Question 1

The present value of a single payment can be represented as ____.

Accepted Answer

A)  PV0 = FVn(PVIFi,n) 
B)  PV0 = FVn(PVIFAi,n) 
C)  PV0 = FVn[1/(1 - i)n] 
D)  None of these are correct 
A)  PV0 = FVn(PVIFi,n) 
B)  PV0 = FVn(PVIFAi,n) 
C)  PV0 = FVn[1/(1 - i)n] 
D)  None of these are correct

Question 2

Your local bank offers 4-year certificates of deposit (CD) at a 12 percent annual nominal interest rate compounded quarterly. Determine how much additional interest you will earn over 4 years on a $10,000 CD that is compounded quarterly compared with one that is compounded annually.

Accepted Answer

A)  $6,050 
B)  $0 
C)  $310 
D)  $220 
A)  $6,050 
B)  $0 
C)  $310 
D)  $220

Question 3

When using a financial calculator, FV stands for the ____.

Accepted Answer

A)  interest rate per period 
B)  number of periods 
C)  present value amount 
D)  future value amount 
A)  interest rate per period 
B)  number of periods 
C)  present value amount 
D)  future value amount

Question 4

An annuity due is one in which _____.

Accepted Answer

A)  payments or receipts occur at the end of each period 
B)  payments or receipts occur at the beginning of each period 
C)  payments or receipts occur forever 
D)  cash flows occur continuously 
A)  payments or receipts occur at the end of each period 
B)  payments or receipts occur at the beginning of each period 
C)  payments or receipts occur forever 
D)  cash flows occur continuously

Question 5

When using a future value of an annuity table (e.g., Table III at the back of the book), _____.

Accepted Answer

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

Question 6

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

Question 7

The values shown in ordinary annuity tables (either present value or compound value) can be adjusted to the annuity due form by ____ the ordinary annuity interest factor by ____.

Accepted Answer

A)  dividing; (1 + i) 
B)  dividing; (1 + i)n 
C)  multiplying; (1 + i) 
D)  multiplying; (1 + i)n 
A)  dividing; (1 + i) 
B)  dividing; (1 + i)n 
C)  multiplying; (1 + i) 
D)  multiplying; (1 + i)n

Question 8

Inco purchased a computer for $200,000, and this machine is expected to generate annual cash flows of $48,271 over the next 5 years. What is the expected rate of return on this investment?

Accepted Answer

A)  8.84% 
B)  26.58% 
C)  6.61% 
D)  None of these are correct 
A)  8.84% 
B)  26.58% 
C)  6.61% 
D)  None of these are correct

Question 9

What is the present value of the following net cash flows if the discount rate is 10%? $$\begin{array} { l l } 
\text { Year } & \text { Net Cash Flow } \
1 - 10 & \$ 20,000 \text { each year } \
11 - 15 & \$ 15,000 \text { each year } \
16 - 20 & \$ 10,000 \text { each year }
\end{array}$$

Accepted Answer

A)  $217,675 
B)  $153,895 
C)  $322,130 
D)  $167,515 
A)  $217,675 
B)  $153,895 
C)  $322,130 
D)  $167,515

Question 10

If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (ages 16, 17, 18, and 19), how much would the IRA account have in it at your retirement 45 years later if the account earned 12% each year? (Assume end-of-year payments.)

Accepted Answer

A)  $1,569,758 
B)  $ 68,613 
C)  $3,457,169 
D)  $1,148,958 
A)  $1,569,758 
B)  $ 68,613 
C)  $3,457,169 
D)  $1,148,958

Question 11

Determine how much $1,000 deposited in a savings account paying 8% (compounded annually) will be worth after 5 years.

Accepted Answer

A)  $5,526 
B)  $784 
C)  $1,400 
D)  $1,469 
A)  $5,526 
B)  $784 
C)  $1,400 
D)  $1,469

Question 12

Baggos has seen its EPS increase from $0.30 to $3.16 in seven years. What has been the growth rate of Baggos's EPS?

Accepted Answer

A)  about 30% 
B)  about 40% 
C)  about 20% 
D)  about 10% 
A)  about 30% 
B)  about 40% 
C)  about 20% 
D)  about 10%

Question 13

New Jersey Mutual has offered you a single premium annuity that will pay you $12,000 per year (end of year) for the next 15 years. If you must pay $109,296 today for this annuity, what is your expected rate of return?

Accepted Answer

A)  8% 
B)  9% 
C)  7% 
D)  10% 
A)  8% 
B)  9% 
C)  7% 
D)  10%

Question 14

What is the most you should pay to receive the following cash flows if your required rate of return is 12 percent? $\begin{array}{ll}
\text { Year 1 } & \$ 5,000 \
\text { Year 2 } & \$ 8,000 \
\text { Year 3 } & \$ 12,000 \
\text { Years 4-10 } & \$ 15,000
\end{array}$

Accepted Answer

A)  $58,580 
B)  $104,135 
C)  $68,105 
D)  $40,000 
A)  $58,580 
B)  $104,135 
C)  $68,105 
D)  $40,000

Question 15

Why does an annuity due have a greater future value than a regular annuity, all things being equal?

