Question 1

Complete the equal-payments three-year amortization table. $$\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Beginning } \
\text { Principal }
\end{array} & \text { Payment } & \begin{array} { c } 
\text { Interest } \
\text { Expense }
\end{array} & \begin{array} { c } 
\text { Principal } \
\text { Reduction }
\end{array} & \begin{array} { c } 
\text { Ending } \
\text { Principal }
\end{array} \
\hline 1 & \$ 6,000.00 & & \$ 480.00 & & \$ 4,151.80 \
\hline 2 & & \$ 2,328.20 & & \$ 1,996.06 & \
\hline 3 & \$ 2,155.74 & & & & \
\hline
\end{array}$$

Accepted Answer

The answer of Complete the equal-payments three-year amortization table. \[\begin{array}...

Question 2

Your firm intends to finance the purchase of a new construction crane.The cost is $2,500,000.What is the size of the first payment if the crane is financed with an interest-only loan at an annual rate of 7.50%?

Accepted Answer

A) $187,500.00 
B) $127,500.00 
C) $3,391,475.16 
D) There is not enough information to answer this question.

Question 3

Even with an interest rate of 0.0%,the future value of a 5-year $800 annual annuity will be greater than the present value of the same annuity.

Accepted Answer

A) True 
 B)False

Question 4

Plimpton has an annuity due that pays $800 per year for 11 years.What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

Accepted Answer

A) $5,296.27 
B) $5,693.49 
C) $6,291.26 
D) $8,800.00

Question 5

Which is greater,the present value of a five-year ordinary annuity of $300 discounted at 10%,or the present value of a five-year ordinary annuity of $300 discounted at 0% that has its first cash flow six years from today?

Accepted Answer

A) The first annuity because the cash flows occur sooner. 
B) The second annuity because the cash flows are discounted at a 0% interest rate. 
C) The two annuities are of equal value. 
D) The answer to this question cannot be determined.

Question 6

It ALWAYS makes more sense financially to take the lump sum payout from winning a lottery than taking the annual cash flows.

Accepted Answer

A) True 
 B)False

Question 7

If you borrow $40,000 at an annual interest rate of 11% for seven years,what is the annual payment (prior to maturity)on a fully amortized loan?

Accepted Answer

A) $0.00 
B) $3,000.00 
C) $8,333.33 
D) $8,488.61

Question 8

Severson has an annuity due that pays $400 per year for 20 years.What is the value of the cash flows 20 years from today if they are placed in an account that earns 7.50%? Note: You are asked to find the FV one year after the last cash flow is realized.

Accepted Answer

A) $9,000.00 
B) $9,675.00 
C) $16,846.35 
D) $18,621.01

Question 9

What is the future value in year four of an ordinary annuity cash flow of $6,000 per year at an interest rate of 12.00% per year?

Accepted Answer

A) $90,154.83 
B) $93,761.02 
C) $28,675.97 
D) $32,117.08

Question 10

Your employer has agreed to place year-end deposits of $1,000,$2,000 and $3,000 into your retirement account.The $1,000 deposit will be one year from today,the $2,000 deposit two years from today,and the $3,000 deposit three years from today.If your account earns 5% per year,how much money will you have in the account at the end of year three when the last deposit is made?

Accepted Answer

A) $5,357.95 
B) $6,000 
C) $6,202.50 
D) $6,727.88

Question 11

A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________.

Accepted Answer

A) ordinary annuity 
B) annuity due 
C) perpetuity 
D) amortization

Question 12

Given a positive interest rate and a positive cash flow,an annuity due always has a greater present value than an ordinary annuity of the same size and number of cash flows.

Accepted Answer

A) True 
 B)False

Question 13

By choosing to attend college today,you have agreed to pay $17,000 per year in tuition and fees for the next five years.(What… you really thought that you would graduate in four years?)In addition to the tuition and fees,you have also given up the ability to work full time and earn $23,000 per year for the next five years.If your required rate of return is 5% (the U.S.long-run average rate of inflation plus an average real rate of return),what is the total cost in today's dollars of your college degree,assuming that all of the aforementioned cash flows are ordinary annuities?

Accepted Answer

The answer of By choosing to attend college today,you have...

