Question 1

What is the present value of a $250 deposit in year 1, and another $50 deposit at the end of year 6 if interest rates are 10 percent?

Accepted Answer

A)  $120.00 
B)  $169.34 
C)  $255.50 
D)  $278.22 
A)  $120.00 
B)  $169.34 
C)  $255.50 
D)  $278.22

Question 2

Given a 6 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.

Accepted Answer

A)  $4,741.68 
B)  $5,986.26 
C)  $6,179.80 
D)  $6,726.16 
A)  $4,741.68 
B)  $5,986.26 
C)  $6,179.80 
D)  $6,726.16

Question 3

Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.

Accepted Answer

A)  $3,967.06 
B)  $4,351.50 
C)  $4,859.81 
D)  $5,207.00 
A)  $3,967.06 
B)  $4,351.50 
C)  $4,859.81 
D)  $5,207.00

Question 4

If you are saving for a plane ticket for a future vacation and you deposit $200 today, followed by $250 at the end of the first year, and a $300 deposit at the end of the second year, what will the future value of your deposits be in 3 years if the interest rates are 5%?

Accepted Answer

A)  $750 
B)  $822.15 
C)  $787.5 
D)  None of the above 
A)  $750 
B)  $822.15 
C)  $787.5 
D)  None of the above

Question 5

Given a 10 percent interest rate, compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively, and a withdrawal of $5,000 is made in year 7.

Accepted Answer

A)  $44,667.89 
B)  $45,103.47 
C)  $46,585.66 
D)  $47,002.89 
A)  $44,667.89 
B)  $45,103.47 
C)  $46,585.66 
D)  $47,002.89

Question 6

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Accepted Answer

A)  $847.50 
B)  $1,192.00 
C)  $2,118.75 
D)  $6,192.00 
A)  $847.50 
B)  $1,192.00 
C)  $2,118.75 
D)  $6,192.00

Question 7

Which of the following will increase the present value of an annuity?

Accepted Answer

A)  The discount rate increases. 
B)  The discount rate decreases. 
C)  The number of periods the annuity is received decreases. 
D)  The final payment diminishes. 
A)  The discount rate increases. 
B)  The discount rate decreases. 
C)  The number of periods the annuity is received decreases. 
D)  The final payment diminishes.

Question 8

Phoebe realizes that she has charged too much on her credit card and has racked up $7,000 in debt. If she can pay $200 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt?

Accepted Answer

A)  28.63 months 
B)  35.00 months 
C)  47.71 months 
D)  48.68 months 
A)  28.63 months 
B)  35.00 months 
C)  47.71 months 
D)  48.68 months

Question 9

A loan is offered with monthly payments and a 10 percent APR. What is the loan's effective annual rate (EAR)?

Accepted Answer

A)  10.00 percent 
B)  10.47 percent 
C)  11.20 percent 
D)  12.67 percent 
A)  10.00 percent 
B)  10.47 percent 
C)  11.20 percent 
D)  12.67 percent

Question 10

Given a 4 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

Accepted Answer

A)  $4,103.06 
B)  $4,334.53 
C)  $4,615.38 
D)  $4,804.00 
A)  $4,103.06 
B)  $4,334.53 
C)  $4,615.38 
D)  $4,804.00

Question 11

Joey realizes that he has charged too much on his credit card and has racked up $3,000 in debt. If he can pay $150 each month and the card charges 18 percent APR (compounded monthly), how long will it take him to pay off the debt?

Accepted Answer

A)  13.03 months 
B)  14.68 months 
C)  20.00 months 
D)  23.96 months 
A)  13.03 months 
B)  14.68 months 
C)  20.00 months 
D)  23.96 months

Question 12

People refinance their home mortgages

Accepted Answer

A)  when rates fall. 
B)  when rates rise. 
C)  when rates fall and rise. 
D)  whenever they need to, independent of rates. 
A)  when rates fall. 
B)  when rates rise. 
C)  when rates fall and rise. 
D)  whenever they need to, independent of rates.

Question 13

A mortgage broker is offering a 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5.5 percent APR interest rate. After the second year, the mortgage interest charged increases to 8.5 percent APR. What is the effective interest rate in the first two years? What is the effective interest rate after the second year?

Accepted Answer

A)  5.37 percent, 8.19 percent respectively 
B)  5.50 percent, 8.50 percent respectively 
C)  5.64 percent, 8.84 percent respectively 
D)  12.60 percent, 12.66 percent respectively 
A)  5.37 percent, 8.19 percent respectively 
B)  5.50 percent, 8.50 percent respectively 
C)  5.64 percent, 8.84 percent respectively 
D)  12.60 percent, 12.66 percent respectively

Question 14

Your firm needs to buy additional physical therapy equipment that costs $27,000. The equipment manufacturer will give you the equipment now if you will pay $7,000 per year for the next five years. Assume your firm can borrow at a 13 percent interest rate. You need to analyze if your firm should pay the manufacturer the $27,000 now or accept the five-year annuity offer of $7,000. Which of the following statements is correct?

Accepted Answer

A)  You decide to pay $27,000 today because paying in cash is always cheaper. 
B)  You decide to pay for the equipment over time because it only costs $24,620.62. 
C)  You decide to pay for the equipment over time because it only costs $29,112.86. 
D)  You decide to pay $27,000 today because it is cheaper than paying for the equipment over time. 
A)  You decide to pay $27,000 today because paying in cash is always cheaper. 
B)  You decide to pay for the equipment over time because it only costs $24,620.62. 
C)  You decide to pay for the equipment over time because it only costs $29,112.86. 
D)  You decide to pay $27,000 today because it is cheaper than paying for the equipment over time.

Question 15

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how soon do you pay off your mortgage?

Accepted Answer

A)  329.67 months 
B)  311.56 months 
C)  291.78 months 
D)  288.45 months 
A)  329.67 months 
B)  311.56 months 
C)  291.78 months 
D)  288.45 months

Question 16

You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 25 percent of what you contribute each year. You expect to contribute $5,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 8 percent per year. If you plan to retire in 35 years, how big will you expect that retirement account to be?

Accepted Answer

A)  $861,584.02 
B)  $921,597.31 
C)  $972,110.74 
D)  $1,076,980.02 
A)  $861,584.02 
B)  $921,597.31 
C)  $972,110.74 
D)  $1,076,980.02

Question 17

Given an 8 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $900, $800, $700, and $600.

Accepted Answer

A)  $2,409.33 
B)  $2,515.90 
C)  $2,591.72 
D)  $2,611.38 
A)  $2,409.33 
B)  $2,515.90 
C)  $2,591.72 
D)  $2,611.38

Question 18

A loan is offered with monthly payments and a 6.5 percent APR. What is the loan's effective annual rate (EAR)?

Accepted Answer

A)  5.69 percent 
B)  6.697 percent 
C)  7.28 percent 
D)  12.63 percent 
A)  5.69 percent 
B)  6.697 percent 
C)  7.28 percent 
D)  12.63 percent

Question 19

What is the future value of a $500 annuity payment over eight years if interest rates are 14 percent?

Accepted Answer

A)  $6,241.09 
B)  $6,616.38 
C)  $6,750.14 
D)  $6,809.72 
A)  $6,241.09 
B)  $6,616.38 
C)  $6,750.14 
D)  $6,809.72

Question 20

If you start making $25 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

Accepted Answer

A)  $101.26, $99.26 
B)  $1,352.45, $1,064.51 
C)  $1,359.21, $1,069.83 
D)  $2,171.02, $1,516.03 
A)  $101.26, $99.26 
B)  $1,352.45, $1,064.51 
C)  $1,359.21, $1,069.83 
D)  $2,171.02, $1,516.03

What is the present value of a $250 deposit in year 1, and another $50 deposit at the end of year 6 if interest rates are 10 percent?

Given a 6 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.

Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.

If you are saving for a plane ticket for a future vacation and you deposit $200 today, followed by $250 at the end of the first year, and a $300 deposit at the end of the second year, what will the future value of your deposits be in 3 years if the interest rates are 5%?

Given a 10 percent interest rate, compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively, and a withdrawal of $5,000 is made in year 7.

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Which of the following will increase the present value of an annuity?

Phoebe realizes that she has charged too much on her credit card and has racked up $7,000 in debt. If she can pay $200 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt?

A loan is offered with monthly payments and a 10 percent APR. What is the loan's effective annual rate (EAR)?

Given a 4 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

Joey realizes that he has charged too much on his credit card and has racked up $3,000 in debt. If he can pay $150 each month and the card charges 18 percent APR (compounded monthly), how long will it take him to pay off the debt?

People refinance their home mortgages

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how soon do you pay off your mortgage?

Given an 8 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $900, $800, $700, and $600.

A loan is offered with monthly payments and a 6.5 percent APR. What is the loan's effective annual rate (EAR)?

What is the future value of a $500 annuity payment over eight years if interest rates are 14 percent?

If you start making $25 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

What is the present value of a $250 deposit in year 1, and another $50 deposit at the end of year 6 if interest rates are 10 percent?

Given a 6 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.

Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.

If you are saving for a plane ticket for a future vacation and you deposit $200 today, followed by $250 at the end of the first year, and a $300 deposit at the end of the second year, what will the future value of your deposits be in 3 years if the interest rates are 5%?

Given a 10 percent interest rate, compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively, and a withdrawal of $5,000 is made in year 7.

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Which of the following will increase the present value of an annuity?

Phoebe realizes that she has charged too much on her credit card and has racked up $7,000 in debt. If she can pay $200 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt?

A loan is offered with monthly payments and a 10 percent APR. What is the loan's effective annual rate (EAR)?

Given a 4 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

Joey realizes that he has charged too much on his credit card and has racked up $3,000 in debt. If he can pay $150 each month and the card charges 18 percent APR (compounded monthly), how long will it take him to pay off the debt?

People refinance their home mortgages

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how soon do you pay off your mortgage?

Given an 8 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $900, $800, $700, and $600.

A loan is offered with monthly payments and a 6.5 percent APR. What is the loan's effective annual rate (EAR)?

What is the future value of a $500 annuity payment over eight years if interest rates are 14 percent?

If you start making $25 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters