Question 1

An investor will invest $1000 now and expect to receive $10 for each of the next 10 years plus $1000 at the end of the 10th year.Her cash flow at time period 0 is [blank].

Accepted Answer

A) $1000 
B) −$1000 
C) −$990 
D) $1010

Question 2

The present value of a future sum of money increases as the number of years before the payment is received increases.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is false?

Accepted Answer

A) A dollar received one year from now will be worth more than a dollar received today. 
B) A dollar received one year from now will be worth more than a dollar received two years from now. 
C) Compounding essentially means earning interest on interest on an initial balance. 
D) Perpetuities pay an equal payment forever.

Question 4

You are considering two investments.Investment A yields 10% compounded quarterly.Investment B yields i% compounded semi-annually.Both investments have equal annual yields.Find i.

Accepted Answer

A) 19.875% 
B) 10% 
C) 10.38% 
D) 10.125%

Question 5

Three years from now, Ari will purchase a laptop computer that will cost $2250.Assume that Ari can earn 6.25% (compounded monthly)on her money.How much should she set aside today for the purchase? Round off to the nearest $1.

Accepted Answer

A) $1250 
B) $900 
C) $1866 
D) $3775

Question 6

What is the annual compounded interest rate of an investment with a stated interest rate of 6% compounded quarterly for seven years (round to the nearest .1%)?

Accepted Answer

A) 51.7% 
B) 6.7% 
C) 10.9% 
D) 6.1%

Question 7

How many years will it take for an initial investment of $200 to grow to $544 if it is invested today at 8% compounded annually?

Accepted Answer

A) 8 years 
B) 10 years 
C) 11 years 
D) 13 years

Question 8

What is the present value of $1000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1).

Accepted Answer

A) $893 
B) $3106 
C) $429 
D) $833

Question 9

If you want to have $90 in four years, how much money must you put in a savings account today? Assume that the savings account pays 8.5% and it is compounded monthly (round to the nearest $1).

Accepted Answer

A) $64 
B) $65 
C) $66 
D) $71

Question 10

Compare and contrast the APR and EAR.

Accepted Answer

The answer of Compare and contrast the APR and EAR....

Exam 5: Time Value of Moneythe Basics

An investor will invest $1000 now and expect to receive $10 for each of the next 10 years plus $1000 at the end of the 10th year.Her cash flow at time period 0 is [blank].

The present value of a future sum of money increases as the number of years before the payment is received increases.

Which of the following statements is false?

You are considering two investments.Investment A yields 10% compounded quarterly.Investment B yields i% compounded semi-annually.Both investments have equal annual yields.Find i.

Three years from now, Ari will purchase a laptop computer that will cost $2250.Assume that Ari can earn 6.25% (compounded monthly) on her money.How much should she set aside today for the purchase? Round off to the nearest $1.

What is the annual compounded interest rate of an investment with a stated interest rate of 6% compounded quarterly for seven years (round to the nearest .1%) ?

How many years will it take for an initial investment of $200 to grow to $544 if it is invested today at 8% compounded annually?

What is the present value of $1000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1) .

If you want to have $90 in four years, how much money must you put in a savings account today? Assume that the savings account pays 8.5% and it is compounded monthly (round to the nearest $1) .

Compare and contrast the APR and EAR.