Question 1

A firm's net income last year was $2.65 million.Its net income grew 8 percent during the last 5 years.If that growth rate continues,how long will it take for the firm's net income to double?

Accepted Answer

A) 6.6 years 
B) 7.1 years 
C) 8.2 years 
D) 9 years

Question 2

Present Value What is the present value of a $500 payment made in 4 years when the discount rate is 8 percent?

Accepted Answer

A) $365.35 
B) $367.51 
C) $460.00 
D) $680.24

Question 3

An average home in Chicago costs $295,000.If house prices are expected to grow at an average rate of 3 percent per year,what will a house cost in 5 years?

Accepted Answer

A) $328,995.61 
B) $338,941.27 
C) $341,985.85 
D) $347,028.19

Question 4

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 5

You deposit $20,000 in an account that doubles in 7 years.How many years will it take the account to double again if it earns 14 percent per year?

Accepted Answer

A) 4.92 years 
B) 5.29 years 
C) 6.62 years 
D) 8.22 years

Question 6

You invested $2,000 in the stock market one year ago.Today,the investment is valued at $9,500.What return did you earn? What return would you need to suffer next year for your investment to be valued at the original $2,000?

Accepted Answer

A) -78.95 percent; 0 percent 
B) 375 percent; -78.95 percent 
C) 250 percent; -51.8 percent 
D) -78.95 percent; 100 percent

Question 7

You have $100,000 in your account.Assuming no additional deposits are made and your account earns 15 percent per year,how long will it take for the account to have a balance of $500,000?

Accepted Answer

A) 10.28 years 
B) 11.09 years 
C) 11.52 years 
D) 12.64 years

Question 8

Which of the following would you prefer?

Accepted Answer

A) $400 to be received in nine years when rates are 8 percent 
B) $210 today 
C) $500 to be received in 12 years when rates are 8 percent 
D) $500 to be received in 12 years when rates are 9 percent

Question 9

As the production manager of HPG,Inc.,you have received an offer from the supplier who provides the wires used in headsets.Due to poor planning,the supplier has an excess amount of wire and is willing to sell $750,000 worth for only $600,000.You already have one year's supply of wire on hand.This new wire would be used one year from today.What implied interest rate would your firm be earning if you purchased the wire?

Accepted Answer

A) -20 percent 
B) 13.5 percent 
C) 21 percent 
D) 25 percent

Question 10

Solving for Rates You invested $5,000 in the stock market one year ago.Today,the investment is valued at $5,500.What return did you earn? What return would you suffer next year for your investment to be valued at the original $5,000?

Accepted Answer

A) 10 percent, -9.09 percent, respectively 
B) -10 percent, +9.09 percent, respectively 
C) 110 percent, -10 percent, respectively 
D) 110 percent, -9.09 percent, respectively

Question 11

Solving for Time How many years will it take $100 to grow to $1,000 with an annual interest rate of 8 percent?

Accepted Answer

A) 9.00 years 
B) 10.00 years 
C) 29.92 years 
D) 33.35 years

Question 12

What is the value in year 4 of a $9,000 cash flow made in year 13 if interest rates are 7 percent in years 4 through 9 and increase to 11 percent after that?

Accepted Answer

A) $4,226.99 
B) $4,472.06 
C) $4,698.17 
D) $4,716.52

Question 13

Solving for Time How long will it take $4,000 to reach $4,500 when it grows at 8 percent per year?

Accepted Answer

A) 1.12 years 
B) 1.48 years 
C) 1.53 years 
D) 9.00 years

Question 14

How many years (and months)will it take $1 million to grow to $3 million with an annual interest rate of 7.5 percent?

Accepted Answer

A) 15 years and 2.29 month 
B) 17 years and 5.6 months 
C) 18 years and 3.8 months 
D) 19 years and 2.4 months

Question 15

Solving for Time How many years will it take $1 million to grow to $3 million with an annual interest rate of 7 percent?

Accepted Answer

A) 10.29 years 
B) 14.52 years 
C) 16.24 years 
D) 33.33 years

Question 16

Solving for Rates What annual rate of return is earned on a $900 investment when it grows to $2,500 in 15 years?

Accepted Answer

A) 1.78 percent 
B) 2.78 percent 
C) 6.58 percent 
D) 7.05 percent

Question 17

You want to retire in 40 years and you have $40,000 saved in your retirement account.You believe you will need $1,500,000 upon retirement.What rate will you need to earn on the account to achieve this goal?

Accepted Answer

A) 6.75 percent 
B) 7.48 percent 
C) 9.13 percent 
D) 9.48 percent

Question 18

What is the value in year 6 of a $9,000 cash flow made in year 14 if interest rates are 7 percent in years 4 through 9 and increase to 10 percent after that?

Accepted Answer

A) $4,252.19 
B) $4,417.46 
C) $4,561.71 
D) $4,5798.53

Question 19

Show the time line for a $300 cash outlay today,a $483.15 inflow in year 5,and a 10 percent interest rate.

Accepted Answer

The answer of Show the time line for a $300...

Question 20

Solving for Rates You invested $1,000 in the stock market one year ago.Today,the investment is valued at $750.What return did you earn? What return would you need to get next year to break even overall?

Accepted Answer

A) -112.5 percent, +75 percent, respectively 
B) -75 percent, +112.5 percent, respectively 
C) -33.33 percent, +25 percent, respectively 
D) -25 percent, +33.33 percent, respectively

Exam 4: Time Value of Money