Question 1

In the equation r = (FV/PV)1/n - 1,the r is sometimes referred to as the ________.

Accepted Answer

A) interest rate 
B) discount rate 
C) growth rate 
D) All of the above 
A) interest rate 
B) discount rate 
C) growth rate 
D) All of the above

Question 2

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%.How much interest is earned in the first year and how much in the second year of this investment?

Accepted Answer

A) The interest earned in year one is $8.32 and the interest earned in year two is $8.32. 
B) The interest earned in year one is $8.00 and the interest earned in year two is $8.64. 
C) The interest earned in year one is $8.64 and the interest earned in year two is $8.00. 
D) There is not enough information to solve this problem. 
A) The interest earned in year one is $8.32 and the interest earned in year two is $8.32. 
B) The interest earned in year one is $8.00 and the interest earned in year two is $8.64. 
C) The interest earned in year one is $8.64 and the interest earned in year two is $8.00. 
D) There is not enough information to solve this problem.

Question 3

Consider the TVM equation: Present value and time period are inversely related.

Accepted Answer

A) True 
 B)False

Question 4

If you can earn 5.25% per year on your investments,how long will it take to double your money?

Accepted Answer

A) 6.31 years 
B) 19.05 years 
C) 13.55 years 
D) There is not enough information to answer this question. 
A) 6.31 years 
B) 19.05 years 
C) 13.55 years 
D) There is not enough information to answer this question.

Question 5

$5,000 invested at an annual rate of 6% for 3 years has a smaller future value than $5,000 invested at an annual rate of 3% for 6 years.

Accepted Answer

A) True 
 B)False

Question 6

Buying your own home is often mentioned as "the best investment you can make." In 1930,the average home sale price was $3,845.By 1990,the average home sale price had risen to $123,000.What was the average annual rate of change in the price of houses over this time period?

Accepted Answer

A) 3.42% per year 
B) 5.95% per year 
C) 10.12% per year 
D) 12.36% per year 
A) 3.42% per year 
B) 5.95% per year 
C) 10.12% per year 
D) 12.36% per year

Question 7

Andy would like to buy a new car but must complete a two-year commitment to the Peace Corp before he will drive the new car.The current price of the car Andy wants to buy is $22,000,and the dealer expects the price of a similar new car to be $24,000 in two years.If Andy can earn an annual interest rate of 3% on his money,should he buy the car now or wait for two years? Why? Note: Storage costs if Andy purchases the car are $0.Please limit your considerations to the factors offered in the answer choices.

Accepted Answer

A) Buy now because if Andy invests the $22,000 today it will only increase in value to $23,340,and this is less than the cost of his desired new car in two years. 
B) Andy is indifferent because his $22,000 investment will be worth exactly $24,000 after two years. 
C) Buy in two years because at $24,000 the car will cost less than the $24,385 Andy will have after investing the money for two years. 
D) Buy in two years because $24,000 is a real deal for the car Andy wants. 
A) Buy now because if Andy invests the $22,000 today it will only increase in value to $23,340,and this is less than the cost of his desired new car in two years. 
B) Andy is indifferent because his $22,000 investment will be worth exactly $24,000 after two years. 
C) Buy in two years because at $24,000 the car will cost less than the $24,385 Andy will have after investing the money for two years. 
D) Buy in two years because $24,000 is a real deal for the car Andy wants.

Question 8

A manufacturer of LCD televisions has seen sales increase from 125,000 units per year to 500,000 units per year in 8 years.What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.

Accepted Answer

A) The average annual rate of change has been between 10% and 11%. 
B) The average annual rate of change has been between 18% and 19%. 
C) The average annual rate of change has been between 15% and 16%. 
D) There is not enough information to answer this question. 
A) The average annual rate of change has been between 10% and 11%. 
B) The average annual rate of change has been between 18% and 19%. 
C) The average annual rate of change has been between 15% and 16%. 
D) There is not enough information to answer this question.

Question 9

The dividends per share paid by Fantastically Fine Ferns Inc.(FFF)doubled from a starting value of $1.50 in 2007 to a value of $3.00 in 2013 (a six-year period).What was the approximate average annual rate of growth of FFF's dividends per share? Use the Rule of 72 to determine your answer.

