Question 1

Present value is defined as the:

Accepted Answer

A)  Amount of money invested each time period for a stated number of periods. 
B)  Summation of the cash flows received within a specified period of time. 
C)  Value of future cash flows in today's dollars given a specific discount rate. 
D)  Compounded value of a principal amount given a specific rate of interest. 
E)  Value of an investment given simple interest for a specific period of time.

Question 2

On your thirteenth birthday, you received $1,000 which you invested at 6.5% interest, compounded annually. Your investment is now worth $5,476. How old are you today?

Accepted Answer

A)  age 29 
B)  age 32 
C)  age 35 
D)  age 37 
E)  age 40

Question 3

An investor is considering depositing $10,000 and making $400 semi-annual contributions for the next five years. If one investment provides 5% compounded monthly and another investment provides 5.2% compounded semi-annually, determine the difference between the two investments.

Accepted Answer

The answer of An investor is considering depositing $10,000 and...

Question 4

If the town's population was 62,000 at the end of year 5, and the population grew at the same annual rate as the number of eating establishments between the end of year 1 and the end of year 5, what was the town's population at the end of year 1 if the annual growth rate is 5.626%?

Accepted Answer

A)  49,809 
B)  51,435 
C)  53,230 
D)  54,330 
E)  56,730

Question 5

You collect model airplanes. One particular model is currently valued at $275. If this model increases in value by 5% annually, it will be worth ____ six years from now and _____ twelve years from now.

Accepted Answer

A)  $368.01; $442.89 
B)  $368.01; $461.34 
C)  $368.53; $442.89 
D)  $368.53; $467.08 
E)  $368.53; $493.86

Question 6

Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits $1,000 into an account that pays 4% simple interest. Both deposits were made today. At the end of one year, both Jamie and Chris will have the same amount in their accounts.

Accepted Answer

A) True 
 B)False

Question 7

Chia Burgers began operations by opening 115 restaurants in Western Canada at the end of its first year of operations. By the end of year 2, an additional 5 restaurants were opened. By the end of year 3, there were 130 restaurants operational. At the end of year 5, there were 138 total restaurants.

If, over the next five years, eating establishments are expected to grow at the annual growth rate as they did during years 1 to 5, forecast the number of eating establishments at the end of year 10.

Accepted Answer

A)  172 
B)  198 
C)  202 
D)  223 
E)  225

Question 8

Given a constant discount rate, the larger the future value, the larger the present value

Accepted Answer

A) True 
 B)False

Question 9

The interest rate used to calculate the present value of future cash flows is called the ____________ rate.

Accepted Answer

A)  Free interest. 
B)  Annual interest. 
C)  Compound interest. 
D)  Simple interest. 
E)  Discount.

Question 10

The amount an investment is worth after one or more periods of time is the ___________.

Accepted Answer

A)  Future value. 
B)  Present value. 
C)  Principal value. 
D)  Compound interest rate. 
E)  Simple interest rate.

Question 11

Wexter and Daughter invested $165,000 to help fund a company expansion project planned for 3 years from now. How much additional money will the firm have saved 3 years from now if it can earn 7% rather than 5% on this money?

Accepted Answer

A)  $7,940.09 
B)  $8,218.07 
C)  $11,123.97 
D)  $12,648.18 
E)  $13,211.21

Question 12

Discount rate is the interest rate used to calculate the present value of future cash flows.

Accepted Answer

A) True 
 B)False

Question 13

An investor is considering depositing $20,000 in an account earning 5% compounded quarterly for the next three years. Afterwards, he will take this amount and contribute $200 quarterly for the next four years at a rate of 4% compounded semi-annually. Finally, over the next two years, he will withdraw $1,000 annually at a rate of 3.5% compounded monthly. Determine the future value at the end of this time period.

Accepted Answer

The answer of An investor is considering depositing $20,000 in...

Question 14

Jeff invests $3,000 in an account that pays 7% simple interest. How much more could he have earned over a 20-year period if the interest had compounded annually?

Accepted Answer

A)  $2,840.00 
B)  $3,212.12 
C)  $3,778.54 
D)  $4,087.18 
E)  $4,409.05

Question 15

Fred and Max each want to have $10,000 saved five years from now. Fred can earn 4.35%, compounded annually, on his savings and Max can earn 4.50%, compounded annually, on his savings. Both Fred and Max are going to deposit one lump sum today and will not add any additional funds to their accounts. Given this, Max _____ deposit _____ Fred to achieve the goal.

Accepted Answer

A)  Must; more than 
B)  Must; at least as much as 
C)  Must; as much or more than 
D)  Can; less than 
E)  Can; the same amount as

Question 16

Susie and Tim are twins. Susie invests $5,000 at age 20 and earns 5% compound interest. Tim invests $10,000 at age 40 and earns 5% compound interest. No matter how long they live, Tim will never have as much money as Susie. Explain why.

Accepted Answer

The answer of Susie and Tim are twins. Susie invests...

Question 17

When you retire 36 years from now, you want to have $2 million. You think you can earn an average of 11.5% on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum 3 years from today. How much more will you have to deposit as a lump sum if you wait for 3 years before making the deposit?

Accepted Answer

A)  $15,344.14 
B)  $15,677.78 
C)  $16,208.11 
D)  $17,021.12 
E)  $19,407.78

Question 18

Your goal is to have two separate investments that will be worth $10,000 each ten years from today. Investment A will pay 6% interest. Investment B will pay 6.5% interest. You will make a one-time deposit into each account today. What is the difference between the amount you must invest today in Investment A as compared to the amount you must invest today in Investment B if you are to reach your goal in ten years?

Accepted Answer

A)  $241.92 
B)  $245.45 
C)  $256.69 
D)  $261.08 
E)  $263.47

Question 19

Tom and Antonio both want to open savings accounts today. Tom wants to have $1,000 in his savings account six years from now. Antonio wants to have $1,000 in his savings account three years from now. Antonio needs to deposit twice the amount of money today as Tom.

Accepted Answer

A) True 
 B)False

Question 20

The higher the discount rate, the higher the present value.

Accepted Answer

A) True 
 B)False

Exam 5: Introduction to Valuation: the Time Value of Money

Present value is defined as the:

On your thirteenth birthday, you received $1,000 which you invested at 6.5% interest, compounded annually. Your investment is now worth $5,476. How old are you today?

An investor is considering depositing $10,000 and making $400 semi-annual contributions for the next five years. If one investment provides 5% compounded monthly and another investment provides 5.2% compounded semi-annually, determine the difference between the two investments.

If the town's population was 62,000 at the end of year 5, and the population grew at the same annual rate as the number of eating establishments between the end of year 1 and the end of year 5, what was the town's population at the end of year 1 if the annual growth rate is 5.626%?

You collect model airplanes. One particular model is currently valued at $275. If this model increases in value by 5% annually, it will be worth six years from now and _ twelve years from now.

Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits $1,000 into an account that pays 4% simple interest. Both deposits were made today. At the end of one year, both Jamie and Chris will have the same amount in their accounts.

Given a constant discount rate, the larger the future value, the larger the present value

The interest rate used to calculate the present value of future cash flows is called the ____________ rate.

The amount an investment is worth after one or more periods of time is the ___________.

Wexter and Daughter invested $165,000 to help fund a company expansion project planned for 3 years from now. How much additional money will the firm have saved 3 years from now if it can earn 7% rather than 5% on this money?

Discount rate is the interest rate used to calculate the present value of future cash flows.

Jeff invests $3,000 in an account that pays 7% simple interest. How much more could he have earned over a 20-year period if the interest had compounded annually?

Susie and Tim are twins. Susie invests $5,000 at age 20 and earns 5% compound interest. Tim invests $10,000 at age 40 and earns 5% compound interest. No matter how long they live, Tim will never have as much money as Susie. Explain why.

Tom and Antonio both want to open savings accounts today. Tom wants to have $1,000 in his savings account six years from now. Antonio wants to have $1,000 in his savings account three years from now. Antonio needs to deposit twice the amount of money today as Tom.

The higher the discount rate, the higher the present value.