Question 1

What is the present value of $100 to be deposited today into an account paying 8%,compounded semiannually for 2 years?

Accepted Answer

A)  $85.48 
B)  $100.00 
C)  $116.00 
D)  $116.99 
A)  $85.48 
B)  $100.00 
C)  $116.00 
D)  $116.99 B

Question 2

The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate.By approximately how much would the value change if these were annuities due?

Accepted Answer

A)  $10 
B)  $61.40 
C)  $10 ×Number of years in annuity stream 
D)  $6.14 × Number of years in annuity stream 
A)  $10 
B)  $61.40 
C)  $10 ×Number of years in annuity stream 
D)  $6.14 × Number of years in annuity stream B

Question 3

What is the present value of the following payment stream,discounted at 8% annually: $1,000 at the end of year 1,$2,000 at the end of year 2,and $3,000 at the end of year 3?

Accepted Answer

A)  $5,022.10 
B)  $5,144.03 
C)  $5,423.87 
D)  $5,520.00 
A)  $5,022.10 
B)  $5,144.03 
C)  $5,423.87 
D)  $5,520.00 A

Question 4

Converting an annuity to an annuity due decreases the present value.

Accepted Answer

A) True 
 B)False

Question 5

With a fixed-rate mortgage,the proportion of each payment used to pay interest on the loan declines over time.

Accepted Answer

A) True 
 B)False

Question 6

If the effective annual rate of interest is known to be 16.08% on a debt that has quarterly payments,what is the annual percentage rate?

Accepted Answer

A)  4.02% 
B)  10.02% 
C)  14.50% 
D)  15.19% 
A)  4.02% 
B)  10.02% 
C)  14.50% 
D)  15.19%

Question 7

What will be the approximate population of the United States,if its current population of 300 million grows at a compound rate of 2% annually for 25 years?

Accepted Answer

A)  413 million 
B)  430 million 
C)  488 million 
D)  492 million 
A)  413 million 
B)  430 million 
C)  488 million 
D)  492 million

Question 8

A stream of equal cash payments lasting forever is termed:

Accepted Answer

A)  an annuity. 
B)  an annuity due. 
C)  an installment plan. 
D)  a perpetuity. 
A)  an annuity. 
B)  an annuity due. 
C)  an installment plan. 
D)  a perpetuity.

Question 9

What is the expected real rate of interest for an account that offers a 12% nominal rate of return when the rate of inflation is 6% annually?

Accepted Answer

A)  5.00% 
B)  5.66% 
C)  6.00% 
D)  9.46% 
A)  5.00% 
B)  5.66% 
C)  6.00% 
D)  9.46%

Question 10

The sum of $3,000 is deposited into an account paying 10% annually.If $1,206 is withdrawn at the end of years 1 and 2,how much then remains in the account?"

Accepted Answer

A)  $1,326.97 
B)  $1,206.34 
C)  $1,097.40 
D)  $587.32 
A)  $1,326.97 
B)  $1,206.34 
C)  $1,097.40 
D)  $587.32

Question 11

What is the relationship between an annually compounded rate and the annual percentage rate (APR)which is calculated for truth-in-lending laws for a loan requiring monthly payments?

Accepted Answer

A)  The APR is lower than the annually compounded rate. 
B)  The APR is higher than the annually compounded rate. 
C)  The APR equals the annually compounded rate. 
D)  The answer depends on the interest rate. 
A)  The APR is lower than the annually compounded rate. 
B)  The APR is higher than the annually compounded rate. 
C)  The APR equals the annually compounded rate. 
D)  The answer depends on the interest rate.

Question 12

Assume your uncle recorded his salary history during a 40-year career and found that it had increased 10-fold.If inflation averaged 4% annually during the period,then over his career his purchasing power:

Accepted Answer

A)  remained on par with inflation. 
B)  increased by nearly 1% annually. 
C)  increased by nearly 2% annually. 
D)  decreased. 
A)  remained on par with inflation. 
B)  increased by nearly 1% annually. 
C)  increased by nearly 2% annually. 
D)  decreased.

Question 13

An interest rate that has been annualized using compound interest is termed the:

Accepted Answer

A)  discount factor. 
B)  annual percentage rate. 
C)  discounted interest rate. 
D)  effective annual interest rate. 
A)  discount factor. 
B)  annual percentage rate. 
C)  discounted interest rate. 
D)  effective annual interest rate.

Question 14

Cash flows occurring in different periods should not be compared unless:

Accepted Answer

A)  interest rates are expected to be stable. 
B)  the flows occur no more than one year from each other. 
C)  high rates of interest can be earned on the flows. 
D)  the flows have been discounted to a common date. 
A)  interest rates are expected to be stable. 
B)  the flows occur no more than one year from each other. 
C)  high rates of interest can be earned on the flows. 
D)  the flows have been discounted to a common date.

