Question 1

The present value of annuity payments made far into the future is

Accepted Answer

A)  worth very little today. 
B)  worth much more today. 
C)  valued as having no time value of money. 
D)  valued as worthless as their value is not determinable. 
A)  worth very little today. 
B)  worth much more today. 
C)  valued as having no time value of money. 
D)  valued as worthless as their value is not determinable.

Question 2

Low Financing or Cash Back? A car company is offering a choice of deals. You can receive $2,000 cash back on the purchase, or a 2 percent APR, 3-year loan. The price of the car is $17,000 and you could obtain a 3-year loan from your credit union, at 7 percent APR. Which deal is cheaper?

Accepted Answer

A)  The car company's 2 percent 3-year loan. 
B)  The rebate with the credit union's 7 percent 3-year loan. 
C)  Neither deal is cheaper. 
D)  There is not enough information given to determine which deal is cheaper. 
A)  The car company's 2 percent 3-year loan. 
B)  The rebate with the credit union's 7 percent 3-year loan. 
C)  Neither deal is cheaper. 
D)  There is not enough information given to determine which deal is cheaper.

Question 3

Your company borrows $55,000 today to funds its growth initiatives. It must repay the bank in 4 annual payments of $17,100 at the end of each year. What annual interest rate is your firm paying?

Accepted Answer

A)  7.76% 
B)  8.26% 
C)  9.33% 
D)  10.26% 
A)  7.76% 
B)  8.26% 
C)  9.33% 
D)  10.26%

Question 4

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $600,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $5,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

Accepted Answer

A)  9.40% 
B)  10.13% 
C)  8.37% 
D)  9.61% 
A)  9.40% 
B)  10.13% 
C)  8.37% 
D)  9.61%

Question 5

Sally saves $500 per month in her retirement plan. She plans on making monthly contributions for 35 years. If her account earns a 12% annual interest rate, how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

Accepted Answer

A)  $1,113,879.14; 43.72% 
B)  $2,452,905.33; 12.07% 
C)  $3,215,479.74; 6.53% 
D)  $3,691,003.27; 8.28% 
A)  $1,113,879.14; 43.72% 
B)  $2,452,905.33; 12.07% 
C)  $3,215,479.74; 6.53% 
D)  $3,691,003.27; 8.28%

Question 6

If the present value of an ordinary, 8 year annuity is $12,500 and interest rates are 9.1%, what is the present value of the same annuity due?

Accepted Answer

A)  $13,637.50 
B)  $13,941.90 
C)  $14,114.80 
D)  $14,211.90 
A)  $13,637.50 
B)  $13,941.90 
C)  $14,114.80 
D)  $14,211.90

Question 7

A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2% APR, 2-year loan. The price of the dining room set is $3,750 and you could obtain a 2-year loan from your credit union at 6% APR. What is the cost per month of each deal?

Accepted Answer

A)  Cash back: $161.77 2% APR: $159.53 
B)  Cash back: $171.29 2% APR: $179.02 
C)  Cash back: $153.96 2% APR: $181.09 
D)  Cash back: $180.03 2% APR: $166.17 
A)  Cash back: $161.77 2% APR: $159.53 
B)  Cash back: $171.29 2% APR: $179.02 
C)  Cash back: $153.96 2% APR: $181.09 
D)  Cash back: $180.03 2% APR: $166.17

Question 8

Isaac realizes that he charged too much on his credit card and has racked up $7,000 in debt. If he can pay $275 each month and the card charges 17.55% APR (compounded monthly), how long will it take him to pay off the credit card? How much interest expense will Isaac pay during this time?

Accepted Answer

A)  32.07 months; $8,819.25 
B)  32.07 months; $3,819.25 
C)  22.07 months; $8,819.25 
D)  22.07 months; $3,819.25 
A)  32.07 months; $8,819.25 
B)  32.07 months; $3,819.25 
C)  22.07 months; $8,819.25 
D)  22.07 months; $3,819.25

The present value of annuity payments made far into the future is

Low Financing or Cash Back? A car company is offering a choice of deals. You can receive $2,000 cash back on the purchase, or a 2 percent APR, 3-year loan. The price of the car is $17,000 and you could obtain a 3-year loan from your credit union, at 7 percent APR. Which deal is cheaper?

Your company borrows $55,000 today to funds its growth initiatives. It must repay the bank in 4 annual payments of $17,100 at the end of each year. What annual interest rate is your firm paying?

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $600,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $5,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

Sally saves $500 per month in her retirement plan. She plans on making monthly contributions for 35 years. If her account earns a 12% annual interest rate, how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

If the present value of an ordinary, 8 year annuity is $12,500 and interest rates are 9.1%, what is the present value of the same annuity due?

A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2% APR, 2-year loan. The price of the dining room set is $3,750 and you could obtain a 2-year loan from your credit union at 6% APR. What is the cost per month of each deal?

Isaac realizes that he charged too much on his credit card and has racked up $7,000 in debt. If he can pay $275 each month and the card charges 17.55% APR (compounded monthly), how long will it take him to pay off the credit card? How much interest expense will Isaac pay during this time?

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

The present value of annuity payments made far into the future is

Low Financing or Cash Back? A car company is offering a choice of deals. You can receive $2,000 cash back on the purchase, or a 2 percent APR, 3-year loan. The price of the car is $17,000 and you could obtain a 3-year loan from your credit union, at 7 percent APR. Which deal is cheaper?

Your company borrows $55,000 today to funds its growth initiatives. It must repay the bank in 4 annual payments of $17,100 at the end of each year. What annual interest rate is your firm paying?

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $600,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $5,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

Sally saves $500 per month in her retirement plan. She plans on making monthly contributions for 35 years. If her account earns a 12% annual interest rate, how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

If the present value of an ordinary, 8 year annuity is $12,500 and interest rates are 9.1%, what is the present value of the same annuity due?

A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2% APR, 2-year loan. The price of the dining room set is $3,750 and you could obtain a 2-year loan from your credit union at 6% APR. What is the cost per month of each deal?

Isaac realizes that he charged too much on his credit card and has racked up $7,000 in debt. If he can pay $275 each month and the card charges 17.55% APR (compounded monthly), how long will it take him to pay off the credit card? How much interest expense will Isaac pay during this time?

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