Question 1

Given an 8 percent interest rate, compute the present value of payments made in years 1, 2, 3 and 4 of $900, $800, $700, and $600.

Accepted Answer

A) $2,409.33 
B) $2,515.90 
C) $2,591.72 
D) $2,611.38 
A) $2,409.33 
B) $2,515.90 
C) $2,591.72 
D) $2,611.38

Question 2

Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.

Accepted Answer

A) $3,967.06 
B) $4,351.50 
C) $4,859.81 
D) $5,207.00 
A) $3,967.06 
B) $4,351.50 
C) $4,859.81 
D) $5,207.00

Question 3

Your firm needs to buy additional physical therapy equipment that costs $35,000. The equipment manufacturer will give you the equipment now if you will pay $8,000 per year for the next five years. Assume your firm can borrow at a 3 percent interest rate. You need to analyze if your firm should pay the manufacturer the $35,000 now or accept the five-year annuity offer of $8,000. Which of the following statements is correct?

Accepted Answer

A) You decide to pay $35,000 today because paying in cash is always cheaper. 
B) You decide to pay $35,000 today because paying for the equipment over time costs $36,637.66. 
C) You decide to pay for the equipment over time because it only costs $39,112.86. 
D) Paying for the equipment over time costs $36,637.66, which is less than paying $35,000 today. 
A) You decide to pay $35,000 today because paying in cash is always cheaper. 
B) You decide to pay $35,000 today because paying for the equipment over time costs $36,637.66. 
C) You decide to pay for the equipment over time because it only costs $39,112.86. 
D) Paying for the equipment over time costs $36,637.66, which is less than paying $35,000 today.

Question 4

What is the amount of interest and repayment of principal balance in month 2 for a loan of $10,000, paid monthly over five years at a 7 percent APR?

Accepted Answer

A) Interest = $101.32; Principal repayment = $57.51 
B) Interest = $57.52; Principal repayment = $140.49 
C) Interest = $157.52; Principal repayment = $40.49 
D) Interest = $107.52; Principal repayment = $40.49 
A) Interest = $101.32; Principal repayment = $57.51 
B) Interest = $57.52; Principal repayment = $140.49 
C) Interest = $157.52; Principal repayment = $40.49 
D) Interest = $107.52; Principal repayment = $40.49

Question 5

As a college student, you probably receive many credit card offers in the mail. Consider these two offers. The first card charges a 17 percent APR. An examination of the footnotes reveals that this card compounds monthly. The second credit card charges 16.25 percent APR and compounds weekly. What is the effective annual rate of the cheaper card?

Accepted Answer

A) 17.00 percent 
B) 17.62 percent 
C) 16.25 percent 
D) 18.39 percent 
A) 17.00 percent 
B) 17.62 percent 
C) 16.25 percent 
D) 18.39 percent

Question 6

Level sets of frequent, consistent cash flows are called:

Accepted Answer

A) loans. 
B) budgets. 
C) annuities. 
D) bills. 
A) loans. 
B) budgets. 
C) annuities. 
D) bills.

Question 7

Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by pre-paying?

Accepted Answer

A) $15,981.28 
B) $16,009.62 
C) $17,152.22 
D) $19,001.69 
A) $15,981.28 
B) $16,009.62 
C) $17,152.22 
D) $19,001.69

Question 8

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 $4,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 8 percent per year. If you plan to retire in 35 years, how big will you expect that retirement account to be?

Accepted Answer

A) $689,267.21 
B) $823,147.29 
C) $1,033,900.82 
D) $1,308,427.41 
A) $689,267.21 
B) $823,147.29 
C) $1,033,900.82 
D) $1,308,427.41

Question 9

A perpetuity, a special form of annuity, pays cash flows:

Accepted Answer

A) and is not effected by interest rate changes. 
B) that do not have time value of money implications. 
C) continuously for one year. 
D) periodically forever. 
A) and is not effected by interest rate changes. 
B) that do not have time value of money implications. 
C) continuously for one year. 
D) periodically forever.

Question 10

What is the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?

Accepted Answer

A) 5.64 percent 
B) 7.69 percent 
C) 10.17 percent 
D) 11.32 percent 
A) 5.64 percent 
B) 7.69 percent 
C) 10.17 percent 
D) 11.32 percent

Question 11

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 12

As a college student, you probably receive many credit card offers in the mail. Consider these two offers. The first card charges a 17 percent APR. An examination of the footnotes reveals that this card compounds daily (365 day year). The second credit card charges 18 percent APR and compounds semiannually. What is the effective annual rate of the cheaper card?