Question 14

Five years ago,you paid for the right to receive twelve $25,000 annual end-of-the-year cash flows.If discounting the cash flows at an annual rate of 8%,what did you pay for these cash flows back then?

Accepted Answer

A) $474,428.16 
B) $300,000.00 
C) $128,223.20 
D) $188,401.95

Question 15

You just won the Publisher's Clearing House Sweepstakes and the right to 30 after-tax ordinary annuity cash flows of $123,291.18.Assuming a discount rate of 7.50%,what is the present value of your lottery winnings? Use a calculator to determine your answer.

Accepted Answer

A) $2,345,823.18 
B) $1,664,670.52 
C) $1,456,116.46 
D) There is not enough information to answer this question.

Question 16

A never-ending stream of equal periodic,end-of-the-period cash flows is called a/an ________.

Accepted Answer

A) annuity 
B) annuity due 
C) perpetuity 
D) amortization

Question 17

The first interest payment on a 5-year,8%,$100,000,fully-amortized loan with annual payments will be less than the last interest payment.

Accepted Answer

A) True 
 B)False

Question 18

After winning the lottery,you state that you are indifferent between receiving twenty $500,000 end-of-the-year payments (first payment one year from today),or a lump sum of $5,297,007 today.What interest rate are you using in your decision-making process such that you are indifferent between the two choices?

Accepted Answer

A) 5.00% 
B) 6.00% 
C) 7.00% 
D) 8.00%

Question 19

Your family recently won the $10,000,000 lottery and chose to accept the annual payout plan of $500,000 today plus 19 more year-end cash flows of $500,000.If you discount these cash flows at an annual rate of 8.0%,what is their present value?

Accepted Answer

The answer of Your family recently won the $10,000,000 lottery...

Question 20

If you borrow $5,000 at an annual interest rate of 9.0% for six years,what will your repayment(s)be if this is a discount loan?

Accepted Answer

The answer of If you borrow $5,000 at an annual...

Exam 4: The Time Value of Money Part 2

Your firm intends to finance the purchase of a new construction crane.The cost is $2,500,000.What is the size of the first payment if the crane is financed with an interest-only loan at an annual rate of 7.50%?

Even with an interest rate of 0.0%,the future value of a 5-year $800 annual annuity will be greater than the present value of the same annuity.

Plimpton has an annuity due that pays $800 per year for 11 years.What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

Which is greater,the present value of a five-year ordinary annuity of $300 discounted at 10%,or the present value of a five-year ordinary annuity of $300 discounted at 0% that has its first cash flow six years from today?

It ALWAYS makes more sense financially to take the lump sum payout from winning a lottery than taking the annual cash flows.

If you borrow $40,000 at an annual interest rate of 11% for seven years,what is the annual payment (prior to maturity) on a fully amortized loan?

Severson has an annuity due that pays $400 per year for 20 years.What is the value of the cash flows 20 years from today if they are placed in an account that earns 7.50%? Note: You are asked to find the FV one year after the last cash flow is realized.

What is the future value in year four of an ordinary annuity cash flow of $6,000 per year at an interest rate of 12.00% per year?

A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________.

Given a positive interest rate and a positive cash flow,an annuity due always has a greater present value than an ordinary annuity of the same size and number of cash flows.

Five years ago,you paid for the right to receive twelve $25,000 annual end-of-the-year cash flows.If discounting the cash flows at an annual rate of 8%,what did you pay for these cash flows back then?

You just won the Publisher's Clearing House Sweepstakes and the right to 30 after-tax ordinary annuity cash flows of $123,291.18.Assuming a discount rate of 7.50%,what is the present value of your lottery winnings? Use a calculator to determine your answer.

A never-ending stream of equal periodic,end-of-the-period cash flows is called a/an ________.

The first interest payment on a 5-year,8%,$100,000,fully-amortized loan with annual payments will be less than the last interest payment.

Your family recently won the $10,000,000 lottery and chose to accept the annual payout plan of $500,000 today plus 19 more year-end cash flows of $500,000.If you discount these cash flows at an annual rate of 8.0%,what is their present value?

If you borrow $5,000 at an annual interest rate of 9.0% for six years,what will your repayment(s)be if this is a discount loan?