value of money computations with a financial calculator or Excel, PV and FV must have opposite signs.

Accepted Answer

A) True 
 B)False

Question 2

A critical first step in solving a financial problem is [blank].

Accepted Answer

A) making logical business decisions 
B) comparing liquidity ratios 
C) determining the price of common stock 
D) constructing a timeline 
A) making logical business decisions 
B) comparing liquidity ratios 
C) determining the price of common stock 
D) constructing a timeline

Question 3

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

Accepted Answer

A) 9 years 
B) 8 years 
C) 12 years 
D) 4 years 
A) 9 years 
B) 8 years 
C) 12 years 
D) 4 years

Question 4

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 5

What is the value of $750 invested at 7.5% compounded quarterly for 4.5 years (round to the nearest $1)?

Accepted Answer

A) $1048 
B) $1010 
C) $1038 
D) $808 
A) $1048 
B) $1010 
C) $1038 
D) $808

Question 6

Alice Springs 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) 3.3 years 
B) 3.6 years 
C) 9.5 years 
D) 4.8 years 
A) 3.3 years 
B) 3.6 years 
C) 9.5 years 
D) 4.8 years

Question 7

The end of one time period and the beginning of the next occupy the same place on a timeline.

Accepted Answer

A) True 
 B)False

Question 8

Your bank has agreed to loan you $3000 if you agree to pay a lump sum of $5775 in five years.What annual rate of interest will you be paying?

Accepted Answer

FVIF[? %, 5 yr] $300

Question 9

The present value of $400 to be received at the end of 10 years, if the discount rate is 5%, is [blank].

Accepted Answer

A) $400.00 
B) $248.40 
C) $313.60 
D) $245.60 
A) $400.00 
B) $248.40 
C) $313.60 
D) $245.60

Question 10

You deposit $5000 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) $7401 
B) $5523 
C) $7128 
D) $6720 
A) $7401 
B) $5523 
C) $7128 
D) $6720

Question 11

High discount rates favour [blank].

Accepted Answer

A) neither long-term nor short-term investments 
B) both long-term and short-term investments 
C) long-term investments 
D) short-term investments 
A) neither long-term nor short-term investments 
B) both long-term and short-term investments 
C) long-term investments 
D) short-term investments

Question 12

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

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 13

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 14

The annual percentage rate (APR)is calculated as [blank].

Accepted Answer

A) Interest rate per period x compounding periods per year. 
B) ( 1+ quoted annual rate/compounding periods per year)compounding periods per year-1. 
C) Interest rate per period / compounding periods per year. 
D) 1 + quoted annual rate/compounding periods per year)1/compounding periods per year-1. 
A) Interest rate per period x compounding periods per year. 
B) ( 1+ quoted annual rate/compounding periods per year)compounding periods per year-1. 
C) Interest rate per period / compounding periods per year. 
D) 1 + quoted annual rate/compounding periods per year)1/compounding periods per year-1.

Question 15

How many periods would it take for the deposit to grow to $6798 if the interest is compounded semi-annually?

Accepted Answer

A) 17 
B) 19 
C) 21 
D) 25 
A) 17 
B) 19 
C) 21 
D) 25

Question 16

The present value of a single future sum [blank].

Accepted Answer

A) increases as the number of discount periods increases 
B) is generally larger than the future sum 
C) depends upon the number of discount periods 
D) increases as the discount rate increases 
A) increases as the number of discount periods increases 
B) is generally larger than the future sum 
C) depends upon the number of discount periods 
D) increases as the discount rate increases

Question 17

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? Which of the following is a correct way to solve this problem using Excel?

Accepted Answer

A) = PV(25,i,−100,1500) 
B) = rate(25,0,100,1500) 
C) = rate(25,0, −100,1500) 
D) = rate(0, −100,1500,25) 
A) = PV(25,i,−100,1500) 
B) = rate(25,0,100,1500) 
C) = rate(25,0, −100,1500) 
D) = rate(0, −100,1500,25)

Question 18

Sketch a timeline that represents an immediate investment of $20,000 with $25,000 to be received at the end of 4 years.

Accepted Answer

_0__________1__________2______

Question 19

If you want to have $1700 in seven years, how much money must you put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly (round to the nearest $10).

Accepted Answer

A) $1120 
B) $1130 
C) $1110 
D) $1140 
A) $1120 
B) $1130 
C) $1110 
D) $1140

Question 20

If you place $50 in a savings account with an interest rate of 7% compounded weekly, what will the investment be worth at the end of five years (round to the nearest dollar)?

Accepted Answer

A) $72 
B) $70 
C) $71 
D) $57 
A) $72 
B) $70 
C) $71 
D) $57

Exam 5: Time Value of Moneythe Basics

When performing time value of money computations with a financial calculator or Excel, PV and FV must have opposite signs.

A critical first step in solving a financial problem is [blank].

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

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

What is the value of $750 invested at 7.5% compounded quarterly for 4.5 years (round to the nearest $1)?

Alice Springs 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?

The end of one time period and the beginning of the next occupy the same place on a timeline.

Your bank has agreed to loan you $3000 if you agree to pay a lump sum of $5775 in five years.What annual rate of interest will you be paying?

The present value of $400 to be received at the end of 10 years, if the discount rate is 5%, is [blank].

You deposit $5000 today in an account drawing 12% compounded quarterly.How much will you have in the account at the end of 2 1/2 years?

High discount rates favour [blank].

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

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

The annual percentage rate (APR)is calculated as [blank].

How many periods would it take for the deposit to grow to $6798 if the interest is compounded semi-annually?

The present value of a single future sum [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? Which of the following is a correct way to solve this problem using Excel?

Sketch a timeline that represents an immediate investment of $20,000 with $25,000 to be received at the end of 4 years.

If you want to have $1700 in seven years, how much money must you put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly (round to the nearest $10).

If you place $50 in a savings account with an interest rate of 7% compounded weekly, what will the investment be worth at the end of five years (round to the nearest dollar)?

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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