Question 1

If the interest rate is zero,the future value interest factor equals

Accepted Answer

A) 0)0. 
B) -1.0. 
C) 1)0. 
D) Undefined

Question 2

The future value of $676 deposited at 5.85 percent compounded annually for five years is closest to

Accepted Answer

A) $845. 
B) $962. 
C) $907. 
D) $898.

Question 3

The effective rate of interest and compounding frequency have an inverse relation.

Accepted Answer

A) True 
 B)False

Question 4

The nominal interest rate is the actual rate of interest you earn or pay.

Accepted Answer

A) True 
 B)False

Question 5

Danny invests $124 090 in a fund and expects to receive $10 000 per year for the next 30 years.What is the approximate interest rate provided on the annuity?

Accepted Answer

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

Question 6

What is the highest effective rate attainable with a 12 percent nominal rate?

Accepted Answer

A) 12.85 percent 
B) 12.75 percent 
C) 12.65 percent 
D) 12.55 percent

Question 7

Julian is a student relying on student loans.He feels he would like to borrow an extra $4000 each year for the next four years to take vacations to recover from studying.Assume that no interest accrues until he completes his education and begins paying off the loan.The interest rate for the loan amount will be seven percent per year compounded monthly and he will pay it off over five years.What would his monthly payment be on this loan?

Accepted Answer

A) $374 
B) $267 
C) $271 
D) $317

Question 8

How much interest would Aleem save if he paid off his mortgage over 15 years instead of 30 years? His mortgage is $100 000 at six percent interest calculated semi-annually.

Accepted Answer

A) $64 111 
B) $107 069 
C) $58 297 
D) $62 959

Question 9

The higher the interest rate,the higher the present value,other things being equal.

Accepted Answer

A) True 
 B)False

Question 10

What is the term for the interest rate financial institutions quote?

Accepted Answer

A) Nominal 
B) Effective 
C) Annual 
D) Real

Question 11

What is the future value of $200 deposited today at eight percent interest compounded annually for three years?

Accepted Answer

A) $252 
B) $250 
C) $248 
D) $249

Question 12

In which situation is simple interest the most appropriate interest calculation to use?

Accepted Answer

A) When there is one compounding period 
B) Never 
C) Always 
D) When there are two or less compounding periods

Question 13

Assuming an inflationary economy,the future value interest factor is

Accepted Answer

A) always equal to 1.0. 
B) always less than 1.0. 
C) always greater than 1.0. 
D) always uncertain.

Question 14

What is the present value of an ordinary annuity paying $1550 each year for 15 years,with an interest rate of 6.6 percent per annum?

Accepted Answer

A) $19 589 
B) $16 528 
C) $14 481 
D) $13 568

Question 15

If your credit card says 28% interest compounded daily,what is the effective interest rate?

Accepted Answer

A) 32.3% 
B) 29.8% 
C) 31.9% 
D) 28.9%

Question 16

The process of obtaining a present value is called discounting.

Accepted Answer

A) True 
 B)False

Question 17

Future value depends on the interest rate and number of years invested but is independent of the number of compounding periods.

Accepted Answer

A) True 
 B)False

Question 18

ABC Bank offers term deposits with 7.8 percent compounded quarterly,while XYZ Bank offers term deposits with 8 percent compounded annually.We know that ABC Bank offers a higher effective rate of return.

Accepted Answer

A) True 
 B)False

Question 19

Jill will have reached her goal of saving $23 000 to buy a car if she puts away $420 a month in a 7% annual interest savings account for four years.

Accepted Answer

A) True 
 B)False

Question 20

In a recessionary economy,the interest rate on deposits can be 0 percent.However,Raymond has an investment of $25 000 now,and in three years it will mature and pay Raymond $32 000.What is the approximate annual interest rate he will receive?

Accepted Answer

A) 9)3 percent 
B) 8)6 percent 
C) 8)9 percent 
D) Insufficient information to calculate this question

Exam 2: Tools for Financial Planning - Applying Time Value Concepts

If the interest rate is zero,the future value interest factor equals

The future value of $676 deposited at 5.85 percent compounded annually for five years is closest to

The effective rate of interest and compounding frequency have an inverse relation.

The nominal interest rate is the actual rate of interest you earn or pay.

Danny invests $124 090 in a fund and expects to receive $10 000 per year for the next 30 years.What is the approximate interest rate provided on the annuity?

What is the highest effective rate attainable with a 12 percent nominal rate?

How much interest would Aleem save if he paid off his mortgage over 15 years instead of 30 years? His mortgage is $100 000 at six percent interest calculated semi-annually.

The higher the interest rate,the higher the present value,other things being equal.

What is the term for the interest rate financial institutions quote?

What is the future value of $200 deposited today at eight percent interest compounded annually for three years?

In which situation is simple interest the most appropriate interest calculation to use?

Assuming an inflationary economy,the future value interest factor is

What is the present value of an ordinary annuity paying $1550 each year for 15 years,with an interest rate of 6.6 percent per annum?

If your credit card says 28% interest compounded daily,what is the effective interest rate?

The process of obtaining a present value is called discounting.

Future value depends on the interest rate and number of years invested but is independent of the number of compounding periods.

ABC Bank offers term deposits with 7.8 percent compounded quarterly,while XYZ Bank offers term deposits with 8 percent compounded annually.We know that ABC Bank offers a higher effective rate of return.

Jill will have reached her goal of saving $23 000 to buy a car if she puts away $420 a month in a 7% annual interest savings account for four years.

In a recessionary economy,the interest rate on deposits can be 0 percent.However,Raymond has an investment of $25 000 now,and in three years it will mature and pay Raymond $32 000.What is the approximate annual interest rate he will receive?