Question 1

The present value factor (PVF) and the future value factor (FVF) are related:

Accepted Answer

A)  exponentially. 
B)  arithmetically. 
C)  as reciprocals. 
D)  as compliments.

Question 2

A perpetuity has a cash flow of $18.75 and a discount rate of 6%. What is the value of the perpetuity?

Accepted Answer

A)  $318.00 
B)  $187.50 
C)  $66.67 
D)  None of the above

Question 3

Your grandparents put $1,000 into a savings account for you when you were born 20 years ago. This account has been earning interest at a compound rate of 7 percent. What is its value today?

Accepted Answer

A)  $3,870 
B)  $1,967 
C)  $3,026 
D)  $3,583

Question 4

A cash flow projected tomorrow for a specific period of time is a:

Accepted Answer

A)  present value of a single sum. 
B)  future value of a single sum. 
C)  present value of an annuity. 
D)  future value of an annuity.

Question 5

If a series of equal payments is received regularly at the end of the year, and each is deposited immediately at the same interest rate, the ____ is the sum of all the payments and all the interest earned at the end of the series.

Accepted Answer

A)  future value of an annuity due 
B)  present value of an annuity due 
C)  future value of an ordinary annuity 
D)  present value of an ordinary annuity 
E)  none of the above

Question 6

Assume that you have just won $5,000,000 in the lottery and will receive $250,000 per year for the next 20 years. How much is your prize worth today if the interest rate is 8%?

Accepted Answer

A)  $1,072,731 
B)  $2,454,525 
C)  $2,185,219 
D)  $1,165,250

Question 7

A sum of money promised you at a time in the future is worth only as much as you would have to put in a bank today to have that sum available at that point in time.

Accepted Answer

A) True 
 B)False

Question 8

If $10,000 is received and deposited at 10% at the end of each of the next six years, how much will be in the account after the last payment is deposited?

Accepted Answer

A)  $96,000 
B)  $77,156 
C)  $43,553 
D)  $87,355

Question 9

If a series of equal payments is paid regularly out of a bank account which earns a constant rate of interest, the ____ is the amount that must be in the bank at the beginning of the series to just fund all of the payments.

Accepted Answer

A)  future value of an annuity due 
B)  present value of an annuity due 
C)  future value of an ordinary annuity 
D)  present value of an ordinary annuity 
E)  None of the above

Question 10

Finding the discounted value of $1,000 to be received at the end of each of the next five years requires calculating the:

Accepted Answer

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

Question 11

The present value of an annuity is simply the sum of the annuity's payments, traditionally made at the end of each of the time periods.

Accepted Answer

A) True 
 B)False

Question 12

Present value calculations assume that an investor always prefers an investment's present value to its future cash flows.

Accepted Answer

A) True 
 B)False

Question 13

A $300,000.00 thirty year mortgage has a monthly payment of $1,798.65. Assuming a mortgage rate of 6% APR, how much interest is due on the first mortgage payment?

Accepted Answer

A)  $1,800.00 
B)  $1,500.00 
C)  $1,700.00 
D)  $1,562.50

Question 14

When using a future value of an annuity table:

Accepted Answer

A)  payments are assumed to be made at the end of each period. 
B)  FVFA factors increase with an increase in the interest rate. 
C)  FVFA factors increase with an increase in the number of periods. 
D)  All of the above

Question 15

The annual effective rate of interest is a function of:

Accepted Answer

A)  the annual nominal rate of interest. 
B)  the number of compounding intervals per year. 
C)  the imbedded annuity. 
D)  a and b

Question 16

Find the present value of a payment stream of $100 per year for the first fifteen years and $200 per year for the next five years, given a 12% discount rate.

Accepted Answer

A)  $813 
B)  $1,402 
C)  $953 
D)  $887 
E)  $712

Question 17

Five years after an accident, you received $100,000 to pay the medical expenses incurred at the time of the accident. What is the present value (at the time of the accident) of the payment? Assume interest rates are 9%.

Accepted Answer

A)  $153,900 
B)  $68,100 
C)  $65,000 
D)  $70,800

Question 18

You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly. Calculate the total amount of interest you will pay over the life of the loan.

Accepted Answer

A)  $47,451 
B)  $93,677 
C)  $126,226 
D)  $299,090

Question 19

What present amount is equivalent to $100 received at the end of each year for 8 years, given an opportunity cost of 20%?

Accepted Answer

A)  $361.90 
B)  $432.20 
C)  $383.72 
D)  $407.80 
E)  419.30

Question 20

The future value of an annuity:

Accepted Answer

A)  is the end sum of all payments and all interest if each payment is deposited when received. 
B)  is the beginning sum and future interest amortized over the life of the annuity. 
C)  allows for both the time interval and amounts to be different. 
D)  is the beginning sum and present value calculated into the future.

Exam 6: Time Value of Money

The present value factor (PVF) and the future value factor (FVF) are related:

A perpetuity has a cash flow of $18.75 and a discount rate of 6%. What is the value of the perpetuity?

Your grandparents put $1,000 into a savings account for you when you were born 20 years ago. This account has been earning interest at a compound rate of 7 percent. What is its value today?

A cash flow projected tomorrow for a specific period of time is a:

If a series of equal payments is received regularly at the end of the year, and each is deposited immediately at the same interest rate, the ____ is the sum of all the payments and all the interest earned at the end of the series.

Assume that you have just won $5,000,000 in the lottery and will receive $250,000 per year for the next 20 years. How much is your prize worth today if the interest rate is 8%?

A sum of money promised you at a time in the future is worth only as much as you would have to put in a bank today to have that sum available at that point in time.

If $10,000 is received and deposited at 10% at the end of each of the next six years, how much will be in the account after the last payment is deposited?

If a series of equal payments is paid regularly out of a bank account which earns a constant rate of interest, the ____ is the amount that must be in the bank at the beginning of the series to just fund all of the payments.

Finding the discounted value of $1,000 to be received at the end of each of the next five years requires calculating the:

The present value of an annuity is simply the sum of the annuity's payments, traditionally made at the end of each of the time periods.

Present value calculations assume that an investor always prefers an investment's present value to its future cash flows.

A $300,000.00 thirty year mortgage has a monthly payment of $1,798.65. Assuming a mortgage rate of 6% APR, how much interest is due on the first mortgage payment?

When using a future value of an annuity table:

The annual effective rate of interest is a function of:

Find the present value of a payment stream of $100 per year for the first fifteen years and $200 per year for the next five years, given a 12% discount rate.

Five years after an accident, you received $100,000 to pay the medical expenses incurred at the time of the accident. What is the present value (at the time of the accident) of the payment? Assume interest rates are 9%.

You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly. Calculate the total amount of interest you will pay over the life of the loan.

What present amount is equivalent to $100 received at the end of each year for 8 years, given an opportunity cost of 20%?

The future value of an annuity: