Question 1

A furniture store is offering free credit on purchases over $1,000.You observe that a big-screen television can be purchased for nothing down and $4,000 due in one year.The store next door offers an identical television for $3,650 but does not offer credit terms.Which statement below best describes the cost of the "free" credit?

Accepted Answer

A)  8.75% 
B)  9.13% 
C)  9.59% 
D)  0%

Question 2

What is the discount factor for $1 to be received in 5 years at a discount rate of 8%?

Accepted Answer

A)  .4693 
B)  .5500 
C)  .6000 
D)  .6806

Question 3

Three thousand dollars is deposited into an account paying 10% annually to provide three annual withdrawals of $1,206.34 beginning in one year.How much remains in the account after the second payment has been withdrawn?

Accepted Answer

A)  $1,326.97 
B)  $1,206.34 
C)  $1,096.69 
D)  $587.32

Question 4

How much interest is earned in just the third year on a $1,000 deposit that earns 7% interest compounded annually?

Accepted Answer

A)  $70.00 
B)  $80.14 
C)  $105.62 
D)  $140.00

Question 5

The more frequent the compounding,the higher the future value,other things equal.

Accepted Answer

A) True 
 B)False

Question 6

Would a depositor prefer an APR of 8% with monthly compounding or an APR of 8.5% with semiannual compounding?

Accepted Answer

A)  8.0% with monthly compounding 
B)  8.5% with semiannual compounding 
C)  The depositor would be indifferent. 
D)  The time period must be known to select the preferred account.

Question 7

Comparing the values of undiscounted cash flows is analogous to comparing apples to oranges.

Accepted Answer

A) True 
 B)False

Question 8

The present value of an annuity due equals the present value of an ordinary annuity times the discount rate.

Accepted Answer

A) True 
 B)False

Question 9

What will be the approximate population of the Canada,if its current population of 35 million grows at a compound rate of 2% annually for 25 years?

Accepted Answer

A)  51 million 
B)  53 million 
C)  61million 
D)  57 million

Question 10

To calculate present value,we discount the future value by some interest rate r,the discount rate.

Accepted Answer

A) True 
 B)False

Question 11

When money is invested at compound interest,the growth rate is the interest rate.

Accepted Answer

A) True 
 B)False

Question 12

Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year.The annual interest rate is 12% and payments begin in one month.What is the present value of this 2-year loan?

Accepted Answer

A)  $6,246.34 
B)  $6,389.78 
C)  $6,428.57 
D)  $6,753.05

Question 13

You invested $1,200 three years ago.During the three years,you earned annual rates of return of 4.8%,9.2%,and 11.6%.What is the value of this investment today?

Accepted Answer

A)  $1,498.08 
B)  $1,512.11 
C)  $1,532.60 
D)  $1,549.19

Question 14

The present value of a perpetuity can be determined by:

Accepted Answer

A)  multiplying the payment by the interest rate. 
B)  dividing the interest rate by the payment. 
C)  multiplying the payment by the number of payments to be made. 
D)  dividing the payment by the interest rate.

Question 15

The term "constant dollars" refers to equal payments for amortizing a loan.

Accepted Answer

A) True 
 B)False

Question 16

What is the present value of your trust fund if you have projected that it will provide you with $50,000 on your 30th birthday (7 years from today)and it earns 10% compounded annually?

Accepted Answer

A)  $25,000.00 
B)  $25,657.91 
C)  $28,223.70 
D)  $29,411.76

Question 17

Assume you are making $989 monthly payments on your amortized mortgage.The amount of each payment that is applied to the principal balance:

Accepted Answer

A)  decreases with each succeeding payment. 
B)  increases with each succeeding payment. 
C)  is constant throughout the loan term. 
D)  fluctuates monthly with changes in market interest rates.

Question 18

What is the annually compounded rate of interest on an account with an APR of 10% and monthly compounding?

Accepted Answer

A)  10.00% 
B)  10.47% 
C)  10.52% 
D)  11.05%

Question 19

After reading the fine print in your credit card agreement,you find that the "low" interest rate is actually an 18% APR,or 1.5% per month.What is the effective annual rate?

