Question 1

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 B

Question 2

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 2.5 percent APR interest rate. After the second year, the mortgage interest charged increases to 4.25 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) 2.08 percent, 3.54 percent respectively 
B) 2.50 percent, 4.25 percent respectively 
C) 2.53 percent, 4.33 percent respectively 
D) 5.00 percent, 8.50 percent respectively 
A) 2.08 percent, 3.54 percent respectively 
B) 2.50 percent, 4.25 percent respectively 
C) 2.53 percent, 4.33 percent respectively 
D) 5.00 percent, 8.50 percent respectively C

Question 3

Loan amortization schedules show

Accepted Answer

A) the principal balance paid per period only. 
B) the interest paid per period only. 
C) both the principal balance and interest paid per period. 
D) the present value of the payments due. 
A) the principal balance paid per period only. 
B) the interest paid per period only. 
C) both the principal balance and interest paid per period. 
D) the present value of the payments due. C

Question 4

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?

Accepted Answer

A) 121.5 months 
B) 148.50 months 
C) 162.5 months 
D) Ricky never pays off the card. 
A) 121.5 months 
B) 148.50 months 
C) 162.5 months 
D) Ricky never pays off the card.

Question 5

A car company is offering a choice of deals. You can receive $600 cash back on the purchase, or a 2 percent APR, 4-year loan. The price of the car is $18,900 and you could obtain a 4-year loan from your credit union at 6 percent APR. What is the monthly payment of each deal?

Accepted Answer

A) cash back: PMT = $429.78, 2 percent APR: PMT = $410.04 
B) cash back: PMT = $438.24, 2 percent APR: PMT = $424.09 
C) cash back: PMT = $458.12, 2 percent APR: PMT = $414.09 
D) cash back: PMT = $408.33, 2 percent APR: PMT = $410.04 
A) cash back: PMT = $429.78, 2 percent APR: PMT = $410.04 
B) cash back: PMT = $438.24, 2 percent APR: PMT = $424.09 
C) cash back: PMT = $458.12, 2 percent APR: PMT = $414.09 
D) cash back: PMT = $408.33, 2 percent APR: PMT = $410.04

Question 6

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

Accepted Answer

A) The number of periods increases. 
B) The amount of the annuity increases. 
C) The interest rate increases. 
D) All of these choices are correct. 
A) The number of periods increases. 
B) The amount of the annuity increases. 
C) The interest rate increases. 
D) All of these choices are correct.

Question 7

What is the present value of a $500 deposit in year 1, and another $100 deposit at the end of year 4 if interest rates are 5 percent?

Accepted Answer

A) $480.00 
B) $493.62 
C) $558.46 
D) $582.27 
A) $480.00 
B) $493.62 
C) $558.46 
D) $582.27

Question 8

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

Question 9

Your credit rating and current economic conditions will determine

Accepted Answer

A) whether you get simple or compound interest. 
B) how long compounding will affect you. 
C) how long discounting will affect you. 
D) the interest rate that a lender will offer. 
A) whether you get simple or compound interest. 
B) how long compounding will affect you. 
C) how long discounting will affect you. 
D) the interest rate that a lender will offer.

Question 10

A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much money would you have to deposit now in a savings account earning 3.5 percent APR, compounded monthly, to pay the $3,500 bill in three years?

Accepted Answer

A) $2,981.17 
B) $3,151.62 
C) $3,200.61 
D) $3,886.89 
A) $2,981.17 
B) $3,151.62 
C) $3,200.61 
D) $3,886.89

Question 11

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 12

You wish to buy a $20,000 car. The dealer offers you a 5-year loan with an 8 percent APR. What are the monthly payments?

Accepted Answer

A) $272.19 
B) $333.33 
C) $405.53 
D) $4,080.35 
A) $272.19 
B) $333.33 
C) $405.53 
D) $4,080.35

Question 13

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 14

What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?

Accepted Answer

A) $3,312.10 
B) $4,320.00 
C) $4,506.11 
D) $9,214.20 
A) $3,312.10 
B) $4,320.00 
C) $4,506.11 
D) $9,214.20

Question 15

If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?

Accepted Answer

A) $943.40 
B) $1,000.00 
C) $1,040.00 
D) $1,060.00 
A) $943.40 
B) $1,000.00 
C) $1,040.00 
D) $1,060.00

Question 16

You have reviewed your budget and determine that the most you can afford on a car loan is $550 per month. What is the most you can borrow if interest rates are 6 percent and you can pay the loan over three years?

Accepted Answer

A) $1,470.16 
B) $15,639.28 
C) $17,641.92 
D) $18,079.06 
A) $1,470.16 
B) $15,639.28 
C) $17,641.92 
D) $18,079.06

Question 17

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 18

When interest rates are lower, borrowers can

Accepted Answer

A) get loans more easily. 
B) cannot get loans as easily. 
C) borrow more money. 
D) afford higher payments. 
A) get loans more easily. 
B) cannot get loans as easily. 
C) borrow more money. 
D) afford higher payments.

Question 19

Assume that you contribute $300 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for 20 years. Given a 9 percent interest rate, what is the value of your retirement plan after 45 years?

Accepted Answer

A) $1,743,956.03 
B) $1,989,703.51 
C) $2,189,194.36 
D) $2,355,040.91 
A) $1,743,956.03 
B) $1,989,703.51 
C) $2,189,194.36 
D) $2,355,040.91

Question 20

Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

Accepted Answer

A) $4,360.32 
B) $4,665.65 
C) $5,047.62 
D) $5,305.00 
A) $4,360.32 
B) $4,665.65 
C) $5,047.62 
D) $5,305.00

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.

Loan amortization schedules show

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?

A car company is offering a choice of deals. You can receive $600 cash back on the purchase, or a 2 percent APR, 4-year loan. The price of the car is $18,900 and you could obtain a 4-year loan from your credit union at 6 percent APR. What is the monthly payment of each deal?

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

What is the present value of a $500 deposit in year 1, and another $100 deposit at the end of year 4 if interest rates are 5 percent?

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?

Your credit rating and current economic conditions will determine

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

You wish to buy a $20,000 car. The dealer offers you a 5-year loan with an 8 percent APR. What are the monthly payments?

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

What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?

If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?

You have reviewed your budget and determine that the most you can afford on a car loan is $550 per month. What is the most you can borrow if interest rates are 6 percent and you can pay the loan over three years?

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

When interest rates are lower, borrowers can

Assume that you contribute $300 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for 20 years. Given a 9 percent interest rate, what is the value of your retirement plan after 45 years?

Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

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

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.

Loan amortization schedules show

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?

A car company is offering a choice of deals. You can receive $600 cash back on the purchase, or a 2 percent APR, 4-year loan. The price of the car is $18,900 and you could obtain a 4-year loan from your credit union at 6 percent APR. What is the monthly payment of each deal?

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

What is the present value of a $500 deposit in year 1, and another $100 deposit at the end of year 4 if interest rates are 5 percent?

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?

Your credit rating and current economic conditions will determine

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

You wish to buy a $20,000 car. The dealer offers you a 5-year loan with an 8 percent APR. What are the monthly payments?

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

What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?

If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?

You have reviewed your budget and determine that the most you can afford on a car loan is $550 per month. What is the most you can borrow if interest rates are 6 percent and you can pay the loan over three years?

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

When interest rates are lower, borrowers can

Assume that you contribute $300 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for 20 years. Given a 9 percent interest rate, what is the value of your retirement plan after 45 years?

Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.

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