Question 1

Suppose you receive $3,000 a year in years one through four, $4,000 a year in years five through nine, and $2,000 in year 10, with all the money to be received at the end of the year.If your discount rate is 12%, what is the present value of these cash flows?

Accepted Answer

A) 18,926.12 
B) 19,560.80 
C) 20,651.24 
D) 24,175.00

Question 2

If you have an account with a 21.5% annual percentage rate where interest is compounded quarterly, what is the effective annual rate of interest?

Accepted Answer

A) 23.75% 
B) 23.3% 
C) 21.5% 
D) none of the above

Question 3

The return provided by a $100 annuity deposited for 10 years that results in a future value of $614.46 is -11.45%.
Foolish question as r < 0

Accepted Answer

A) True 
 B)False

Question 4

At very low interest rates, the "Rule of 72" does not approximate the compounding process well.

Accepted Answer

A) True 
 B)False

Question 5

Stephen Spielberg would like to send his parents on a cruise for their 25th wedding anniversary.He has pricedexpects the cruise at will cost $15,000 and he has 5 years to accumulate this money.How much must Stephen deposit annually in an account paying 10 percent interest in order to have enough money to send his parents on the cruise?

Accepted Answer

A) $1,862 
B) $2,457 
C) $3,000 
D) $2,234

Question 6

If the APR is 12% and interest is compounded monthly, then the EAR is:

Accepted Answer

A) 12.00% 
B) 1.00% 
C) 12.68%% 
D) none of the above

Question 7

The present value of a $20,000 perpetuity at a 7 percent discount rate is

Accepted Answer

A) $186,915. 
B) $285,714. 
C) $140,000. 
D) $325,000.

Question 8

Ken purchases a perpetual investment that pays $90 per year indefinitely, beginning one year from today.What is price of the investment if the current discount rate is 7.6%?

Accepted Answer

A) $1,000 
B) $4,126.45 
C) $1,150.66 
D) $1,184.21

Question 9

What would be the future value of a loan CD of $1,000 for two years if the bank offered a 10% interest rate compounded semiannually?

Accepted Answer

A) $1,720 
B) $1,960 
C) $1,200 
D) $1,216

Question 10

Your college has agreed to give you a $10,000 tuition loan.As part of the agreement, you must repay $12,600 at the end of the three-year period.What interest rate is the college charging?

Accepted Answer

A) 8% 
B) 9% 
C) 11% 
D) 6%

Question 11

The annual rate of return is often referred to as the

Accepted Answer

A) discount rate. 
B) opportunity cost. 
C) cost of capital. Not in the chapter 
D) all of the above.

Question 12

For positive interest rates, the future value interest factor is

Accepted Answer

A) always greater than 1.0. 
B) sometimes negative. 
C) always less than 0. 
D) never greater than 25.

Question 13

You put $2,000 in an IRA account at Northern Trust.This account pays a fixed interest rate of 8% compounded quarterly.How much money do you have in five years?

Accepted Answer

A) $2,914 
B) $2,938 
C) $2,972 
D) $2,999

Question 14

Joseph has just accepted a job as a stockbroker.He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3.What is tThe present value of these cash flows, if they are discounted at 4%, is closest to?

Accepted Answer

A) $79,452.30 
B) $80,294.50 
C) $81,517.10 
D) $88,000

Question 15

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

Accepted Answer

A) True 
 B)False

Question 16

In 1983, the average tuition for one year in the MBA program at a university was $3,600. Thirty years later, in 2013, the average tuition was $27,400. What is the compound annual growth rate in tuition (rounded to the nearest whole percentage) over the 30-year period?

Accepted Answer

A) 6% 
B) 7% 
C) 8% 
D) 10%

Question 17

As the interest rate increases, present value decreases.

Accepted Answer

A) True 
 B)False

Exam 9: Time Value of Money

Suppose you receive $3,000 a year in years one through four, $4,000 a year in years five through nine, and $2,000 in year 10, with all the money to be received at the end of the year.If your discount rate is 12%, what is the present value of these cash flows?

If you have an account with a 21.5% annual percentage rate where interest is compounded quarterly, what is the effective annual rate of interest?

The return provided by a $100 annuity deposited for 10 years that results in a future value of $614.46 is -11.45%. Foolish question as r < 0

At very low interest rates, the "Rule of 72" does not approximate the compounding process well.

If the APR is 12% and interest is compounded monthly, then the EAR is:

The present value of a $20,000 perpetuity at a 7 percent discount rate is

Ken purchases a perpetual investment that pays $90 per year indefinitely, beginning one year from today.What is price of the investment if the current discount rate is 7.6%?

What would be the future value of a loan CD of $1,000 for two years if the bank offered a 10% interest rate compounded semiannually?

Your college has agreed to give you a $10,000 tuition loan.As part of the agreement, you must repay $12,600 at the end of the three-year period.What interest rate is the college charging?

The annual rate of return is often referred to as the

For positive interest rates, the future value interest factor is

You put $2,000 in an IRA account at Northern Trust.This account pays a fixed interest rate of 8% compounded quarterly.How much money do you have in five years?

Joseph has just accepted a job as a stockbroker.He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3.What is tThe present value of these cash flows, if they are discounted at 4%, is closest to?

The Rule of 72 is an estimate of how long it would take to double a sum of money at a given interest rate.

In 1983, the average tuition for one year in the MBA program at a university was $3,600. Thirty years later, in 2013, the average tuition was $27,400. What is the compound annual growth rate in tuition (rounded to the nearest whole percentage) over the 30-year period?

As the interest rate increases, present value decreases.