Question 1

If the compound inflation rate were greater than the compound interest rate, future purchasing power on our savings would fall.

Accepted Answer

A) True 
 B)False

Question 2

The method of calculating interest on a loan that is set by law is called the:

Accepted Answer

A)  negotiated legal rate (NLR) 
B)  effective annual rate (EAR) 
C)  annual percentage rate (APR) 
D)  none of the above

Question 3

The act of lending money at an excessively high interest rate is called loan sharking.

Accepted Answer

A) True 
 B)False

Question 4

The present value of a $100 annuity deposited for 10 years at 10% is $614.46.

Accepted Answer

A) True 
 B)False

Question 5

The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is

Accepted Answer

A)  $17,549 
B)  $75,401 
C)  $93,049 
D)  $11,200

Question 6

__________ is the arithmetic process whereby an initial value increases or grows at a compound interest rate over time to reach a value in the future.

Accepted Answer

A)  Discounting 
B)  Future value 
C)  Inflation 
D)  Compounding

Question 7

The return provided by a $100 annuity deposited for 10 years that results in a future value of $1,593.74 is 10%.

Accepted Answer

A) True 
 B)False

Question 8

If the present-value interest factor for i percent and n periods is 0.270, the future-value interest factor for the same i and n is

Accepted Answer

A)  0.730. 
B)  3.797. 
C)  3.704. 
D)  3.777.

Question 9

A ski chalet in Vail now costs $250,000 to rent for a week during February. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Howard and his wife retire from successful investment banking careers. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?

Accepted Answer

A)  $8,333 
B)  $13,572 
C)  $25,005 
D)  $22,109

Question 10

When compounding more than once a year, the true opportunity costs measure of the interest rate is indicated by the:

Accepted Answer

A)  annual percentage rate 
B)  contract rate 
C)  stated rate 
D)  effective annual rate

Question 11

Interest earned only on an investment's principal or original amount is referred to as:

Accepted Answer

A)  simple interest 
B)  compound interest 
C)  discount interest 
D)  annuity interest

Question 12

For the same annual percentage rate, more frequent compounding increases the future value of an investor's funds more quickly.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following equations is correct?

Accepted Answer

A)  Future value = Present value + (Present value x Periods) 
B)  Future value = Present value + (Present value x Interest rate) 
C)  Future value = Present value + (Present value + Interest rate) 
D)  Future value = Present value x (Present value + Interest rate)

Question 14

Lee wishes to accumulate $1 million by making equal annual end-of-year deposits over the next 20 years. If he can earn 10 percent on his investments, how much must he deposit at the end of each year?

Accepted Answer

A)  $14,900 
B)  $50,000 
C)  $117,453 
D)  $17,460

Question 15

The effective annual rate (EAR) is the true opportunity cost measure of the interest rate.

Accepted Answer

A) True 
 B)False

Question 16

Sally would like to take an extra special trip in four years. She estimates she will need $10,000 for the trip. The best safe investment she can find currently pays 4% interest. How much must she invest today to have her $10,000 in four years? Round your answer to a while number.

Accepted Answer

A)  $8,237 
B)  $8,548 
C)  $8,590 
D)  $11,841

Question 17

You deposit $1,000 in a long-term certificate of deposit with an interest rate of 9%. How many years will it take for you to triple your deposit? Pick the closest answer.

Accepted Answer

A)  11 years 
B)  12 years 
C)  13 years 
D)  14 years

Question 18

The effective annual rate (EAR) is sometimes called the annual effective yield.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is false?

Accepted Answer

A)  For a given APR, more frequent compounding results in additional return on the investment. 
B)  An amortized loan is repaid in equal payments over a specified time period. 
C)  The effective annual rate is determined by multiplying the interest rate charged per period by the number of periods in a year. 
D)  APR can be greater than the effective annual rate

Question 20

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the:

Accepted Answer

A)  annual percentage rate 
B)  compound rate of interest 
C)  stated rate of interest 
D)  effective annual rate

Exam 9: Time Value of Money

If the compound inflation rate were greater than the compound interest rate, future purchasing power on our savings would fall.

The method of calculating interest on a loan that is set by law is called the:

The act of lending money at an excessively high interest rate is called loan sharking.

The present value of a $100 annuity deposited for 10 years at 10% is $614.46.

The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is

__________ is the arithmetic process whereby an initial value increases or grows at a compound interest rate over time to reach a value in the future.

The return provided by a $100 annuity deposited for 10 years that results in a future value of $1,593.74 is 10%.

If the present-value interest factor for i percent and n periods is 0.270, the future-value interest factor for the same i and n is

When compounding more than once a year, the true opportunity costs measure of the interest rate is indicated by the:

Interest earned only on an investment's principal or original amount is referred to as:

For the same annual percentage rate, more frequent compounding increases the future value of an investor's funds more quickly.

Which of the following equations is correct?

Lee wishes to accumulate $1 million by making equal annual end-of-year deposits over the next 20 years. If he can earn 10 percent on his investments, how much must he deposit at the end of each year?

The effective annual rate (EAR) is the true opportunity cost measure of the interest rate.

Sally would like to take an extra special trip in four years. She estimates she will need $10,000 for the trip. The best safe investment she can find currently pays 4% interest. How much must she invest today to have her $10,000 in four years? Round your answer to a while number.

You deposit $1,000 in a long-term certificate of deposit with an interest rate of 9%. How many years will it take for you to triple your deposit? Pick the closest answer.

The effective annual rate (EAR) is sometimes called the annual effective yield.

Which of the following statements is false?

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the: