Question 1

As long as the interest rate is positive,the future value will always be larger than the present value given any period of time.

Accepted Answer

A) True 
 B)False

Question 2

What is the future value of $10,000 on deposit for 2 years at 6% simple interest?

Accepted Answer

A)  $10,600 
B)  $11,236 
C)  $11,200 
D)  $13,382.26

Question 3

Assume the total expense for your current year in college equals $20,000.How much would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to cover this amount?

Accepted Answer

A)  $952.46 
B)  $1,600.00 
C)  $1,728.08 
D)  $3,973.11

Question 4

For a given amount,the lower the discount rate,the less the present value.

Accepted Answer

A) True 
 B)False

Question 5

Someone offers to buy your car for four,equal annual payments,beginning 2 years from today.If you think that the present value of your car is $9,000 and the interest rate is 10%,what is the minimum annual payment that you would accept?

Accepted Answer

A)  $2,839.24 
B)  $3,435.48 
C)  $3,123.16 
D)  $2,250

Question 6

Present values decline as the time to the cash flows increases.

Accepted Answer

A) True 
 B)False

Question 7

You are considering the purchase of a home that would require a mortgage of $150,000.How much more in total interest will you pay if you select a 30-year mortgage at 5.65% rather than a 15-year mortgage at 4.9%? (Round the monthly payment amount to 2 decimal places.)

Accepted Answer

A)  $86,311.18 
B)  $78,487.92 
C)  $99,595.80 
D)  $102,486.68

Question 8

A perpetuity of $5,000 per year beginning today offers a 15% return.What is its present value?

Accepted Answer

A)  $33,333.33 
B)  $37,681.16 
C)  $38,333.33 
D)  $65,217.39

Question 9

Prizes are often not "worth" as much as claimed.What is the value of a prize of $5,000,000 that is to be received in 20 equal yearly payments,with the first payment beginning today? Assume an interest rate of 7%.

Accepted Answer

A)  $2,833,898.81 
B)  $2,911,015.68 
C)  $2,609,144.14 
D)  $2,738,304.13

Question 10

Miller's Hardware plans on saving $42,000,$54,000,and $58,000 at the end of each year for the next three years,respectively.How much will the firm have saved at the end of the three years if it can earn 4.5% on its savings?

Accepted Answer

A)  $160,295.05 
B)  $158,098.15 
C)  $167,508.33 
D)  $165,212.57

Question 11

Compound interest pays interest for each time period on the original investment plus the accumulated interest.

Accepted Answer

A) True 
 B)False

Question 12

Which one of the following will increase the present value of an annuity,other things equal?

Accepted Answer

A)  Increasing the interest rate 
B)  Decreasing the interest rate 
C)  Decreasing the number of payments 
D)  Decreasing the amount of the payment

Question 13

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 14

The discount factor is used to calculate the present value of $1 received in year t.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A dollar tomorrow is worth more than a dollar today.

Accepted Answer

A) True 
 B)False

Question 17

An annuity factor represents the future value of $1 that is deposited today.

Accepted Answer

A) True 
 B)False

Question 18

You should never compare cash flows occurring at different times without first discounting them to a common date.

Accepted Answer

A) True 
 B)False

Question 19

The five-year discount factor is less than the four-year discount factor.

Accepted Answer

A) True 
 B)False

Question 20

When inflation is positive,the nominal interest rate is larger than the real rate.

Accepted Answer

A) True 
 B)False

Exam 5: The Time Value of Money

As long as the interest rate is positive,the future value will always be larger than the present value given any period of time.

What is the future value of $10,000 on deposit for 2 years at 6% simple interest?

Assume the total expense for your current year in college equals $20,000.How much would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to cover this amount?

For a given amount,the lower the discount rate,the less the present value.

Someone offers to buy your car for four,equal annual payments,beginning 2 years from today.If you think that the present value of your car is $9,000 and the interest rate is 10%,what is the minimum annual payment that you would accept?

Present values decline as the time to the cash flows increases.

You are considering the purchase of a home that would require a mortgage of $150,000.How much more in total interest will you pay if you select a 30-year mortgage at 5.65% rather than a 15-year mortgage at 4.9%? (Round the monthly payment amount to 2 decimal places.)

A perpetuity of $5,000 per year beginning today offers a 15% return.What is its present value?

Prizes are often not "worth" as much as claimed.What is the value of a prize of $5,000,000 that is to be received in 20 equal yearly payments,with the first payment beginning today? Assume an interest rate of 7%.

Miller's Hardware plans on saving $42,000,$54,000,and $58,000 at the end of each year for the next three years,respectively.How much will the firm have saved at the end of the three years if it can earn 4.5% on its savings?

Compound interest pays interest for each time period on the original investment plus the accumulated interest.

Which one of the following will increase the present value of an annuity,other things equal?

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

The discount factor is used to calculate the present value of $1 received in year t.

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

A dollar tomorrow is worth more than a dollar today.

An annuity factor represents the future value of $1 that is deposited today.

You should never compare cash flows occurring at different times without first discounting them to a common date.

The five-year discount factor is less than the four-year discount factor.

When inflation is positive,the nominal interest rate is larger than the real rate.