Question 1

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 2

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. Assume you get a 15-year mortgage with a 6 percent interest rate. If the house appreciates at a 2 percent rate per year, what will be the value of the house in seven years? How much of this value is equity?

Accepted Answer

A) $172,302.85; $65,101.91 
B) $172,302.85; $85,615.01 
C) $185,612.09; $79,662.83 
D) $185,612.09; $81,038.72 
A) $172,302.85; $65,101.91 
B) $172,302.85; $85,615.01 
C) $185,612.09; $79,662.83 
D) $185,612.09; $81,038.72

Question 3

Your 30-year $95,000 mortgage calls for payments to be made at the end of each month. The loan has a 5.85 percent annual interest rate. What is the remaining balance after five years?

Accepted Answer

A) $68,194.73 
B) $76,903.26 
C) $81,072.85 
D) $88,236.17 
A) $68,194.73 
B) $76,903.26 
C) $81,072.85 
D) $88,236.17

Question 4

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Accepted Answer

A) $847.50 
B) $1,192.00 
C) $2,118.75 
D) $6,192.00 
A) $847.50 
B) $1,192.00 
C) $2,118.75 
D) $6,192.00

Question 5

If the future value of an ordinary, 11-year annuity is $5,575 and interest rates are 5.5 percent, what is the future value of the same annuity due?

Accepted Answer

A) $5,619.52 
B) $5,769.06 
C) $5,881.63 
D) $5,947.88 
A) $5,619.52 
B) $5,769.06 
C) $5,881.63 
D) $5,947.88

Question 6

A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $1,500 per month for the next three years and then $500 per month for the two years after that. If the bank is charging customers 5.5 percent APR, how much would it be willing to lend the business owner?

Accepted Answer

A) $4,046.90 
B) $59,293.50 
C) $24.261.00 
D) $66,000.00 
A) $4,046.90 
B) $59,293.50 
C) $24.261.00 
D) $66,000.00

Question 7

When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.

Accepted Answer

A) present value 
B) future value 
C) time value to money 
D) payment 
A) present value 
B) future value 
C) time value to money 
D) payment

Question 8

You have secured a loan from your bank for two years to build your home. The terms of the loan are that you will borrow $120,000 now and an additional $52,000 in one year. Interest of 9 percent APR will be charged on the balance monthly. Since no payments will be made during the 2-year loan, the balance will grow. At the end of the two years, the balance will be converted to a traditional 30-year mortgage at a 6.5 percent interest rate. What will you pay as monthly mortgage payments (principal and interest only)?

Accepted Answer

A) $998.49 
B) $1063.27 
C) $1,190.14 
D) $1,266.97 
A) $998.49 
B) $1063.27 
C) $1,190.14 
D) $1,266.97

Question 9

What is the present value, when interest rates are 10 percent, of a $75 payment made every year forever?

Accepted Answer

A) $6.75 
B) $675.00 
C) $750.00 
D) $1,000.00 
A) $6.75 
B) $675.00 
C) $750.00 
D) $1,000.00

Question 10

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 11

The present value of annuity payments made far into the future is:

Accepted Answer

A) worth very little today. 
B) worth much more today. 
C) valued as having no time value of money. 
D) valued as worthless as their value is not determinable. 
A) worth very little today. 
B) worth much more today. 
C) valued as having no time value of money. 
D) valued as worthless as their value is not determinable.

Question 12

Which of the following will decrease 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 increases. 
D) The final payment increases. 
A) The discount rate increases. 
B) The discount rate decreases. 
C) The number of periods the annuity is received increases. 
D) The final payment increases.

Question 13

What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

Accepted Answer

A) $204.17 
B) $440.80 
C) $1,197.81 
D) $1,938.96 
A) $204.17 
B) $440.80 
C) $1,197.81 
D) $1,938.96

Question 14

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?

Accepted Answer

A) $997.28 
B) $1,072.51 
C) $1,139.21 
D) $1,238.93 
A) $997.28 
B) $1,072.51 
C) $1,139.21 
D) $1,238.93

Question 15

Given a 6 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.

Accepted Answer

A) $4,356.52 
B) $4,741.68 
C) $5,188.68 
D) $5,506.00 
A) $4,356.52 
B) $4,741.68 
C) $5,188.68 
D) $5,506.00

Question 16

Jasmine has decided that she wants to build enough retirement wealth that, if invested at 6 percent per year, will provide her with $3,000 of monthly income for 30 years. To date, she has saved nothing but she still has 25 years until she retires. Jasmine believes that she can earn 9 percent on her investments until she retires. How much money does she need to contribute per month to reach her goal?

Accepted Answer

A) $446.32 
B) $521.84 
C) $667.13 
D) $722.05 
A) $446.32 
B) $521.84 
C) $667.13 
D) $722.05

Question 17

What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?

Accepted Answer

A) $1,917.25 
B) $7,002.99 
C) $12,720.00 
D) $18,620.78 
A) $1,917.25 
B) $7,002.99 
C) $12,720.00 
D) $18,620.78

Question 18

Which of the following statements is correct?

Accepted Answer

A) a. A 15-year mortgage will have larger monthly payments than a 30-year mortgage. 
B) b. If an account earns 3 percent per year compounded annually, then it also has an effective annual rate (EAR) of 3 percent. 
C) c. The present value of a $500 perpetuity is greater if the interest rate is higher. 
D) d. Statements a, b, and c are correct. 
E) e. Only statements a and b are correct. 
A) a. A 15-year mortgage will have larger monthly payments than a 30-year mortgage. 
B) b. If an account earns 3 percent per year compounded annually, then it also has an effective annual rate (EAR) of 3 percent. 
C) c. The present value of a $500 perpetuity is greater if the interest rate is higher. 
D) d. Statements a, b, and c are correct. 
E) e. Only statements a and b are correct.

Question 19

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 20

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $500,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $4,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

Accepted Answer

A) 6.92 percent 
B) 7.45 percent 
C) 8.94 percent 
D) 9.17 percent 
A) 6.92 percent 
B) 7.45 percent 
C) 8.94 percent 
D) 9.17 percent

Your credit rating and current economic conditions will determine:

Your 30-year $95,000 mortgage calls for payments to be made at the end of each month. The loan has a 5.85 percent annual interest rate. What is the remaining balance after five years?

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

If the future value of an ordinary, 11-year annuity is $5,575 and interest rates are 5.5 percent, what is the future value of the same annuity due?

When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.

What is the present value, when interest rates are 10 percent, of a $75 payment made every year forever?

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?

The present value of annuity payments made far into the future is:

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

What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?

Given a 6 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.

What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?

Which of the following statements is correct?

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?

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $500,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $4,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

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

Your credit rating and current economic conditions will determine:

Your 30-year $95,000 mortgage calls for payments to be made at the end of each month. The loan has a 5.85 percent annual interest rate. What is the remaining balance after five years?

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

If the future value of an ordinary, 11-year annuity is $5,575 and interest rates are 5.5 percent, what is the future value of the same annuity due?

When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.

What is the present value, when interest rates are 10 percent, of a $75 payment made every year forever?

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?

The present value of annuity payments made far into the future is:

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

What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?

Given a 6 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.

What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?

Which of the following statements is correct?

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?

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $500,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $4,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

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