Accepted Answer

A)  18.47% 
B)  19.56% 
C)  18.82% 
D)  19.41%

Question 20

A car dealer offers payments of $522.59 per month for 48 months on a $25,000 car after making a $4,000 down payment.What is the loan's APR?

Accepted Answer

A)  6% 
B)  9% 
C)  11% 
D)  12%

Exam 5: The Time Value of Money

What is the discount factor for $1 to be received in 5 years at a discount rate of 8%?

Three thousand dollars is deposited into an account paying 10% annually to provide three annual withdrawals of $1,206.34 beginning in one year.How much remains in the account after the second payment has been withdrawn?

How much interest is earned in just the third year on a $1,000 deposit that earns 7% interest compounded annually?

The more frequent the compounding,the higher the future value,other things equal.

Would a depositor prefer an APR of 8% with monthly compounding or an APR of 8.5% with semiannual compounding?

Comparing the values of undiscounted cash flows is analogous to comparing apples to oranges.

The present value of an annuity due equals the present value of an ordinary annuity times the discount rate.

What will be the approximate population of the Canada,if its current population of 35 million grows at a compound rate of 2% annually for 25 years?

To calculate present value,we discount the future value by some interest rate r,the discount rate.

When money is invested at compound interest,the growth rate is the interest rate.

Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year.The annual interest rate is 12% and payments begin in one month.What is the present value of this 2-year loan?

You invested $1,200 three years ago.During the three years,you earned annual rates of return of 4.8%,9.2%,and 11.6%.What is the value of this investment today?

The present value of a perpetuity can be determined by:

The term "constant dollars" refers to equal payments for amortizing a loan.

What is the present value of your trust fund if you have projected that it will provide you with $50,000 on your 30^th birthday (7 years from today) and it earns 10% compounded annually?

Assume you are making $989 monthly payments on your amortized mortgage.The amount of each payment that is applied to the principal balance:

What is the annually compounded rate of interest on an account with an APR of 10% and monthly compounding?

After reading the fine print in your credit card agreement,you find that the "low" interest rate is actually an 18% APR,or 1.5% per month.What is the effective annual rate?

A car dealer offers payments of $522.59 per month for 48 months on a $25,000 car after making a $4,000 down payment.What is the loan's APR?

Exam 5: The Time Value of Money

What is the discount factor for $1 to be received in 5 years at a discount rate of 8%?

Three thousand dollars is deposited into an account paying 10% annually to provide three annual withdrawals of $1,206.34 beginning in one year.How much remains in the account after the second payment has been withdrawn?

How much interest is earned in just the third year on a $1,000 deposit that earns 7% interest compounded annually?

The more frequent the compounding,the higher the future value,other things equal.

Would a depositor prefer an APR of 8% with monthly compounding or an APR of 8.5% with semiannual compounding?

Comparing the values of undiscounted cash flows is analogous to comparing apples to oranges.

The present value of an annuity due equals the present value of an ordinary annuity times the discount rate.

What will be the approximate population of the Canada,if its current population of 35 million grows at a compound rate of 2% annually for 25 years?

To calculate present value,we discount the future value by some interest rate r,the discount rate.

When money is invested at compound interest,the growth rate is the interest rate.

Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year.The annual interest rate is 12% and payments begin in one month.What is the present value of this 2-year loan?

You invested $1,200 three years ago.During the three years,you earned annual rates of return of 4.8%,9.2%,and 11.6%.What is the value of this investment today?

The present value of a perpetuity can be determined by:

The term "constant dollars" refers to equal payments for amortizing a loan.

What is the present value of your trust fund if you have projected that it will provide you with $50,000 on your 30th birthday (7 years from today) and it earns 10% compounded annually?

Assume you are making $989 monthly payments on your amortized mortgage.The amount of each payment that is applied to the principal balance:

What is the annually compounded rate of interest on an account with an APR of 10% and monthly compounding?

After reading the fine print in your credit card agreement,you find that the "low" interest rate is actually an 18% APR,or 1.5% per month.What is the effective annual rate?

A car dealer offers payments of $522.59 per month for 48 months on a $25,000 car after making a $4,000 down payment.What is the loan's APR?

What is the present value of your trust fund if you have projected that it will provide you with $50,000 on your 30^th birthday (7 years from today) and it earns 10% compounded annually?