Question 1

What will your investment be worth in 10 years if you invest $15 000 at 12.5% p.a. ,payable at maturity,and your tax rate (paid annually)is 30 cents in the dollar?

Accepted Answer

A)  $34 097
B)  $48 710
C)  $32 473
D)  $34 704 D

Question 2

Calculate the effective annual interest rate corresponding to 12% p.a. ,compounded quarterly.

Accepted Answer

A)  11.9%
B)  12.55%
C)  12.45%
D)  12.71% B

Question 3

Joe has to pay $50 000 in 1.5 years' time.If the interest rate is 15% p.a. ,compounded continuously,how much does she owe in present value terms?

Accepted Answer

A)  $46 387
B)  $49 077
C)  $39 926
D)  $37 041 C

Question 4

Calculate the present value of the following cash flows assuming they occur at the end of each year and the interest rate is 12% p.a.:
Year 0,($12 000);Year 1,$5670;Year 2,$11 250.

Accepted Answer

A)  $2030.93
B)  $26 030.93
C)  $28 920
D)  ($1163.19)

Question 5

A method of calculating interest in which,during the entire term of the loan,interest is computed on the original sum borrowed is the:

Accepted Answer

A)  present value method.
B)  simple interest method.
C)  compound interest method.
D)  interest rate method.

Question 6

If expected inflation over the next year is 2%,and CBank requires a real rate of return of 4% per annum on housing loans,what is the nominal rate of return that CBank will charge on home loans?

Accepted Answer

The answer of If expected inflation over the next year...

Question 7

Calculate the average annual rate of return on an investment of $1000 that accumulates to $2005 in five years' time.

Accepted Answer

A)  14.93%
B)  8.8%
C)  100.5%
D)  17.63%

Question 8

A lender offers a nominal interest rate on a loan of 6% p.a.compounding quarterly.This corresponds to an effective interest rate of 6.136%.

Accepted Answer

A) True 
 B)False

Question 9

John has just been employed by a prestigious firm,drawing an annual salary of $300 000,paid at the end of each year.He plans to work for five years before retiring.He buys a new luxury home with mortgage repayments of $5000 per month for the next 20 years (payable at the end of each month),and donates $10 000 per annum forever to his favourite charity.What annual amount,in present value terms,can John withdraw for the first five years of his retirement from the remainder of his savings? Assume an annual interest rate of 6% p.a.

Accepted Answer

A)  $93 926
B)  $246 819
C)  $94 754
D)  $112 754

Question 10

If you have a choice to earn simple interest on $20 000 for three years at 9% or annually compounding interest at 8.5% for three years which one will pay more interest and by how much?

Accepted Answer

A)  Simple interest by $50.00
B)  Compound interest by $122.97
C)  Compound interest by $145.78
D)  Simple interest by $150.00

Question 11

The annuity where the cash flows continue forever is called a ________.

Accepted Answer

The answer of The annuity where the cash flows continue...

Question 12

The value,as at the date of the final cash flow promised in a financial contract,that is equivalent to the stream of promised cash flows is the:

Accepted Answer

A)  present value of a contract.
B)  future value of a contract.
C)  terminal value of a contract.
D)  discounted value of a contract.

Question 13

If a term deposit paid an interest rate of 24% p.a.over the past six months,and the current balance is $1008,what was the amount initially invested?

Accepted Answer

A)  $812.90
B)  $681.08
C)  $900.00
D)  $975.00

Question 14

What is the effective annual interest rate corresponding to a nominal interest rate of 10% p.a. ,compounding continuously?

Accepted Answer

A)  10.5%
B)  10.9%
C)  12.5%
D)  13%

Question 15

What is the difference between daily and monthly compounding for a nominal interest rate of 7% per annum?

Accepted Answer

A)  0.06%
B)  0.04%
C)  0.02%
D)  0.01%

Question 16

Debt Ltd borrowed $100 000 from its local bank to finance the purchase of new equipment.Annual payments are required over five years at a fixed interest rate of 10% p.a.How much is each annual payment?

Accepted Answer

A)  $27 398.18
B)  $20 000.00
C)  $26 379.75
D)  $24 444.12

Question 17

Your parents give you $120 per week for living expenses while you are doing a three-year degree in finance.If the interest rate is 6.5% per annum,what is this cash flow worth when you start your degree?

Accepted Answer

A)  $15 125
B)  $16 998
C)  $26 026
D)  $27 330

Question 18

You are planning a six month around-the-world trip in 2 years' time.You estimate that you will need $30 000 to pay for the trip.To accumulate this future amount you plan to deposit an equal amount in the bank each month,which will earn 9% nominal interest per annum compounded monthly.Your first payment will be made at the end of the first month.
a.How much must you deposit each month to accumulate the $30 000?
b.What is the effective annual rate of interest that corresponds to this nominal rate?
c.If you could instead make a lump sum payment today instead of monthly payments,how much would this sum have to be to reach $30 000 in two years if it earns a nominal 9% per annum compounded monthly?

Accepted Answer

The answer of You are planning a six month around-the-world...

Question 19

What is the present value of the following cash flow stream,discounted at 7% p.a.: Year 1,$100;Year 2,$400;Years 3 through 20,$300?

Accepted Answer

A)  $2859.20
B)  $3563.40
C)  $3078.63
D)  $2782.40

Question 20

A principle-and-interest loan is a common example of an __________ annuity.

Accepted Answer

The answer of A principle-and-interest loan is a common example...

Exam 3: The Time Value of Money: An Introduction to Financial Mathematics

What will your investment be worth in 10 years if you invest $15 000 at 12.5% p.a. ,payable at maturity,and your tax rate (paid annually) is 30 cents in the dollar?