Accepted Answer

A) FFF's dividends grew at an annual rate of approximately 12% per year. 
B) FFF's dividends grew at an annual rate of approximately 10% per year. 
C) FFF's dividends grew at an annual rate of approximately 8% per year. 
D) FFF's dividends grew at an annual rate of approximately 6% per year. 
A) FFF's dividends grew at an annual rate of approximately 12% per year. 
B) FFF's dividends grew at an annual rate of approximately 10% per year. 
C) FFF's dividends grew at an annual rate of approximately 8% per year. 
D) FFF's dividends grew at an annual rate of approximately 6% per year.

Question 10

A two-year investment of $200 is made today at an annual interest rate of 6%.Which of the following statements is true?

Accepted Answer

A) The PV is $178.00. 
B) The FV is $224.00. 
C) The FV is $224.72. 
D) This question is irrelevant because there are no two-year investments that earn an average of 6% per year. 
A) The PV is $178.00. 
B) The FV is $224.00. 
C) The FV is $224.72. 
D) This question is irrelevant because there are no two-year investments that earn an average of 6% per year.

Question 11

Given an interest rate of 0%,the present value of $1,500 to be received 5 years in the future is less than $1,500.

Accepted Answer

A) True 
 B)False

Question 12

A furniture store has a sofa on sale for $399.00,with the payment due one year from today.The store is willing to discount the price at an annual rate of 5% if you pay today.What is the amount if you pay today?

Accepted Answer

A) $380 
B) $399 
C) $419 
D) $394 
A) $380 
B) $399 
C) $419 
D) $394

Question 13

You have saved $1,200 for a used motorcycle that has a current price of $1,500.If your money is sitting in an account earning 2.50% per year,how long will it take for this account to grow to $1,500? Note: The motorcycle's price may have changed by the time your account reaches a value of $1,500.

Accepted Answer

A) 9.04 months 
B) 9.04 years 
C) 4.25 years 
D) 4.25 months 
A) 9.04 months 
B) 9.04 years 
C) 4.25 years 
D) 4.25 months

Question 14

Given enough time,you could double your money with a risk-free investment.

Accepted Answer

A) True 
 B)False

Question 15

Even if you are given a present value,a future value,and an interest rate,solving for the time period "n" is still a trial-and-error process.

Accepted Answer

A) True 
 B)False

Question 16

The question "At what rate is my money growing over time?" is best answered by which form of the TVM equation?

Accepted Answer

A) r =   
B) r = PV × (1 + r)n 
C) r = (FV/PV)1/n - 1 
D) r =   
A) r =   
B) r = PV × (1 + r)n 
C) r = (FV/PV)1/n - 1 
D) r =

Question 17

Consider the TVM equation: the variable "r" may be defined as the discount rate or the growth rate depending upon how the equation is being used.

Accepted Answer

A) True 
 B)False

Question 18

Harold's parents have offered him a $10,000 high school graduation gift with an option for another $20,000 upon graduation from college in four years.His friends tell him this is a $30,000 gift from his parents,but Harold already knows something about the time value of money.If the expected inflation rate over the next four years is expected to be 4% per year,what does Harold think the gift is worth in today's dollars? How should he explain his thinking to his friends?

Accepted Answer

First,Harold must calculate the PV of hi

Question 19

You intend to buy a vacation home in seven years and plan to have saved $50,000 for a down payment.How much money would you have to place today into an investment that earns 8% per year to have enough for your desired down payment?

Accepted Answer

A) $29,175 
B) $29,100 
C) $37,065 
D) $25,000 
A) $29,175 
B) $29,100 
C) $37,065 
D) $25,000

Question 20

The television commercial pitchman tells you he can double your money with a risk-free investment in just 10 years.If this is true,what interest rate must this risk-free investment earn on an annual basis? Solve this question using the Rule of 72 and then in a more exact fashion using a formula,your calculator,or computer.In today's rate environment,is the interest rate that you solved for a realistic annual rate of return for a risk-free investment?

Accepted Answer

Your 10-year risk-free investment would

In the equation r = (FV/PV)1/n - 1,the r is sometimes referred to as the ________.

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%.How much interest is earned in the first year and how much in the second year of this investment?

Consider the TVM equation: Present value and time period are inversely related.

If you can earn 5.25% per year on your investments,how long will it take to double your money?

