Question 1

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 2

Consider that you are 30 years old and have just changed to a new job. You have $91,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $400 each month into your new employer's plan. If the rolled-over money and the new contributions both earn a 7 percent annual return, how much should you expect to have when you retire in 38 years?

Accepted Answer

A) $2,019,095.26 
B) $2,195,145.40 
C) $2,298,025.12 
D) $2,301,116.92 
A) $2,019,095.26 
B) $2,195,145.40 
C) $2,298,025.12 
D) $2,301,116.92

Question 3

Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value:

Accepted Answer

A) grows. 
B) decreases. 
C) is independent of the monthly compounding. 
D) is affected only if the calculation involves an annuity due. 
A) grows. 
B) decreases. 
C) is independent of the monthly compounding. 
D) is affected only if the calculation involves an annuity due.

Question 4

What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?

Accepted Answer

A) $6.50 
B) $650.00 
C) $1,000.00 
D) $1,538.46 
A) $6.50 
B) $650.00 
C) $1,000.00 
D) $1,538.46

Question 5

A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,250 per month for the next three years and then $500 per month for two years after that. If the bank is charging customers 12 percent APR, how much would it be willing to lend the business owner?

Accepted Answer

A) $45,058.15 
B) $45,911.64 
C) $46,055.21 
D) $46,813.94 
A) $45,058.15 
B) $45,911.64 
C) $46,055.21 
D) $46,813.94

Question 6

If you start making $100 monthly contributions today and continue them for five years, what is their future value if the compounding rate is 10 percent APR? What is the present value of this annuity?

Accepted Answer

A) $508.14, $487.74 
B) $512.64, $491.80 
C) $7,743.71, $4,706.53 
D) $7,808.24, $4,745.78 
A) $508.14, $487.74 
B) $512.64, $491.80 
C) $7,743.71, $4,706.53 
D) $7,808.24, $4,745.78

Question 7

Joey realizes that he has charged too much on his credit card and has racked up $4,000 in debt. If he can pay $200 each month and the card charges percent 20 APR (compounded monthly), how long will it take him to pay off the debt?

Accepted Answer

A) 17.40 months 
B) 20.00 months 
C) 24.04 months 
D) 24.53 months 
A) 17.40 months 
B) 20.00 months 
C) 24.04 months 
D) 24.53 months

Question 8

Jane has been saving $450 in her retirement account each month for the last 20 years and plans to continue contributing $450 each month for the next 20 years. Her account has been earning a 9 percent annual interest rate and she expects to earn the same rate for the next 20 years. Her twin brother, Hal, has not saved anything for the last 20 years. Due to sibling rivalry, he wants to have as much as Jane is expected to have at the end of 20 years. If Hal expects to earn the same annual interest rate as Jane, how much must Hal save each month to achieve his goal?

Accepted Answer

A) $1,791.34 
B) $2,109.28 
C) $2,872.91 
D) $3,154.12 
A) $1,791.34 
B) $2,109.28 
C) $2,872.91 
D) $3,154.12

Question 9

Monica has decided that she wants to build enough retirement wealth that, if invested at 7 percent per year, will provide her with $3,000 monthly income for 30 years. To date, she has saved nothing, but she still has 20 years until she retires. How much money does she need to contribute per month to reach her goal?

Accepted Answer

A) $671.78 
B) $865.62 
C) $3,000.00 
D) $7,025.77 
A) $671.78 
B) $865.62 
C) $3,000.00 
D) $7,025.77

Question 10

A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $2,500 per month for the next two years and then $3,000 per month for another two years after that. If the bank is charging customers 6.5 percent APR, how much would it be willing to lend the business owner?

Accepted Answer

A) $111,712.39 
B) $114,009.21 
C) $115,278.17 
D) $117,809.63 
A) $111,712.39 
B) $114,009.21 
C) $115,278.17 
D) $117,809.63

Question 11

You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year. You expect to contribute $2,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 10 percent per year. If you plan to retire in 40 years, how big will you expect that retirement account to be?

Accepted Answer

A) $442,592.56 
B) $885,185.11 
C) $1,327,777.67 
D) $1,527,787.70 
A) $442,592.56 
B) $885,185.11 
C) $1,327,777.67 
D) $1,527,787.70

Question 12

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

Accepted Answer

A) The number of periods decreases. 
B) The interest rate decreases. 
C) The amortization schedule decreases. 
D) The effective rate is calculated over fewer years. 
A) The number of periods decreases. 
B) The interest rate decreases. 
C) The amortization schedule decreases. 
D) The effective rate is calculated over fewer years.

Question 13

A mortgage broker is offering a $225,000 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 rate charged increases to 8.5 percent APR. What are the mortgage payments in the first two years? What are the mortgage payments after the second year?

