Question 1

Alabama Power has preferred stock that pays an annual dividend of $9.44. If the security has no maturity, what is its value to an investor who wishes to obtain a 9 percent rate of return?

Accepted Answer

A) $84.96 
B) $104.89 
C) $95.34 
D) $94.40

Question 2

You deposited $2,000 seven years ago and haven't touched the account since. Now you have $3,656 in the bank. What was the interest rate?

Accepted Answer

A) 6% 
B) 7% 
C) 8% 
D) 9%

Question 3

How much must be invested today to have $1,000 in two years if the interest rate is 5%?

Accepted Answer

A) $909.09 
B) $900.00 
C) $907.00 
D) $950.00

Question 4

All streams of cash flows are called annuities.

Accepted Answer

A) True 
 B)False

Question 5

If a series of equal payments is received regularly at the end of the year, and each is deposited immediately at the same interest rate, the ____ is the sum of all the payments and all the interest earned at the end of the series.

Accepted Answer

A) future value of an annuity due 
B) present value of an annuity due 
C) future value of an ordinary annuity 
D) present value of an ordinary annuity 
E) none of the above

Question 6

You currently have $600,000.00 in the bank and intend to withdrawal $60,000.00 from the account annually beginning next year. Assuming the account earns 10% annually, how long can you keep withdrawing $60,000.00 from the account?

Accepted Answer

A) 10 years 
B) Forever 
C) 30 years 
D) 50 years

Question 7

Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a 10-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment.

Accepted Answer

A) 16.3% 
B) 62.7% 
C) 10% 
D) 20%

Question 8

Your uncle promises to give you $550 per quarter for the next five years starting today . How much is his promise worth right now if the interest rate is 8% compounded quarterly?

Accepted Answer

A) $9,173.14 
B) $13,363.57 
C) $13,630.84 
D) $8,993.27

Question 9

What would you be willing to pay today to receive $5,000 at the end of each year for the next 10 years if interest is earned at a rate of 8% compounded annually?

Accepted Answer

A) $34,656 
B) $36,235 
C) $33,551 
D) $72,433

Question 10

If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (age 16,17,18, and 19), how much would the IRA account have in it at your retirement 45 years later if the account earned 12% each year? (Assume end-of-year payments.)

Accepted Answer

A) $1,567,455 
B) $68,613 
C) $3,457,169 
D) $1,148,958

Question 11

Calculate the amount today that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.

Accepted Answer

A) $695 
B) $710 
C) $755 
D) $734 
E) $1,100

Question 12

Peter recently purchased a new home with a 25-year mortgage loan of $250,000 at 8% compounded monthly, What is the total amount Peter will pay the bank over the life of the loan?

Accepted Answer

A) ​$23,420 
B) ​$328,860 
C) ​$250,000 
D) ​$578,860

Question 13

If an 8-year annuity due has a Future Value (FV)of $10,000 and the interest rate is 7%, what is the amount of each annuity payment?

Accepted Answer

A) Less than $900 
B) $901 - $925 
C) $926 - $950 
D) $951 - $975 
E) More than $975

Question 14

A stream of equal payments at regular time intervals that goes on forever is called a non-ending stream.

Accepted Answer

A) True 
 B)False

Question 15

Assuming a 5% annual discount rate, what is the value of receiving $100.00 annual payments perpetually starting today?

Accepted Answer

A) $1,666.67 
B) $2,000.00 
C) $2,666.67 
D) $2,100.00

Question 16

FVFk,n is always greater than 1, whereas PVFk,n is always less than -1.

Accepted Answer

A) True 
 B)False

Question 17

Both the timing and the amount of cash flows that come from an investment determine its desirability.

Accepted Answer

A) True 
 B)False

Question 18

The present value of an annuity will be decreased by:

Accepted Answer

A) a decrease in the number of payments. 
B) a decrease in the discount rate. 
C) a decrease in the amount of the payment in each per period. 
D) a and c. 
E) all of the above.

Question 19

Idlewild Bank has granted you a seven year loan for $50,000. If your seven annual end of the year payments are $11,660.45, what is the rate of interest Idlewild is charging?

Accepted Answer

A) 14% 
B) 23% 
C) 12.6% 
D) None of the above

Question 20

Match between columns
                        Premises: Present Value of an Ordinary Annuity

Accepted Answer

The Answer of PMT[FVFA_k,n] (1+k) and PMT[PVFA_k,n] and PMT[PVFA_k,n] (1+k) is...

Exam 6: Time Value of Money

Alabama Power has preferred stock that pays an annual dividend of $9.44. If the security has no maturity, what is its value to an investor who wishes to obtain a 9 percent rate of return?

You deposited $2,000 seven years ago and haven't touched the account since. Now you have $3,656 in the bank. What was the interest rate?

How much must be invested today to have $1,000 in two years if the interest rate is 5%?

All streams of cash flows are called annuities.

If a series of equal payments is received regularly at the end of the year, and each is deposited immediately at the same interest rate, the ____ is the sum of all the payments and all the interest earned at the end of the series.

You currently have $600,000.00 in the bank and intend to withdrawal $60,000.00 from the account annually beginning next year. Assuming the account earns 10% annually, how long can you keep withdrawing $60,000.00 from the account?

Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a 10-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment.

Your uncle promises to give you $550 per quarter for the next five years starting today . How much is his promise worth right now if the interest rate is 8% compounded quarterly?

What would you be willing to pay today to receive $5,000 at the end of each year for the next 10 years if interest is earned at a rate of 8% compounded annually?

If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (age 16,17,18, and 19) , how much would the IRA account have in it at your retirement 45 years later if the account earned 12% each year? (Assume end-of-year payments.)

Calculate the amount today that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.

Peter recently purchased a new home with a 25-year mortgage loan of $250,000 at 8% compounded monthly, What is the total amount Peter will pay the bank over the life of the loan?

If an 8-year annuity due has a Future Value (FV) of $10,000 and the interest rate is 7%, what is the amount of each annuity payment?

A stream of equal payments at regular time intervals that goes on forever is called a non-ending stream.

Assuming a 5% annual discount rate, what is the value of receiving $100.00 annual payments perpetually starting today?

FVF_k,n is always greater than 1, whereas PVF_k,n is always less than -1.

Both the timing and the amount of cash flows that come from an investment determine its desirability.

The present value of an annuity will be decreased by:

Idlewild Bank has granted you a seven year loan for $50,000. If your seven annual end of the year payments are $11,660.45, what is the rate of interest Idlewild is charging?

Match the following: