Question 1

The method of calculating interest on a loan that is set by law is called the:

Accepted Answer

A) negotiated legal rate (NLR) 
B) effective annual rate (EAR) 
C) annual percentage rate (APR) 
D) none of the above

Question 2

You need to have $35,000 on hand to buy a new Lexus five years from today.To achieve that goal, you want to know how much you must invest today in a certificate of deposit guaranteed to return you 93% per year.To help determine what how much today investment is sum must betoday, you will use:

Accepted Answer

A) present value factors 
B) future annuity value factors 
C) present value factors of an annuity 
D) future value factors of an annuity

Question 3

Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%.How much will Daniel have on deposit at the end of the 15 years?

Accepted Answer

A) $39,981 
B) $46,753 
C) $49,002 
D) $50,258

Question 4

As the number of periods increases, present value increases.

Accepted Answer

A) True 
 B)False

Question 5

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as:

Accepted Answer

A) an ordinary annuity 
B) a deferred annuity 
C) an annuity due 
D) an extraordinary annuity

Question 6

If the present-value interest factor for i percent and n periods is 0.270, the future-value interest factor for the same i and n is

Accepted Answer

A) 0.730. 
B) 3.797. 
C) 3.704. 
D) cannot be determined.

Question 7

Cecilia bought 100 shares of Minnesota Mining and Manufacturing in June, 1987 for $38 a share for a total investment of $3,800.She sold the shares in June, 1996 for $8,960.What is Cecilia's annual rate of return on her investment?

Accepted Answer

A) 10% 
B) 10.6% 
C) 11% 
D) 11.2%

Question 8

The effective annual rate is determined by multiplying the interest rate charged per period by the number of periods in a year.

Accepted Answer

A) True 
 B)False

Question 9

How much would you be willing to pay for a preferred stock that pays $6.50 to perpetuity if the appropriate discount rate is 9%?

Accepted Answer

A) $65.00 
B) $72.22 
C) $81.25 
D) $722.20

Question 10

In 1976, the average price of a domestic car was $5,100.Twenty years later, in 1996, the average price was $16,600.What was the annual growth rate in the car price over the 20-year period?

Accepted Answer

A) 5% 
B) 6% 
C) 7% 
D) 8%

Question 11

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate.

Accepted Answer

A) 	effective. 
B) 	stated. 
C) 	discounted. 
D) 	continuous.

Question 12

The annual percentage rate (APR) overstates the true or effective interest cost.

Accepted Answer

A) True 
 B)False

Question 13

For the same annual percentage rate, more frequent compounding increases the future value of an investor's funds more quickly.

Accepted Answer

A) True 
 B)False

Question 14

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

Accepted Answer

A) $26,210 
B) $27,258 
C) $3,950 
D) none of the above

Question 15

Tom Vu deposited $5,000 in a savings account that paid 8% interest compounded quarterly.What is the effective rate of interest?

Accepted Answer

A) 8.00% 
B) 8.24% 
C) 8.33% 
D) 8.46%

Question 16

The future value of an ordinary annuity of $5,000 invested at 8% in 5 years would result in a value of:

Accepted Answer

A) $25,000 
B) $7,345 
C) $29,335 
D) none of the above

Question 17

The effective annual rate (EAR) is sometimes called the annual effective yield.

Accepted Answer

A) True 
 B)False

Question 18

If the stated or nominal interest rate is 10 percent and the inflation rate is 5 percent, the net or differential compounding rate would be ________ percent

Accepted Answer

A) ten 
B) five 
C) two 
D) fifteen

Question 19

The time value concept/calculation used in amortizing a loan is

Accepted Answer

A) future value of a dollar 
B) future value of an annuity 
C) present value of a dollar 
D) present value of an annuity

Question 20

Your current bank is paying 6.25% simple interest rate.You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually.To maximize your return you would choose:

Accepted Answer

A) your current bank 
B) Harris Bank 
C) First Chicago bank 
D) you are indifferent, because the effective interest rate for all three banks is the same

Exam 9: Time Value of Money

The method of calculating interest on a loan that is set by law is called the:

You need to have $35,000 on hand to buy a new Lexus five years from today.To achieve that goal, you want to know how much you must invest today in a certificate of deposit guaranteed to return you 93% per year.To help determine what how much today investment is sum must betoday, you will use:

Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%.How much will Daniel have on deposit at the end of the 15 years?

As the number of periods increases, present value increases.

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as:

If the present-value interest factor for i percent and n periods is 0.270, the future-value interest factor for the same i and n is

Cecilia bought 100 shares of Minnesota Mining and Manufacturing in June, 1987 for $38 a share for a total investment of $3,800.She sold the shares in June, 1996 for $8,960.What is Cecilia's annual rate of return on her investment?

The effective annual rate is determined by multiplying the interest rate charged per period by the number of periods in a year.

How much would you be willing to pay for a preferred stock that pays $6.50 to perpetuity if the appropriate discount rate is 9%?

In 1976, the average price of a domestic car was $5,100.Twenty years later, in 1996, the average price was $16,600.What was the annual growth rate in the car price over the 20-year period?

The rate of interest actually paid or earned, also called the annual percentage rate (APR) , is the ________ interest rate.

The annual percentage rate (APR) overstates the true or effective interest cost.

For the same annual percentage rate, more frequent compounding increases the future value of an investor's funds more quickly.

The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be:

Tom Vu deposited $5,000 in a savings account that paid 8% interest compounded quarterly.What is the effective rate of interest?

The future value of an ordinary annuity of $5,000 invested at 8% in 5 years would result in a value of:

The effective annual rate (EAR) is sometimes called the annual effective yield.

If the stated or nominal interest rate is 10 percent and the inflation rate is 5 percent, the net or differential compounding rate would be ________ percent

The time value concept/calculation used in amortizing a loan is

Your current bank is paying 6.25% simple interest rate.You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually.To maximize your return you would choose: