Question 1

When your investment compounds, your money will grow in a(n) __________ fashion.

Accepted Answer

A)  linear 
B)  exponential 
C)  static 
D)  implied 
A)  linear 
B)  exponential 
C)  static 
D)  implied

Question 2

We call the process of earning interest on both the original deposit and on the earlier interest payments _______________.

Accepted Answer

A)  simple interest 
B)  compounding 
C)  future value 
D)  discounting 
A)  simple interest 
B)  compounding 
C)  future value 
D)  discounting

Question 3

When calculating the number of years needed to grow an investment to a specific amount of money,

Accepted Answer

A)  the lower the interest rate, the shorter the time period needed to achieve the growth. 
B)  the higher the interest rate, the shorter the time period needed to achieve the growth. 
C)  the interest rate has nothing to do with the length of the time period needed to achieve the growth. 
D)  the Rule of 72 is the only way to calculate the time period needed to achieve the growth. 
A)  the lower the interest rate, the shorter the time period needed to achieve the growth. 
B)  the higher the interest rate, the shorter the time period needed to achieve the growth. 
C)  the interest rate has nothing to do with the length of the time period needed to achieve the growth. 
D)  the Rule of 72 is the only way to calculate the time period needed to achieve the growth.

Question 4

Which of the following investments would you prefer?

Accepted Answer

A)  An investment earning 10% for 20 years 
B)  An investment earning 8.5% for 20 years 
C)  An investment earning 5% for 40 years 
D)  An investment earning 3% for 40 years 
A)  An investment earning 10% for 20 years 
B)  An investment earning 8.5% for 20 years 
C)  An investment earning 5% for 40 years 
D)  An investment earning 3% for 40 years

Question 5

You deposit $20,000 in an account that doubles in 7 years. How many years will it take the account to double again if it earns 14% per year?

Accepted Answer

A)  4.92 years 
B)  5.29 years 
C)  6.62 years 
D)  8.22 years 
A)  4.92 years 
B)  5.29 years 
C)  6.62 years 
D)  8.22 years

Question 6

You have $100,000 in your account. Assuming no additional deposits are made and your account earns 15% per year, how long will it take for the account to have a balance of $500,000?

Accepted Answer

A)  10.28 years 
B)  11.09 years 
C)  11.52 years 
D)  12.64 years 
A)  10.28 years 
B)  11.09 years 
C)  11.52 years 
D)  12.64 years

Question 7

People borrow money because they expect:

Accepted Answer

A)  their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan. 
B)  the time value of money to apply only if they are saving money. 
C)  interest rates to rise. 
D)  that consumers don't need to calculate the impact of interest on their purchases. 
A)  their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan. 
B)  the time value of money to apply only if they are saving money. 
C)  interest rates to rise. 
D)  that consumers don't need to calculate the impact of interest on their purchases.

Question 8

Solving for Rates What annual rate of return is implied on a $700 loan taken next year when $800 must be repaid in year 3?

Accepted Answer

A)  4.55% 
B)  4.76% 
C)  6.90% 
D)  7.14% 
A)  4.55% 
B)  4.76% 
C)  6.90% 
D)  7.14%

Question 9

Show the time line for a $1000 cash inflow today, a $1262.48 cash outflow in year four, and a 6 percent interest rate.

Accepted Answer

The answer of Show the time line for a $1000...

Question 10

As the production manager of HPG, Inc., you have received an offer from the supplier who provides the wires used in headsets. Due to poor planning, the supplier has an excess amount of wire and is willing to sell $750,000 worth for only $600,000. You already have one year's supply of wire on hand. This new wire would be used one year from today. What implied interest rate would your firm be earning if you purchased the wire?

Accepted Answer

A)  -20% 
B)  13.5% 
C)  21% 
D)  25% 
A)  -20% 
B)  13.5% 
C)  21% 
D)  25%

Question 11

Time value of money concepts can be used by _____________.

Accepted Answer

A)  Individuals doing personal financial planning 
B)  CFOs and CEOs to make business decisions 
C)  Investors calculating a return on an investment 
D)  All of these are users of time value of money concepts. 
A)  Individuals doing personal financial planning 
B)  CFOs and CEOs to make business decisions 
C)  Investors calculating a return on an investment 
D)  All of these are users of time value of money concepts.

Question 12

Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

Accepted Answer

A)  1.5% 
B)  12.65% 
C)  16.65% 
D)  20.11% 
A)  1.5% 
B)  12.65% 
C)  16.65% 
D)  20.11%

Question 13

You invested $1000 for 5 years in an account that earns 5%. However, today you learn that you are able to move the account into an investment that earns 10%. Which of the following statements is correct?

Accepted Answer

A)  If you select the investment earning 10%, you will double your profit. 
B)  If you select the investment earning 10%, you will more than double your profit. 
C)  If you select the investment earning 10%, your profit will be less than double. 
D)  None of these statements is correct. 
A)  If you select the investment earning 10%, you will double your profit. 
B)  If you select the investment earning 10%, you will more than double your profit. 
C)  If you select the investment earning 10%, your profit will be less than double. 
D)  None of these statements is correct.

Question 14

You are scheduled to receive a $750 cash flow in one year, a $1,000 cash flow in 2 years, and pay a $300 payment in 4 years. If interest rates are 6% per year, what is the combined present value of these cash flows?

Accepted Answer

A)  $1,359.92 
B)  $1,413.92 
C)  $1,592.63 
D)  $1,613.02 
A)  $1,359.92 
B)  $1,413.92 
C)  $1,592.63 
D)  $1,613.02

Question 15

Compute the present value of $4,000 paid in five years using the following discount rates: 10% in year 1, 2% in year 2, 12% in year 3, and 9% in years 4 and 5.

Accepted Answer

A)  $2,679.15 
B)  $2,206.81 
C)  $2,317.03 
D)  $2,362.19 
A)  $2,679.15 
B)  $2,206.81 
C)  $2,317.03 
D)  $2,362.19

Question 16

Compounding with Different Interest Rates A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year. What would be the second year future value?

Accepted Answer

A)  $351.00 
B)  $353.10 
C)  $602.17 
D)  $651.00 
A)  $351.00 
B)  $353.10 
C)  $602.17 
D)  $651.00

Question 17

Which of the following statements is incorrect with respect to time lines?

Accepted Answer

A)  A helpful tool for organizing our analysis is the time line. 
B)  Cash flows we receive are called inflows are denoted with a positive number. 
C)  Cash flows we pay out are called outflows are designated with a negative number. 
D)  Interest rates are not included on our time lines. 
A)  A helpful tool for organizing our analysis is the time line. 
B)  Cash flows we receive are called inflows are denoted with a positive number. 
C)  Cash flows we pay out are called outflows are designated with a negative number. 
D)  Interest rates are not included on our time lines.

Question 18

Interest-on-Interest Consider a $200 deposit earning 8 percent interest per year for 3 years. How much total interest is earned on interest (excluding interest earned on the original deposit)?

Accepted Answer

A)  $3.94 
B)  $24.00 
C)  $48.00 
D)  $51.94 
A)  $3.94 
B)  $24.00 
C)  $48.00 
D)  $51.94

Question 19

Compounding with Different Interest Rates A deposit of $500 earns the following interest rates: * 5 percent in the first year
* 6 percent in the second year, and
* 8 percent in the third year.
What would be the third year future value?

Accepted Answer

A)  $527.14 
B)  $595.00 
C)  $601.02 
D)  $1595.00 
A)  $527.14 
B)  $595.00 
C)  $601.02 
D)  $1595.00

Question 20

What annual rate of return is earned on a $895 investment that grows to $1,976 in eight years?

Accepted Answer

A)  9.14% 
B)  9.97% 
C)  10.41% 
D)  11.73% 
A)  9.14% 
B)  9.97% 
C)  10.41% 
D)  11.73%

When your investment compounds, your money will grow in a(n) __________ fashion.

We call the process of earning interest on both the original deposit and on the earlier interest payments _______________.

When calculating the number of years needed to grow an investment to a specific amount of money,

Which of the following investments would you prefer?

You deposit $20,000 in an account that doubles in 7 years. How many years will it take the account to double again if it earns 14% per year?

You have $100,000 in your account. Assuming no additional deposits are made and your account earns 15% per year, how long will it take for the account to have a balance of $500,000?

People borrow money because they expect:

Solving for Rates What annual rate of return is implied on a $700 loan taken next year when $800 must be repaid in year 3?

Show the time line for a $1000 cash inflow today, a $1262.48 cash outflow in year four, and a 6 percent interest rate.

Time value of money concepts can be used by _____________.

Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

You invested $1000 for 5 years in an account that earns 5%. However, today you learn that you are able to move the account into an investment that earns 10%. Which of the following statements is correct?

You are scheduled to receive a $750 cash flow in one year, a $1,000 cash flow in 2 years, and pay a $300 payment in 4 years. If interest rates are 6% per year, what is the combined present value of these cash flows?

Compute the present value of $4,000 paid in five years using the following discount rates: 10% in year 1, 2% in year 2, 12% in year 3, and 9% in years 4 and 5.

Compounding with Different Interest Rates A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year. What would be the second year future value?

Which of the following statements is incorrect with respect to time lines?

Interest-on-Interest Consider a $200 deposit earning 8 percent interest per year for 3 years. How much total interest is earned on interest (excluding interest earned on the original deposit)?

Compounding with Different Interest Rates A deposit of $500 earns the following interest rates: * 5 percent in the first year * 6 percent in the second year, and * 8 percent in the third year. What would be the third year future value?

What annual rate of return is earned on a $895 investment that grows to $1,976 in eight years?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 2: Analyzing Annuity 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 4: Time Value of Money 1: Analyzing Single Cash Flows

When your investment compounds, your money will grow in a(n) __________ fashion.

We call the process of earning interest on both the original deposit and on the earlier interest payments _______________.

When calculating the number of years needed to grow an investment to a specific amount of money,

Which of the following investments would you prefer?

You deposit $20,000 in an account that doubles in 7 years. How many years will it take the account to double again if it earns 14% per year?

You have $100,000 in your account. Assuming no additional deposits are made and your account earns 15% per year, how long will it take for the account to have a balance of $500,000?

People borrow money because they expect:

Solving for Rates What annual rate of return is implied on a $700 loan taken next year when $800 must be repaid in year 3?

Show the time line for a $1000 cash inflow today, a $1262.48 cash outflow in year four, and a 6 percent interest rate.

Time value of money concepts can be used by _____________.

Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

You invested $1000 for 5 years in an account that earns 5%. However, today you learn that you are able to move the account into an investment that earns 10%. Which of the following statements is correct?

You are scheduled to receive a $750 cash flow in one year, a $1,000 cash flow in 2 years, and pay a $300 payment in 4 years. If interest rates are 6% per year, what is the combined present value of these cash flows?

Compute the present value of $4,000 paid in five years using the following discount rates: 10% in year 1, 2% in year 2, 12% in year 3, and 9% in years 4 and 5.

Compounding with Different Interest Rates A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year. What would be the second year future value?

Which of the following statements is incorrect with respect to time lines?

Interest-on-Interest Consider a $200 deposit earning 8 percent interest per year for 3 years. How much total interest is earned on interest (excluding interest earned on the original deposit)?

Compounding with Different Interest Rates A deposit of $500 earns the following interest rates: * 5 percent in the first year * 6 percent in the second year, and * 8 percent in the third year. What would be the third year future value?

What annual rate of return is earned on a $895 investment that grows to $1,976 in eight years?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 2: Analyzing Annuity 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