Question 1

The effective rate of interest will always be the nominal rate.

Accepted Answer

A) greater than 
B) equal to 
C) less than 
D) equal to or greater than

Question 2

Sales for Triad Inc.have grown from $2 million to $8.092 million in 10 years.What is the implied growth rate of sales for Triad?

Accepted Answer

A) 24.72% 
B) 4.05% 
C) 15.0% 
D) 12.2%

Question 3

Jenny Genius wants to purchase a new car.She knows that she can afford to pay $250 per month and that her bank will charge her 8% interest on the car loan.She intends to pay off the car in five years.Interest will be compounded monthly.Of the following, which is the most expensive vehicle in her price range that she could consider?

Accepted Answer

A) A Taurus selling for $11,900 
B) A Malibu selling for $12,320 
C) A Civic selling for $14,670 
D) A Celica selling for $17,500

Question 4

When you purchased a car, you borrowed $20,000 from the bank at 9.20% and agreed to make monthly payments for 3 years.What is your monthly payment?

Accepted Answer

A) $153.33 
B) $637.86 
C) $584.12 
D) $559.78

Question 5

What is the difference between the nominal interest rate and the effective interest rate?

Accepted Answer

The answer of What is the difference between the nominal...

Question 6

Roy, who has just turned 40, would like to have an annual annuity of $20,000 paid over a 20 year period, the first payment occurring on his 66th birthday.How much must Roy save each year (end of year) for the next 25 years to have this annuity, if the investment will earn 12 percent compounded annually?

Accepted Answer

A) $16,000 
B) $19,046 
C) $1,120 
D) $944.10

Question 7

Comet Powder Company has purchased a piece of equipment costing $100,000.It is expected to generate a ten- 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

Which of the following statements is/are correct?

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements I and II are correct. 
D) Neither statement I nor II is correct.

Question 9

Explain a perpetuity and list some investment vehicles that can be perpetuities.

Accepted Answer

The answer of Explain a perpetuity and list some investment...

Question 10

Baggos has seen their EPS increase from $0.30 to $3.16 in seven years.What has been the growth rate of Baggos's EPS?

Accepted Answer

A) about 30% 
B) about 40% 
C) about 20% 
D) about 10%

Question 11

An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years.They claim your return on the annuity is 9 percent.What should you be willing to pay today for this annuity?

Accepted Answer

A) $429,600 
B) $438,144 
C) $408,672 
D) $398,144

Question 12

If you invest the $10,000 you receive at graduation (age 22) in a mutual fund that averages a 12% annual return, how much will you have at retirement in 40 years?

Accepted Answer

A) $909,090 
B) $930,510 
C) $783,879 
D) $510,285

Question 13

In six years, your daughter will be going to college.You wish to have a fund that will provide her $10,000 per year (end of year) for each of her four years in college.How much must you put into that fund today if the fund will earn 10 percent in each of the 10 years?

Accepted Answer

A) $29,744.65 
B) $29,783.76 
C) $17,878.80 
D) $21,651.10

Question 14

More frequent compounding results in future values and present values than less frequent compounding at the same interest rate.

Accepted Answer

A) higher, higher 
B) lower, higher 
C) higher, lower 
D) lower, lower

Question 15

John is 25 years old and wishes to retire in 30 years.His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55.How much must he invest at the end of each year to achieve this goal?

Accepted Answer

A) $7,499.96 
B) $5,024.60 
C) $4,143.65 
D) $33,333.33

Question 16

You wish to save $500,000 in the next 25 years.You notice that a corporate bond fund earns about 11 percent per year and that is where you put your savings.How much must you save each year to obtain your goal?

Accepted Answer

A) $20,000.00 
B) $ 3,749.98 
C) $ 4,370.13 
D) $ 2,000.00

Question 17

Your firm, New Sunrise, has just leased a $28,000 BMW for you.The lease requires six beginning of the year payments that will fully amortize the cost of the car.What is the amount of the payments if the interest rate is 12 percent?

Accepted Answer

A) $6,810.99 
B) $7,766.99 
C) $6,423.74 
D) $6,081.25

Question 18

Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21 years old.If the fund earns 10 percent interest compounded annually, what is the value of the fund today?

Accepted Answer

A) $104,602 
B) $6,575 
C) $5,975 
D) $6,875

Question 19

The basic future value equation is given by

Accepted Answer

A) FVn = PV0(PVIFi,n) 
B) FVn = 0(FVIFAi,n) 
C) FVn= PV0(1/(1 + i)n) 
D) FVn = PV0(FVIFi,n)

Question 20

What is the value in 10 years of $10,000 deposited in an account earning 8% compounded monthly?

Accepted Answer

A) $33,004 
B) $22,285 
C) $102,530 
D) $21,589

Exam 5: The Time Value of Money