Question 1

Present values increase the further away in time the future value.

Accepted Answer

A) True 
 B)False

Question 2

Present values are always smaller than future values when both r and t are positive

Accepted Answer

A) True 
 B)False

Question 3

You deposit $1,000 in a retirement account today at 8.5% interest. How much more money will you have if you leave the money invested for 40 years rather than 35 years?

Accepted Answer

A)  $7,714.91 
B)  $7,799.08 
C)  $7,839.73 
D)  $7,846.52 
E)  $8753.37

Question 4

Ito invested $4,350. After seven years he had an account value of $6,980.58. Maria invested $5,920. After six years she had an account value of $8,834.62. Which one of the following
Statements is correct?

Accepted Answer

A)  Maria earned a rate of interest that was 0.9% higher than Ito's rate. 
B)  Maria earned a rate of interest of 5.89%. 
C)  Ito earned a rate of interest that was 0.09% higher than Maria's rate. 
D)  Ito earned a rate of interest of 6.90%. 
E)  Both Ito and Maria earned the same rate of interest.

Question 5

Provide a deﬁnition of interest on interest.

Accepted Answer

The answer of Provide a deﬁnition of interest on interest....

Question 6

You will be receiving $2,500 from your family as a graduation present. You have decided to save this money for your retirement. You plan to retire 40 years after graduation. How much additional
Money will you have at that time if you can earn an average of 12.5% on your investment instead of
Just 12%?

Accepted Answer

A)  $45,370.08 
B)  $51,400.62 
C)  $53,018.97 
D)  $58,811.99 
E)  $64,367.48

Question 7

One year ago, you invested $5,000. Today, your investment is worth $6,178.40. What rate of interest did you earn?

Accepted Answer

A)  16.23% 
B)  16.45% 
C)  22.18% 
D)  23.57% 
E)  24.09%

Question 8

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
ﬁve years, Chris will have more money in his account than Jamie has in hers.

Accepted Answer

A) True 
 B)False

Question 9

The I.C. James Co. invested $10,000 six years ago at 5% simple interest. The I.M. Smart Co.
invested $10,000 six years ago at 5% interest which is compounded annually. The I.C. James Co.
will have an account value of $13,400.96 six years from now.

Accepted Answer

A) True 
 B)False

Question 10

Lisa deposited $500 in a savings account this morning. The account pays 2.5% simple interest. If Lisa leaves this money in the account for ﬁve years, how much total interest will she earn?

Accepted Answer

A)  $10.75 
B)  $12.50 
C)  $53.75 
D)  $62.50 
E)  $67.25

Question 11

Deﬁne and explain the relationship between the present value and the discount rate. Graphically
illustrate this relationship.

Accepted Answer

The answer of Deﬁne and explain the relationship between the...

Question 12

Interest earned on both the initial principal and the interest reinvested from prior periods is called ____________.

Accepted Answer

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

Question 13

Present value is used extensively by managers who are reviewing proposed projects. How does
the present value of a cash ﬂow assist management in making these business decisions?

Accepted Answer

The answer of Present value is used extensively by managers...

Question 14

Tishie invests $3,000 today at a 9% rate of return. She wants to have $24,000 to give to her granddaughter Kathy for college 16 years from now. Which one of the following statements is
Correct concerning Tishie's situation?

Accepted Answer

A)  Tishie will have the $24,000 when she wants it. 
B)  Tishie would have to wait an additional ten years to have $24,000. 
C)  Tishie would have to earn a 10% rate of return to have $24,000 in 16 years. 
D)  Tishie will only have approximately $12,000 sixteen years from now. 
E)  Tishie should plan on only giving Kathy $10,000 in sixteen years.

Question 15

Many ﬁnancial calculators require that:

Accepted Answer

A)  The interest rate be input as a decimal, such as .07. 
B)  Interest be compounded on an annual basis. 
C)  The present value be input as a negative number when solving for the interest rate. 
D)  Interest be computed on a monthly basis. 
E)  Either the present value or the future value be input as a negative number when solving for the number of periods.

Question 16

The greater the number of years, the:

Accepted Answer

A)  Smaller the future value of a single sum. 
B)  Larger the present value of a single sum. 
C)  Larger the present value factor. 
D)  Smaller the future value factor. 
E)  Greater the compounding effect.

Question 17

The concept that a dollar received today is worth more than a dollar received tomorrow is referred to as the:

Accepted Answer

A)  Present value. 
B)  Simple interest value. 
C)  Compound value. 
D)  Time value of money. 
E)  Future value of money.

Question 18

Which of the following will result in a future value greater than $100?

Accepted Answer

A)  $40 deposited now with an annual interest rate of 14% for 8 years. 
B)  $60 deposited now with an annual interest rate of 12% for 4 years. 
C)  $60 deposited now with an annual interest rate of 8% for 6 years. 
D)  $80 deposited now with an annual interest rate of 7% for 3 year. 
E)  $80 deposited now with an annual interest rate of 10% for 2 year.

Question 19

Lakeside Inc. invested $735,000 at an 11.25% rate of return. The company sold their investment for $1,067,425. How much longer would Lakeside have had to wait if they had wanted to sell their
Investment for $1.25 million?

Accepted Answer

A)  .98 year 
B)  1.48 years 
C)  1.98 years 
D)  2.31 years 
E)  3.50 years

Question 20

You own a classic automobile that is currently valued at $67,900. If the value increases by 8% annually, how much will the automobile be worth 15 years from now?

Accepted Answer

A)  $199,801.33 
B)  $212,524.67 
C)  $214,740.01 
D)  $215,390.28 
E)  $218,887.79

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

Present values increase the further away in time the future value.

Present values are always smaller than future values when both r and t are positive

You deposit $1,000 in a retirement account today at 8.5% interest. How much more money will you have if you leave the money invested for 40 years rather than 35 years?

Ito invested $4,350. After seven years he had an account value of $6,980.58. Maria invested $5,920. After six years she had an account value of $8,834.62. Which one of the following Statements is correct?

Provide a deﬁnition of interest on interest.

One year ago, you invested $5,000. Today, your investment is worth $6,178.40. What rate of interest did you earn?

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 ﬁve years, Chris will have more money in his account than Jamie has in hers.

The I.C. James Co. invested $10,000 six years ago at 5% simple interest. The I.M. Smart Co. invested $10,000 six years ago at 5% interest which is compounded annually. The I.C. James Co. will have an account value of $13,400.96 six years from now.

Lisa deposited $500 in a savings account this morning. The account pays 2.5% simple interest. If Lisa leaves this money in the account for ﬁve years, how much total interest will she earn?

Deﬁne and explain the relationship between the present value and the discount rate. Graphically illustrate this relationship.

Interest earned on both the initial principal and the interest reinvested from prior periods is called ____________.

Present value is used extensively by managers who are reviewing proposed projects. How does the present value of a cash ﬂow assist management in making these business decisions?

Tishie invests $3,000 today at a 9% rate of return. She wants to have $24,000 to give to her granddaughter Kathy for college 16 years from now. Which one of the following statements is Correct concerning Tishie's situation?

Many ﬁnancial calculators require that:

The greater the number of years, the:

The concept that a dollar received today is worth more than a dollar received tomorrow is referred to as the:

Which of the following will result in a future value greater than $100?

Lakeside Inc. invested $735,000 at an 11.25% rate of return. The company sold their investment for $1,067,425. How much longer would Lakeside have had to wait if they had wanted to sell their Investment for $1.25 million?

You own a classic automobile that is currently valued at $67,900. If the value increases by 8% annually, how much will the automobile be worth 15 years from now?