Question 1

If the current rate of interest is 8% APR,then the future value of an investment that pays $250 per quarter and lasts 20 years is closest to:

Accepted Answer

A) $18,519 
B) $48,443 
C) $9936 
D) $20,000

Question 2

Use the figure for the question(s)below. 
-Which of the following statements regarding the timeline is TRUE?

Accepted Answer

A) Date 1 is the beginning of the first year. 
B) Date 2 is the beginning of the second year. 
C) Date 1 is the beginning of the second year. 
D) Date 0 is the end of the first year.

Question 3

In terms of present value,how much will Joe receive for selling the family business?

Accepted Answer

The answer of In terms of present value,how much will...

Question 4

If the appropriate interest rate is 8%,then present value of $500 paid at the beginning of each of the next 40 years is closest to:

Accepted Answer

A) $23 
B) $5962 
C) $6439 
D) $20,000

Question 5

Use the table for the question(s)below.
 
-Draw a timeline detailing the cash flows from investment "A."

Accepted Answer

The answer of Use the table for the question(s)below.
 
-Draw...

Question 6

You are considering investing in a zero coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the IRR for investing in this bond is closest to:

Accepted Answer

A) 12% 
B) 8.0% 
C) 7.5% 
D) 10%

Question 7

If the current rate of interest is 8%,then the future value 20 years from now of an investment that pays $1000 per year and lasts 20 years is closest to:

Accepted Answer

A) $45,762 
B) $36,725 
C) $9818 
D) $93,219

Question 8

Which of the following statements regarding perpetuities is FALSE?

Accepted Answer

A) To find the value of a perpetuity one cash flow at a time would take forever. 
B) A perpetuity is a stream of equal cash flows that occurs at regular intervals and lasts forever. 
C) PV of a perpetuity =  
D) One example of a perpetuity is the British government bond called a consol.

Question 9

Use the figure for the question(s)below. 
-Which of the following statements regarding timelines is FALSE?

Accepted Answer

A) Timelines are an important first step in organizing and then solving a financial problem. 
B) We refer to a series of cash flows lasting several periods as a stream of cash flows. 
C) Not every stream of cash flows can be represented on a timeline. 
D) A timeline is a linear representation of the timing of the (expected)cash flows.

Question 10

You are looking for a new truck and see the following advertisement."Own a new truck! No money down.Just five easy annual payments of $8000." You know that you can get the same truck from the dealer across town for only $31,120.The interest rate for the deal advertised is closest to:

Accepted Answer

A) 9% 
B) 8% 
C) 8.5% 
D) 10%

Question 11

If the current rate of interest is 8% APR,then the present value of an investment that pays $250 per quarter and lasts 20 years is closest to:

Accepted Answer

A) $18,519 
B) $48,443 
C) $9936 
D) $20,000

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) FV =  
B) PV = 
 
C) FV =  Cn × (1 + r)n 
D) Most investment opportunities have multiple cash flows that occur at different points in time.

Question 13

The Internal Rate of return of this project is closest to:

Accepted Answer

A) 10.2% 
B) 12.2% 
C) 14.2% 
D) 16.2%

Question 14

You are considering investing in a security that will pay you $80 in interest at the end of each of the next 10 years.If this security is currently selling for $588.81,then the IRR for investing in this security is closest to:

Accepted Answer

A) 6.0% 
B) 7.0% 
C) 6.5% 
D) 5.0%

Question 15

Assume that you are 30 years old today,and that you are planning on retiring at age 65.Your current salary is $45,000 and you expect your salary to increase at a rate of 5% per year as long as you work.To save for your retirement,you plan on making annual contributions to a retirement account.Your first contribution will be made on your 31^st birthday and will be 8% of this year's salary.Likewise,you expect to deposit 8% of your salary each year until you reach age 65.At retirement (age 65)you will begin withdrawing equal annual payments to pay for your living expenses during retirement (on your 65th birthday).If you expect to die one day before your 101st birthday (Your last withdraw will be on your 100th birthday)and if the annual rate of return is 7%,then how much money will you have to spend in each of your golden years of retirement?

Accepted Answer

The answer of Assume that you are 30 years old...

Question 16

Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each.The bank has offered to allow Taggart Transcontinental to skip making the next two payments in lieu of making one large payment at the end of the loan's term in three years.If the interest rate on the loan is 6%,then the final payment that the bank will require to make Taggart Transcontinental indifferent between the two forms of payments is closest to:

Accepted Answer

A) $2,673,000 
B) $3,000,000 
C) $3,184,000 
D) $3,375,000

Question 17

Your son is about to start kindergarten in a private school.Currently,the tuition is $12,000 per year,payable at the start of the school year.You expect annual tuition increases to average 6% per year over the next 13 years.Assuming that your son remains in this private school through high school and that your current interest rate is 6%,then the present value of your son's private school education is closest to:

Accepted Answer

A) $106,230 
B) $156,000 
C) $137,900 
D) This problem cannot be solved.

Question 18

The ranking of the four alternatives from most valuable to least valuable if the interest rate is 6% per year would be:

Accepted Answer

A) 1,2,3,4 
B) 1,3,2,4 
C) 4,3,1,2 
D) 3,4,2,1

Question 19

Which of the following statements is FALSE?

Accepted Answer

A) The process of moving a value or cash flow forward in time is known as compounding. 
B) The effect of earning interest on interest is known as compound interest. 
C) It is only possible to compare or combine values at the same point in time. 
D) A dollar in the future is worth more than a dollar today.

Question 20

Dagny Taggart is a graduating college senior and she is considering the costs of going to medical school.Beginning next fall,Dagny expects medical school tuition to run $45,000 for the first year and she estimates that tuition will increase by 6% each year.If Dagny is able to invest her money in an account paying 8% interest per year,then the present value to Dagny of four years of medical school tuition is closest to:

Accepted Answer

A) $149,045 
B) $155,930 
C) $162,095 
D) $180,000

Exam 4: The Time Value of Money

If the current rate of interest is 8% APR,then the future value of an investment that pays $250 per quarter and lasts 20 years is closest to:

Use the figure for the question(s) below. -Which of the following statements regarding the timeline is TRUE?

In terms of present value,how much will Joe receive for selling the family business?

If the appropriate interest rate is 8%,then present value of $500 paid at the beginning of each of the next 40 years is closest to:

Use the table for the question(s)below. -Draw a timeline detailing the cash flows from investment "A."

You are considering investing in a zero coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the IRR for investing in this bond is closest to:

If the current rate of interest is 8%,then the future value 20 years from now of an investment that pays $1000 per year and lasts 20 years is closest to:

Which of the following statements regarding perpetuities is FALSE?

Use the figure for the question(s) below. -Which of the following statements regarding timelines is FALSE?

You are looking for a new truck and see the following advertisement."Own a new truck! No money down.Just five easy annual payments of $8000." You know that you can get the same truck from the dealer across town for only $31,120.The interest rate for the deal advertised is closest to:

If the current rate of interest is 8% APR,then the present value of an investment that pays $250 per quarter and lasts 20 years is closest to:

Which of the following statements is FALSE?

The Internal Rate of return of this project is closest to:

You are considering investing in a security that will pay you $80 in interest at the end of each of the next 10 years.If this security is currently selling for $588.81,then the IRR for investing in this security is closest to:

The ranking of the four alternatives from most valuable to least valuable if the interest rate is 6% per year would be:

Which of the following statements is FALSE?