Accepted Answer

A) $790.25; $1,512.93 
B) $790.25; $1,309.13 
C) $889.02; $1,650.61 
D) $889.02; $1,677.09 
A) $790.25; $1,512.93 
B) $790.25; $1,309.13 
C) $889.02; $1,650.61 
D) $889.02; $1,677.09

Question 14

Compute the future value in year 10 of a $1,000 deposit in year 1 and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

Accepted Answer

A) $3,120.73 
B) $4,379.31 
C) $4,500.00 
D) $5,397.31 
A) $3,120.73 
B) $4,379.31 
C) $4,500.00 
D) $5,397.31

Question 15

A perpetuity pays $250 per year and interest rates are 5.5 percent. How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?

Accepted Answer

A) $1,604.27; increase 
B) $1,604.27; decrease 
C) $1,508.29; increase 
D) $1,508.29; decrease 
A) $1,604.27; increase 
B) $1,604.27; decrease 
C) $1,508.29; increase 
D) $1,508.29; decrease

Question 16

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

Accepted Answer

A) Bank A: 7.75 percent; Bank B: 7.23 percent 
B) Bank A: 7.85 percent; Bank B: 7.23 percent 
C) Bank A: 7.25 percent; Bank B: 7.5 percent 
D) Bank A: 7.85 percent; Bank B: 8.15 percent 
A) Bank A: 7.75 percent; Bank B: 7.23 percent 
B) Bank A: 7.85 percent; Bank B: 7.23 percent 
C) Bank A: 7.25 percent; Bank B: 7.5 percent 
D) Bank A: 7.85 percent; Bank B: 8.15 percent

Question 17

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how soon do you pay off your mortgage?

Accepted Answer

A) 329.67 months 
B) 311.56 months 
C) 291.78 months 
D) 288.45 months 
A) 329.67 months 
B) 311.56 months 
C) 291.78 months 
D) 288.45 months

Question 18

Ross has decided that he wants to build enough retirement wealth that, if invested at 6 percent per year, will provide him with $2,500 monthly income for 30 years. To date, he has saved nothing, but he still has 20 years until he retires. How much money does he need to contribute per month to reach his goal?

Accepted Answer

A) $895.95 
B) $902.47 
C) $1,947.88 
D) $2,500.00 
A) $895.95 
B) $902.47 
C) $1,947.88 
D) $2,500.00

Question 19

You wish to buy a $30,000 car. The dealer offers you a 5-year loan with a 9 percent APR. What are the monthly payments? What is the monthly payment if you paid interest only?

Accepted Answer

A) $622.75; $225.00 
B) $659.41; $291.23 
C) $701.23; $291.23 
D) $712.03; $271.19 
A) $622.75; $225.00 
B) $659.41; $291.23 
C) $701.23; $291.23 
D) $712.03; $271.19

Question 20

You are deciding among several different bank accounts. Which of the following will generate the highest effective annual rate (EAR)?

Accepted Answer

A) A 10 percent rate with monthly compounding 
B) A 10 percent rate with annual compounding 
C) A 10.5 percent rate with annual compounding 
D) A 10 percent rate with quarterly compounding 
A) A 10 percent rate with monthly compounding 
B) A 10 percent rate with annual compounding 
C) A 10.5 percent rate with annual compounding 
D) A 10 percent rate with quarterly compounding

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

Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value:

What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?

If you start making $100 monthly contributions today and continue them for five years, what is their future value if the compounding rate is 10 percent APR? What is the present value of this annuity?

Joey realizes that he has charged too much on his credit card and has racked up $4,000 in debt. If he can pay $200 each month and the card charges percent 20 APR (compounded monthly), how long will it take him to pay off the debt?

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

Compute the future value in year 10 of a $1,000 deposit in year 1 and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

A perpetuity pays $250 per year and interest rates are 5.5 percent. How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how soon do you pay off your mortgage?

You wish to buy a $30,000 car. The dealer offers you a 5-year loan with a 9 percent APR. What are the monthly payments? What is the monthly payment if you paid interest only?

You are deciding among several different bank accounts. Which of the following will generate the highest effective annual rate (EAR)?

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

Filters

Exam 5: Time Value of Money 2: Analyzing Annuity Cash Flows

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

Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value:

What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?

If you start making $100 monthly contributions today and continue them for five years, what is their future value if the compounding rate is 10 percent APR? What is the present value of this annuity?

Joey realizes that he has charged too much on his credit card and has racked up $4,000 in debt. If he can pay $200 each month and the card charges percent 20 APR (compounded monthly), how long will it take him to pay off the debt?

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

Compute the future value in year 10 of a $1,000 deposit in year 1 and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

A perpetuity pays $250 per year and interest rates are 5.5 percent. How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how soon do you pay off your mortgage?

You wish to buy a $30,000 car. The dealer offers you a 5-year loan with a 9 percent APR. What are the monthly payments? What is the monthly payment if you paid interest only?

You are deciding among several different bank accounts. Which of the following will generate the highest effective annual rate (EAR)?

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

Filters