Accepted Answer

A) 18.00 percent 
B) 17.00 percent 
C) 18.81 percent 
D) 18.53 percent 
A) 18.00 percent 
B) 17.00 percent 
C) 18.81 percent 
D) 18.53 percent

Question 13

If you start making $25 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

Accepted Answer

A) $101.26, $99.26 
B) $1,352.45, $1,064.51 
C) $1,359.21, $1,069.83 
D) $2,171.02, $1,516.03 
A) $101.26, $99.26 
B) $1,352.45, $1,064.51 
C) $1,359.21, $1,069.83 
D) $2,171.02, $1,516.03

Question 14

Payday loans are very short-term loans that charge very high interest rates. You can borrow $550 today and repay $675 in two weeks. What is the compounded annual rate implied by this 22.73 percent rate charged for only two weeks?

Accepted Answer

A) 25.40 percent 
B) 204.45 percent 
C) 2,04.45 percent 
D) 20,445.61 percent 
A) 25.40 percent 
B) 204.45 percent 
C) 2,04.45 percent 
D) 20,445.61 percent

Question 15

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 16

Phoebe realizes that she has charged too much on her credit card and has racked up $10,000 in debt. If she can pay $300 each month and the card charges 18 percent APR (compounded monthly), how long will it take her to pay off the debt?

Accepted Answer

A) 27.23 months 
B) 33.33 months 
C) 46.56 months 
D) 69.70 months 
A) 27.23 months 
B) 33.33 months 
C) 46.56 months 
D) 69.70 months

Question 17

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 18

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, in total, how much interest expense does Ricky pay to the credit card company?

Accepted Answer

A) $15,987.50 
B) $17,008.52 
C) $12,905.13 
D) $8,714.62 
A) $15,987.50 
B) $17,008.52 
C) $12,905.13 
D) $8,714.62

Question 19

A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2 percent 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 percent APR. What is the cost per month of each deal?

Accepted Answer

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

Question 20

Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

Accepted Answer

A) $4,334.53 
B) $5,070.78 
C) $5,191.68 
D) $5,484.56 
A) $4,334.53 
B) $5,070.78 
C) $5,191.68 
D) $5,484.56

Given an 8 percent interest rate, compute the present value of payments made in years 1, 2, 3 and 4 of $900, $800, $700, and $600.

Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.

What is the amount of interest and repayment of principal balance in month 2 for a loan of $10,000, paid monthly over five years at a 7 percent APR?

Level sets of frequent, consistent cash flows are called:

Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by pre-paying?

A perpetuity, a special form of annuity, pays cash flows:

What is the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?

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

If you start making $25 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

Payday loans are very short-term loans that charge very high interest rates. You can borrow $550 today and repay $675 in two weeks. What is the compounded annual rate implied by this 22.73 percent rate charged for only two weeks?

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?

Phoebe realizes that she has charged too much on her credit card and has racked up $10,000 in debt. If she can pay $300 each month and the card charges 18 percent APR (compounded monthly), how long will it take her to pay off the debt?

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

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, in total, how much interest expense does Ricky pay to the credit card company?

A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2 percent 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 percent APR. What is the cost per month of each deal?

Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

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

Given an 8 percent interest rate, compute the present value of payments made in years 1, 2, 3 and 4 of $900, $800, $700, and $600.

Given a 7 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,500, and $1,500.

What is the amount of interest and repayment of principal balance in month 2 for a loan of $10,000, paid monthly over five years at a 7 percent APR?

Level sets of frequent, consistent cash flows are called:

Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by pre-paying?

A perpetuity, a special form of annuity, pays cash flows:

What is the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?

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

If you start making $25 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?

Payday loans are very short-term loans that charge very high interest rates. You can borrow $550 today and repay $675 in two weeks. What is the compounded annual rate implied by this 22.73 percent rate charged for only two weeks?

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?

Phoebe realizes that she has charged too much on her credit card and has racked up $10,000 in debt. If she can pay $300 each month and the card charges 18 percent APR (compounded monthly), how long will it take her to pay off the debt?

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

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, in total, how much interest expense does Ricky pay to the credit card company?

A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2 percent 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 percent APR. What is the cost per month of each deal?

Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

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