Question 1

Because interest compounds,the annual percentage rate formula will overstate the true interest cost.

Accepted Answer

A) True 
 B)False

Question 2

As the number of periods increases,present value increases.

Accepted Answer

A) True 
 B)False

Question 3

You put $2,000 in an IRA account at Northern Trust.This account pays a fixed interest rate of 8% compounded quarterly.How much money do you have in five years?

Accepted Answer

A) $2,914 
B) $2,938 
C) $2,972 
D) $2,999

Question 4

With compound interest,interest is earned only on the investment's principal.

Accepted Answer

A) True 
 B)False

Question 5

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 6

An investment will mature in 20 years.Its maturity value is $1,000.If the discount rate is 7%,what is the present value of the investment?

Accepted Answer

A) $178 
B) $258 
C) $276 
D) $362

Question 7

An amortized loan is repaid in equal payments over a specified time period.

Accepted Answer

A) True 
 B)False

Question 8

The future value of a dollar ________ as the interest rate increases and ________ the farther in the future an initial deposit is to be received.

Accepted Answer

A) decreases;decreases. 
B) decreases;increases. 
C) increases;increases. 
D) increases;decreases.

Question 9

The future value of $100 received today and deposited at 6 percent for four years is

Accepted Answer

A) $126. 
B) $ 79. 
C) $124. 
D) $116.

Question 10

If the compound inflation rate were greater than the compound interest rate,purchasing power would fall.

Accepted Answer

A) True 
 B)False

Exam 9: Time Value of Money

Because interest compounds,the annual percentage rate formula will overstate the true interest cost.

As the number of periods increases,present value increases.

You put $2,000 in an IRA account at Northern Trust.This account pays a fixed interest rate of 8% compounded quarterly.How much money do you have in five years?

With compound interest,interest is earned only on the investment's principal.

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

An investment will mature in 20 years.Its maturity value is $1,000.If the discount rate is 7%,what is the present value of the investment?

An amortized loan is repaid in equal payments over a specified time period.

The future value of a dollar as the interest rate increases and the farther in the future an initial deposit is to be received.

The future value of $100 received today and deposited at 6 percent for four years is

If the compound inflation rate were greater than the compound interest rate,purchasing power would fall.