Question 1

An investor expects to receive 10 payments of $5,000 each made at the end of each period. If interest is compounded at 5% annually, what is the future value of these payments?

Accepted Answer

A) $3,069.55 
B) $7,387.30 
C) $38,608.65 
D) $62,889.45

Question 2

Tom liquidates an investment, and his proceeds will be received in 8 annual payments of $10,000 each with interest computed at 7%. What is the Present Value of this Annuity?

Accepted Answer

A) $89,228.00 
B) $59,713.00 
C) $17,181.90 
D) $5,820.10

Question 3

The present value of an annuity is the discounted future value of cash flows made at regular intervals.

Accepted Answer

A) True 
 B)False

Question 4

Chris Hines invested $12,000 in a municipal bond. The bond pays 8% interest and matures in 3 years. How much money will Chris have at maturity?

Accepted Answer

A) $22,211,16 
B) $15,116.52 
C) $36,960.00 
D) $38,596.80

Question 5

Jay has made a deal with his daughter to start a car fund for when she graduates college in 6 years. He has found an investment that will yield an interest rate of 8% per year. If he wants to have $25,000 to spend on the car for his daughter, how much must he initially invest?

Accepted Answer

A) $15,754.28 
B) $16,113.45 
C) $13,772.55 
D) $14,038.95

Question 6

Compound interest is computed on which of the following?

Accepted Answer

A) Only the original amount. 
B) The original amount and any undistributed interest earned in prior periods. 
C) The original amount and any distributed or undistributed interest earned in prior periods. 
D) Only the distributed and undistributed interest earned in prior periods.

Question 7

When determining the future value of an annuity, cash flows are presumed to occur

Accepted Answer

A) at the start of the first period. 
B) at the end of the first period. 
C) when the interest is received. 
D) at the maturity date.

Exam 14: Time Value of Money