Question 1

The formula for the Future Value Interest Factor of an Annuity (FVIFA)is   .

Accepted Answer

A) True 
 B)False

Question 2

Given a positive interest rate and a positive cash flow,an annuity due always has a greater present value than an ordinary annuity of the same size and number of cash flows.

Accepted Answer

A) True 
 B)False

Question 3

You dream of endowing a chair in finance at the local university that will provide a salary of $150,000 per year forever,with the first cash flow to be one year from today.If the university promises to invest the money at a rate of 5% per year,how much money must you give the university today to make your dream a reality?

Accepted Answer

A) $3,000,000 
B) $15,000,000 
C) $2,857,143 
D) This question cannot be answered. 
A) $3,000,000 
B) $15,000,000 
C) $2,857,143 
D) This question cannot be answered.

Question 4

Amortization tables are useful for each of the following reasons EXCEPT:

Accepted Answer

A) determining the principal balance due if the loan is being paid off early. 
B) determining how much of a total payment is interest and how much is principal for tax purposes. 
C) determining the regular periodic total payment. 
D) All of these are useful purposes of an amortization table. 
A) determining the principal balance due if the loan is being paid off early. 
B) determining how much of a total payment is interest and how much is principal for tax purposes. 
C) determining the regular periodic total payment. 
D) All of these are useful purposes of an amortization table.

Question 5

At what interest rate would you be indifferent to a lottery payout today of $2,229,389.17,or 25 equal annual end-of-the-year payouts of $200,000?

Accepted Answer

The answer of At what interest rate would you be...

Question 6

When you pay off the principal and all of the interest at one time at the maturity date of the loan,we call this type of loan a/an ________.

Accepted Answer

A) amortized loan 
B) interest-only loan 
C) discount loan 
D) compound loan 
A) amortized loan 
B) interest-only loan 
C) discount loan 
D) compound loan

Question 7

Your firm intends to finance the purchase of a new construction crane.The cost is $1,500,000.What is the size of the first payment if the crane is financed with an interest-only loan at an annual rate of 8.50%?

Accepted Answer

A) $228,611.56 
B) $127,500.00 
C) $3,391,475.16 
D) There is not enough information to answer this question. 
A) $228,611.56 
B) $127,500.00 
C) $3,391,475.16 
D) There is not enough information to answer this question.

Question 8

You have a choice between a lottery lump sum payout of $3,800,000 today or a series of twenty annual annuity due payments.At a discount rate of 6.00%,how large must the annual annuity due payments be to make you indifferent between the two choices? Use a calculator to determine your answer.

Accepted Answer

A) $331,301.32 
B) $351,179.40 
C) $190,000.00 
D) $312,548.41 
A) $331,301.32 
B) $351,179.40 
C) $190,000.00 
D) $312,548.41

Question 9

Once you begin making payments on an amortization schedule for a loan such as a mortgage or car loan,most contracts clearly state that you may NOT pay off the loan early.

Accepted Answer

A) True 
 B)False

Question 10

Amortization tables are common and can be used for all but which of the following?

Accepted Answer

A) Car loans 
B) Mortgage loans 
C) Consumer product loans 
D) Amortization tables may be used for all of the above. 
A) Car loans 
B) Mortgage loans 
C) Consumer product loans 
D) Amortization tables may be used for all of the above.

Question 11

You have the opportunity to purchase mineral rights to a property in North Dakota with expected annual cash flows of $10,000 per year for eight years.If you discount these cash flows at a rate of 12% per year,what are these cash flows worth today if the cash flows occur at the end of each period?

Accepted Answer

A) $55,637.57 
B) $49,676.40 
C) $80,000.00 
D) $122,996.93 
A) $55,637.57 
B) $49,676.40 
C) $80,000.00 
D) $122,996.93

Question 12

What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?

Accepted Answer

A) Amortized loan 
B) Interest-only loan 
C) Discount loan 
D) Compound loan 
A) Amortized loan 
B) Interest-only loan 
C) Discount loan 
D) Compound loan

Question 13

Johnson has an annuity due that pays $600 per year for 15 years.What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

Accepted Answer

A) $5,296.27 
B) $5,693.49 
C) $9,000.00 
D) $9,675.00 
A) $5,296.27 
B) $5,693.49 
C) $9,000.00 
D) $9,675.00

Question 14

On your first through fifth birthdays your parents placed $2,000 into your college fund (five total deposits of $2,000 each).The account has earned an average of 8.0% per year until today,your twentieth birthday.How much money is in the account today?

Accepted Answer

A) $11,733.20 
B) $37,219.70 
C) $12,671.86 
D) $25,383.41 
A) $11,733.20 
B) $37,219.70 
C) $12,671.86 
D) $25,383.41

Question 15

A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________.

Accepted Answer

A) ordinary annuity 
B) annuity due 
C) perpetuity 
D) amortization 
A) ordinary annuity 
B) annuity due 
C) perpetuity 
D) amortization

Question 16

When solving for future value,we use the term compounding of cash flows rather than the term discounting of cash flows.

Accepted Answer

A) True 
 B)False

Question 17

Given positive equal annual cash flows and a positive interest rate,the present value of an annuity will be greater than the sum of the cash flows.

Accepted Answer

A) True 
 B)False

Question 18

What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%,and the cash flows of $50 last for 20 years?

Accepted Answer

A) Less than $1,000 
B) Exactly $1,000 
C) More than $1,000 
D) This question cannot be answered because we have an interest rate of 0.0%. 
A) Less than $1,000 
B) Exactly $1,000 
C) More than $1,000 
D) This question cannot be answered because we have an interest rate of 0.0%.