$5,000 invested at an annual rate of 6% for 3 years has a smaller future value than $5,000 invested at an annual rate of 3% for 6 years.

Buying your own home is often mentioned as "the best investment you can make." In 1930,the average home sale price was $3,845.By 1990,the average home sale price had risen to $123,000.What was the average annual rate of change in the price of houses over this time period?

A manufacturer of LCD televisions has seen sales increase from 125,000 units per year to 500,000 units per year in 8 years.What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.

The dividends per share paid by Fantastically Fine Ferns Inc.(FFF)doubled from a starting value of $1.50 in 2007 to a value of $3.00 in 2013 (a six-year period).What was the approximate average annual rate of growth of FFF's dividends per share? Use the Rule of 72 to determine your answer.

A two-year investment of $200 is made today at an annual interest rate of 6%.Which of the following statements is true?

Given an interest rate of 0%,the present value of $1,500 to be received 5 years in the future is less than $1,500.

A furniture store has a sofa on sale for $399.00,with the payment due one year from today.The store is willing to discount the price at an annual rate of 5% if you pay today.What is the amount if you pay today?

You have saved $1,200 for a used motorcycle that has a current price of $1,500.If your money is sitting in an account earning 2.50% per year,how long will it take for this account to grow to $1,500? Note: The motorcycle's price may have changed by the time your account reaches a value of $1,500.

Given enough time,you could double your money with a risk-free investment.

Even if you are given a present value,a future value,and an interest rate,solving for the time period "n" is still a trial-and-error process.

The question "At what rate is my money growing over time?" is best answered by which form of the TVM equation?

Consider the TVM equation: the variable "r" may be defined as the discount rate or the growth rate depending upon how the equation is being used.

You intend to buy a vacation home in seven years and plan to have saved $50,000 for a down payment.How much money would you have to place today into an investment that earns 8% per year to have enough for your desired down payment?

Financial Management

Financial Statements

The Time Value of Money Part 2

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

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Exam 3: The Time Value of Money Part 1

In the equation r = (FV/PV)1/n - 1,the r is sometimes referred to as the ________.

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%.How much interest is earned in the first year and how much in the second year of this investment?

Consider the TVM equation: Present value and time period are inversely related.

If you can earn 5.25% per year on your investments,how long will it take to double your money?

$5,000 invested at an annual rate of 6% for 3 years has a smaller future value than $5,000 invested at an annual rate of 3% for 6 years.

Buying your own home is often mentioned as "the best investment you can make." In 1930,the average home sale price was $3,845.By 1990,the average home sale price had risen to $123,000.What was the average annual rate of change in the price of houses over this time period?

A manufacturer of LCD televisions has seen sales increase from 125,000 units per year to 500,000 units per year in 8 years.What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.

The dividends per share paid by Fantastically Fine Ferns Inc.(FFF)doubled from a starting value of $1.50 in 2007 to a value of $3.00 in 2013 (a six-year period).What was the approximate average annual rate of growth of FFF's dividends per share? Use the Rule of 72 to determine your answer.

A two-year investment of $200 is made today at an annual interest rate of 6%.Which of the following statements is true?

Given an interest rate of 0%,the present value of $1,500 to be received 5 years in the future is less than $1,500.

A furniture store has a sofa on sale for $399.00,with the payment due one year from today.The store is willing to discount the price at an annual rate of 5% if you pay today.What is the amount if you pay today?

You have saved $1,200 for a used motorcycle that has a current price of $1,500.If your money is sitting in an account earning 2.50% per year,how long will it take for this account to grow to $1,500? Note: The motorcycle's price may have changed by the time your account reaches a value of $1,500.

Given enough time,you could double your money with a risk-free investment.

Even if you are given a present value,a future value,and an interest rate,solving for the time period "n" is still a trial-and-error process.

The question "At what rate is my money growing over time?" is best answered by which form of the TVM equation?

Consider the TVM equation: the variable "r" may be defined as the discount rate or the growth rate depending upon how the equation is being used.

You intend to buy a vacation home in seven years and plan to have saved $50,000 for a down payment.How much money would you have to place today into an investment that earns 8% per year to have enough for your desired down payment?

Financial Management

Financial Statements

The Time Value of Money Part 2

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