Question 1

The process of figuring out how much an amount that you expect to receive in the future is worth today is called

Accepted Answer

A)  discounting. 
B)  multiplying. 
C)  compounding. 
D)  computing.

Question 2

You are scheduled to pay a $350 cash flow in one year, and receive a $1,000 cash flow in years 3 and 4. If interest rates are 10 percent per year, what is the combined present value of these cash flows?

Accepted Answer

A)  $991.38 
B)  $1,097.14 
C)  $1,116.14 
D)  $1,213.92

Question 3

What annual rate of return is earned on a $200 investment when it grows to $850 in 10 years?

Accepted Answer

A)  3.25 percent 
B)  4.25 percent 
C)  13.47 percent 
D)  15.57 percent

Question 4

What annual rate of return is earned on a $10,000 investment when it grows to $15,000 in 10 years?

Accepted Answer

A)  1.50 percent 
B)  3.97 percent 
C)  4.14 percent 
D)  5.00 percent

Question 5

You invested $1,400 in the stock market one year ago. Today the investment is valued at $1,100. What return did you earn? What return would you need to get back next year to break even overall?

Accepted Answer

A)  −14.62 percent, 31.19 percent 
B)  −9.43 percent, 31.67 percent 
C)  −21.43 percent, 27.27 percent 
D)  −29.17 percent, 32.18 percent

Question 6

You just won the lottery and after taxes you have $32,000. You want to have $1,000,000 by the time you are 65, which is 45 years from now. Assuming that you can earn 9 percent each year on your money, how much (in dollars) of the $32,000 must you invest today?

Accepted Answer

A)  $17,891.62 
B)  $18,524.91 
C)  $20,692.24 
D)  $22,943.28

Question 7

What is the value in year 15 of a $600 cash flow made in year 3 when the interest rates are 4 percent?

Accepted Answer

A)  $374.76 
B)  $888.00 
C)  $960.62 
D)  $1,080.57

Question 8

What is the future value of $600 deposited for four years earning an 11 percent interest rate annually?

Accepted Answer

A)  $792.90 
B)  $803.61 
C)  $899.23 
D)  $910.84

Question 9

Approximately what interest rate is needed to double an investment over six years?

Accepted Answer

A)  6 percent 
B)  12 percent 
C)  17 percent 
D)  100 percent

Question 10

Assume you borrow $100 from a payday lender. The terms are that you must pay a fee of $25 in advance (today) and one year from now you need to repay $112. What implied interest rate are you paying?

Accepted Answer

A)  12.00 percent 
B) 25.00 percent 
C) 49.33 percent 
D)  86.99 percent

Question 11

What is the value in year 20 of a $1,000 cash flow made in year 8 if interest rates are 15 percent in years "6 through 13" and increase to 18 percent in the remaining years?

Accepted Answer

A)  $5,779.57 
B)  $5,912.42 
C)  $6,005.71 
D)  $6,407.13

Question 12

The interest rate, i, which we use to calculate present value, is often referred to as the

Accepted Answer

A)  discount rate. 
B)  multiplier. 
C)  compound rate. 
D)  dividend.

Question 13

Time value of money concepts can be used by

Accepted Answer

A)  individuals doing personal financial planning. 
B)  CFOs and CEOs to make business decisions. 
C)  investors calculating a return on an investment. 
D)  All of these choices are correct.

Question 14

What is the present value of a $750 payment made in three years when the discount rate is 5 percent?

Accepted Answer

A)  $646.96 
B)  $647.88 
C)  $712.50 
D)  $868.22

Question 15

What is the value in year 2 of a $200 cash flow made in year 8 if interest rates are 3 percent?

Accepted Answer

A)  $132.89 
B)  $147.23 
C)  $152.91 
D)  $167.50

Question 16

What is the value in year 3 of a $500 cash flow made in year 5 when interest rates are 6 percent?

Accepted Answer

A)  $374 
B)  $420 
C)  $440 
D)  $445

Question 17

What annual rate of return is earned on a $4,000 investment made in year 2 when it grows to $8,000 by the end of year 8?

Accepted Answer

A)  9.00 percent 
B)  12.00 percent 
C)  12.25 percent 
D)  50.00 percent

Question 18

What is the present value of a $600 payment in one year when the discount rate is 8 percent?

Accepted Answer

A)  $498.61 
B)  $525.87 
C)  $555.56 
D)  $575.09

Question 19

A $400 investment has doubled to $800 in six years because of a 12.25 percent return. How much longer will it take for the investment to reach $1100 if it continues to earn 12.25 percent?

Accepted Answer

A)  2.56 years 
B)  2.76 years 
C)  3.46 years 
D) 5 years

Question 20

Determine the interest rate earned on a $200 deposit when $208 is paid back in one year.

Accepted Answer

A)  104 percent 
B)  8 percent 
C)  4 percent 
D)  2 percent

Exam 4: Time Value of Money 1: Analyzing Single Cash Flows