Question 19

The formula for the Present Value Interest Factor of an Annuity (PVIFA)is   .

Accepted Answer

A) True 
 B)False

Question 20

If you borrow $50,000 at an annual interest rate of 12% for six years,what is the annual payment (prior to maturity)on an interest-only type of loan?

Accepted Answer

A) $0.00 
B) $6,000.00 
C) $8,333.33 
D) $12,161.29 
A) $0.00 
B) $6,000.00 
C) $8,333.33 
D) $12,161.29

The formula for the Future Value Interest Factor of an Annuity (FVIFA)is .

Given a positive interest rate and a positive cash flow,an annuity due always has a greater present value than an ordinary annuity of the same size and number of cash flows.

Amortization tables are useful for each of the following reasons EXCEPT:

At what interest rate would you be indifferent to a lottery payout today of $2,229,389.17,or 25 equal annual end-of-the-year payouts of $200,000?

When you pay off the principal and all of the interest at one time at the maturity date of the loan,we call this type of loan a/an ________.

Your firm intends to finance the purchase of a new construction crane.The cost is $1,500,000.What is the size of the first payment if the crane is financed with an interest-only loan at an annual rate of 8.50%?

You have a choice between a lottery lump sum payout of $3,800,000 today or a series of twenty annual annuity due payments.At a discount rate of 6.00%,how large must the annual annuity due payments be to make you indifferent between the two choices? Use a calculator to determine your answer.

Once you begin making payments on an amortization schedule for a loan such as a mortgage or car loan,most contracts clearly state that you may NOT pay off the loan early.

Amortization tables are common and can be used for all but which of the following?

You have the opportunity to purchase mineral rights to a property in North Dakota with expected annual cash flows of $10,000 per year for eight years.If you discount these cash flows at a rate of 12% per year,what are these cash flows worth today if the cash flows occur at the end of each period?

What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?

Johnson has an annuity due that pays $600 per year for 15 years.What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

On your first through fifth birthdays your parents placed $2,000 into your college fund (five total deposits of $2,000 each).The account has earned an average of 8.0% per year until today,your twentieth birthday.How much money is in the account today?

A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________.

When solving for future value,we use the term compounding of cash flows rather than the term discounting of cash flows.

Given positive equal annual cash flows and a positive interest rate,the present value of an annuity will be greater than the sum of the cash flows.

What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%,and the cash flows of $50 last for 20 years?

The formula for the Present Value Interest Factor of an Annuity (PVIFA)is .

If you borrow $50,000 at an annual interest rate of 12% for six years,what is the annual payment (prior to maturity)on an interest-only type of loan?

Financial Management

Financial Statements

The Time Value of Money Part 1

Interest Rates

Bonds and Bond Valuation

Stocks and Stock Valuation

Risk and Return

Capital Budgeting Decision Models

Cash Flow Estimation

The Cost of Capital

Forecasting and Short-Term Financial Planning

Working Capital Management

Financial Ratios and Firm Performance

Raising Capital

Capital Structure

Dividends,dividend Policy,and Stock Splits

International Financial Management

Filters

Exam 4: The Time Value of Money Part 2

The formula for the Future Value Interest Factor of an Annuity (FVIFA)is .

Given a positive interest rate and a positive cash flow,an annuity due always has a greater present value than an ordinary annuity of the same size and number of cash flows.

Amortization tables are useful for each of the following reasons EXCEPT:

At what interest rate would you be indifferent to a lottery payout today of $2,229,389.17,or 25 equal annual end-of-the-year payouts of $200,000?

When you pay off the principal and all of the interest at one time at the maturity date of the loan,we call this type of loan a/an ________.

Your firm intends to finance the purchase of a new construction crane.The cost is $1,500,000.What is the size of the first payment if the crane is financed with an interest-only loan at an annual rate of 8.50%?

You have a choice between a lottery lump sum payout of $3,800,000 today or a series of twenty annual annuity due payments.At a discount rate of 6.00%,how large must the annual annuity due payments be to make you indifferent between the two choices? Use a calculator to determine your answer.

Once you begin making payments on an amortization schedule for a loan such as a mortgage or car loan,most contracts clearly state that you may NOT pay off the loan early.

Amortization tables are common and can be used for all but which of the following?

You have the opportunity to purchase mineral rights to a property in North Dakota with expected annual cash flows of $10,000 per year for eight years.If you discount these cash flows at a rate of 12% per year,what are these cash flows worth today if the cash flows occur at the end of each period?

What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?

Johnson has an annuity due that pays $600 per year for 15 years.What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

On your first through fifth birthdays your parents placed $2,000 into your college fund (five total deposits of $2,000 each).The account has earned an average of 8.0% per year until today,your twentieth birthday.How much money is in the account today?

A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________.

When solving for future value,we use the term compounding of cash flows rather than the term discounting of cash flows.

Given positive equal annual cash flows and a positive interest rate,the present value of an annuity will be greater than the sum of the cash flows.

What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%,and the cash flows of $50 last for 20 years?

The formula for the Present Value Interest Factor of an Annuity (PVIFA)is .

If you borrow $50,000 at an annual interest rate of 12% for six years,what is the annual payment (prior to maturity)on an interest-only type of loan?

Financial Management

Financial Statements

The Time Value of Money Part 1

Interest Rates

Bonds and Bond Valuation

Stocks and Stock Valuation

Risk and Return

Capital Budgeting Decision Models

Cash Flow Estimation

The Cost of Capital

Forecasting and Short-Term Financial Planning

Working Capital Management

Financial Ratios and Firm Performance

Raising Capital

Capital Structure

Dividends,dividend Policy,and Stock Splits

International Financial Management

Filters