Accepted Answer

An ordinary annuity assumes that payment

Question 16

When you purchased a car, you borrowed $20,000 from the bank and agreed to make monthly payments of $423.17 for 5 years. What rate of interest is the bank charging you?

Accepted Answer

A)  9.82% 
B)  5.00% 
C)  25.39% 
D)  10.00% 
A)  9.82% 
B)  5.00% 
C)  25.39% 
D)  10.00%

Question 17

Jenny Genius wants to purchase a new car. She knows that she can afford to pay $250 per month and that her bank will charge her 8% interest on the car loan. She intends to pay off the car in five years. Interest will be compounded monthly. Of the following, which is the most expensive vehicle in her price range that she could consider?

Accepted Answer

A)  A Taurus selling for $11,900 
B)  A Malibu selling for $12,320 
C)  A Civic selling for $14,670 
D)  A Celica selling for $17,500 
A)  A Taurus selling for $11,900 
B)  A Malibu selling for $12,320 
C)  A Civic selling for $14,670 
D)  A Celica selling for $17,500

Question 18

When a loan is amortized over a five-year term, the ____.

Accepted Answer

A)  rate of interest is reduced each year 
B)  amount of interest paid is reduced each year 
C)  payment is reduced each year 
D)  balance is paid as a balloon payment in the fifth year 
A)  rate of interest is reduced each year 
B)  amount of interest paid is reduced each year 
C)  payment is reduced each year 
D)  balance is paid as a balloon payment in the fifth year

Question 19

The ____ of a perpetual stream of equal, annual returns (PMT) discounted at i% per year is equal to ____.

Accepted Answer

A)  present value; PMT/i 
B)  present value; PMT × i 
C)  future value; PMT/i 
D)  future value; PMT × i 
A)  present value; PMT/i 
B)  present value; PMT × i 
C)  future value; PMT/i 
D)  future value; PMT × i

Question 20

When you purchased a car, you borrowed $20,000 from the bank at 9.20% and agreed to make monthly payments for 3 years. What is your monthly payment?

Accepted Answer

A)  $153.33 
B)  $637.86 
C)  $584.12 
D)  $559.78 
A)  $153.33 
B)  $637.86 
C)  $584.12 
D)  $559.78

Exam 5: The Time Value of Money

The present value of a single payment can be represented as ____.

Your local bank offers 4-year certificates of deposit (CD) at a 12 percent annual nominal interest rate compounded quarterly. Determine how much additional interest you will earn over 4 years on a $10,000 CD that is compounded quarterly compared with one that is compounded annually.

When using a financial calculator, FV stands for the ____.

An annuity due is one in which _____.

When using a future value of an annuity table (e.g., Table III at the back of the book), _____.

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?

The values shown in ordinary annuity tables (either present value or compound value) can be adjusted to the annuity due form by ____ the ordinary annuity interest factor by ____.

Inco purchased a computer for $200,000, and this machine is expected to generate annual cash flows of $48,271 over the next 5 years. What is the expected rate of return on this investment?

What is the present value of the following net cash flows if the discount rate is 10%? Year Net Cash Flow 1-10 \ 20,000 each year 11-15 \ 15,000 each year 16-20 \ 10,000 each year

If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (ages 16, 17, 18, and 19), how much would the IRA account have in it at your retirement 45 years later if the account earned 12% each year? (Assume end-of-year payments.)

Determine how much $1,000 deposited in a savings account paying 8% (compounded annually) will be worth after 5 years.

Baggos has seen its EPS increase from $0.30 to $3.16 in seven years. What has been the growth rate of Baggos's EPS?

New Jersey Mutual has offered you a single premium annuity that will pay you $12,000 per year (end of year) for the next 15 years. If you must pay $109,296 today for this annuity, what is your expected rate of return?

What is the most you should pay to receive the following cash flows if your required rate of return is 12 percent? Year 1 \ 5,000 Year 2 \ 8,000 Year 3 \ 12,000 Years 4-10 \ 15,000

Why does an annuity due have a greater future value than a regular annuity, all things being equal?

When you purchased a car, you borrowed $20,000 from the bank and agreed to make monthly payments of $423.17 for 5 years. What rate of interest is the bank charging you?

When a loan is amortized over a five-year term, the ____.

The ____ of a perpetual stream of equal, annual returns (PMT) discounted at i% per year is equal to ____.

When you purchased a car, you borrowed $20,000 from the bank at 9.20% and agreed to make monthly payments for 3 years. What is your monthly payment?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

The values shown in ordinary annuity tables (either present value or compound value) can be adjusted to the annuity due form by the ordinary annuity interest factor by .

The of a perpetual stream of equal, annual returns (PMT) discounted at i% per year is equal to .