Question 15

An amortizing loan is one in which:

Accepted Answer

A)  the principal remains unchanged with each payment. 
B)  accrued interest is paid regularly. 
C)  the maturity of the loan is variable. 
D)  the principal balance is reduced with each payment. 
A)  the principal remains unchanged with each payment. 
B)  accrued interest is paid regularly. 
C)  the maturity of the loan is variable. 
D)  the principal balance is reduced with each payment.

Question 16

To calculate present value,we discount the future value by some interest rate r,the discount rate.

Accepted Answer

A) True 
 B)False

Question 17

A loan officer states,"Thousands of dollars can be saved by switching to a 15-year mortgage from a 30-year mortgage." Calculate the difference in payments on a 30-year mortgage at an interest rate of .75% a month versus a 15-year mortgage with an interest rate of .7% a month.Both mortgages are for $100,000 and have monthly payments.What is the difference in total dollars that will be paid to the lender under each loan? (Round the monthly payment amounts to 2 decimal places.)

Accepted Answer

A)  $89,211 
B)  $98,406 
C)  $113,465 
D)  $124,300 
A)  $89,211 
B)  $98,406 
C)  $113,465 
D)  $124,300

Question 18

What is the APR on a loan with an effective annual rate of 15.26% and weekly compounding of interest?

Accepted Answer

A)  14.35% 
B)  14.49% 
C)  13.97% 
D)  14.22% 
A)  14.35% 
B)  14.49% 
C)  13.97% 
D)  14.22%

Question 19

Lester's just signed a contract that will provide the firm with annual cash inflows of $28,000,$35,000,and $42,000 over the next three years with the first payment of $28,000 occurring one year from today.What is this contract worth today at a discount rate of 7.25%?

Accepted Answer

A)  $88,311.08 
B)  $89,423.91 
C)  $90,580.55 
D)  $91,341.41 
A)  $88,311.08 
B)  $89,423.91 
C)  $90,580.55 
D)  $91,341.41

Question 20

What APR is being earned on a deposit of $5,000 made 10 years ago today if the deposit is worth $9,848.21 today? The deposit pays interest semiannually.

Accepted Answer

A)  3.56% 
B)  6.76% 
C)  6.89% 
D)  7.12% 
A)  3.56% 
B)  6.76% 
C)  6.89% 
D)  7.12%

Exam 5: The Time Value of Money

What is the present value of $100 to be deposited today into an account paying 8%,compounded semiannually for 2 years?

The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate.By approximately how much would the value change if these were annuities due?

What is the present value of the following payment stream,discounted at 8% annually: $1,000 at the end of year 1,$2,000 at the end of year 2,and $3,000 at the end of year 3?

Converting an annuity to an annuity due decreases the present value.

With a fixed-rate mortgage,the proportion of each payment used to pay interest on the loan declines over time.

If the effective annual rate of interest is known to be 16.08% on a debt that has quarterly payments,what is the annual percentage rate?

What will be the approximate population of the United States,if its current population of 300 million grows at a compound rate of 2% annually for 25 years?

A stream of equal cash payments lasting forever is termed:

What is the expected real rate of interest for an account that offers a 12% nominal rate of return when the rate of inflation is 6% annually?

The sum of $3,000 is deposited into an account paying 10% annually.If $1,206 is withdrawn at the end of years 1 and 2,how much then remains in the account?"

What is the relationship between an annually compounded rate and the annual percentage rate (APR)which is calculated for truth-in-lending laws for a loan requiring monthly payments?

Assume your uncle recorded his salary history during a 40-year career and found that it had increased 10-fold.If inflation averaged 4% annually during the period,then over his career his purchasing power:

An interest rate that has been annualized using compound interest is termed the:

Cash flows occurring in different periods should not be compared unless:

An amortizing loan is one in which:

To calculate present value,we discount the future value by some interest rate r,the discount rate.

What is the APR on a loan with an effective annual rate of 15.26% and weekly compounding of interest?

Lester's just signed a contract that will provide the firm with annual cash inflows of $28,000,$35,000,and $42,000 over the next three years with the first payment of $28,000 occurring one year from today.What is this contract worth today at a discount rate of 7.25%?

What APR is being earned on a deposit of $5,000 made 10 years ago today if the deposit is worth $9,848.21 today? The deposit pays interest semiannually.

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Introduction to Risk, Return, and the Opportunity Cost of Capital

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Introduction to Corporate Financing and Governance

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