Question 1

The present value of a single future sum

Accepted Answer

A)  increases as the number of discount periods increases. 
B)  is generally larger than the future sum. 
C)  depends upon the number of discount periods. 
D)  increases as the discount rate increases. 
A)  increases as the number of discount periods increases. 
B)  is generally larger than the future sum. 
C)  depends upon the number of discount periods. 
D)  increases as the discount rate increases.

Question 2

What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%.The first payment will be received one year from today (round to nearest $1).

Accepted Answer

A)  $25 
B)  $40 
C)  $57 
D)  $118 
A)  $25 
B)  $40 
C)  $57 
D)  $118

Question 3

Ann deposited $1,000 in a bank account,and 10 years later she closes out the account,which is worth $2,000.What annual rate of interest has she earned over the 10 years?

Accepted Answer

A)  6.45% 
B)  7.18% 
C)  9.10% 
D)  10.0% 
A)  6.45% 
B)  7.18% 
C)  9.10% 
D)  10.0%

Question 4

Today is your 30th birthday and you must choose between two retirement options.The first option will provide you with 10 equal annual payments of $100,000 beginning on your 65th birthday.The second option will provide you with one payment of $1,000,000 on your 70th birthday.If the interest rate is 6 percent per year and you are assured of living to at least 80 years of age,which option is better?

Accepted Answer

You must find the value of each option a

Question 5

The present value of an annuity increases as the discount rate increases.

Accepted Answer

A) True 
 B)False

Question 6

If you want to have $4,200 in 29 months,how much money must you put in a savings account today? Assume that the savings account pays 12% and it is compounded monthly (round to nearest $1).

Accepted Answer

A)  $3,147 
B)  $3,009 
C)  $2,678 
D)  $2,439 
A)  $3,147 
B)  $3,009 
C)  $2,678 
D)  $2,439

Question 7

You just graduated and landed your first job in your new career.You remember that your favorite finance professor told you to begin the painless job of saving for retirement as soon as possible,so you decided to put away $2,000 at the end of each year in a Roth IRA.Your expected annual rate of return on the IRA is 7.5%.How much will you accumulate at retirement after 40 years of investing (note: this may assume that you are even retiring early)?

Accepted Answer

A)  $94,426 
B)  $247,921 
C)  $1,088,632 
D)  $454,513 
A)  $94,426 
B)  $247,921 
C)  $1,088,632 
D)  $454,513

Question 8

What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today,and the discount rate is 9% (round to nearest $1).

Accepted Answer

A)  $36,288 
B)  $35,712 
C)  $25,699 
D)  $24,132 
A)  $36,288 
B)  $35,712 
C)  $25,699 
D)  $24,132

Question 9

A timeline identifies the timing and amount of a stream of cash flows,along with the interest rate it earns.

Accepted Answer

A) True 
 B)False

Question 10

Timelines are used for simple time value of money problems,but cannot be used for more complex problems.

Accepted Answer

A) True 
 B)False

Question 11

You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400.You auction it on Ebay and receive $8,000 for your item.What annual rate of return did you earn?

Accepted Answer

A)  200.00% 
B)  34.93% 
C)  30.47% 
D)  20.00% 
A)  200.00% 
B)  34.93% 
C)  30.47% 
D)  20.00%

Question 12

If you want to have $5,000 in 10 years,how much money must you put in a savings account today? (Assume that the savings account pays 4% and it is compounded daily; round to the nearest $1).

Accepted Answer

A)  $3,352 
B)  $3,370 
C)  $4,102 
D)  $4,207 
A)  $3,352 
B)  $3,370 
C)  $4,102 
D)  $4,207

Question 13

You have a savings bond that will be worth $500 when it matures in 3 years,but you need cash today.If the current going rate of interest is 5%,what is your bond worth if you sell it today (rounded to the nearest dollar)?

Accepted Answer

A)  $475 
B)  $432 
C)  $425 
D)  $412 
A)  $475 
B)  $432 
C)  $425 
D)  $412

Question 14

Congratulations! You have been accepted to study gourmet cooking at the Cordon-Bleu Cooking School in Paris.You will need $10,000 every 6 months (beginning today)for the next three years to cover tuition and living expenses.Mom and Dad have agreed to pay for your education,and want to make one deposit today in a bank account earning 6% interest,compounded semi-annually.How much must they deposit now so that you can withdraw $10,000 at the beginning of each semester over the next 3 years?

Accepted Answer

A)  $54,172 
B)  $55,797 
C)  $57,422 
D)  $56,604 
A)  $54,172 
B)  $55,797 
C)  $57,422 
D)  $56,604

Question 15

If you put $2,000 in a savings account that yields 8% compounded semi-annually,how much money will you have in the account in 20 years (round to nearest $10)?

Accepted Answer

A)  $6,789 
B)  $8,342 
C)  $9,602 
D)  $9,972 
A)  $6,789 
B)  $8,342 
C)  $9,602 
D)  $9,972

Question 16

If you invest $750 every six months at 8 percent compounded semi-annually,how much would you accumulate at the end of 10 years?

Accepted Answer

A)  $10,065 
B)  $10,193 
C)  $22,334 
D)  $21,731 
A)  $10,065 
B)  $10,193 
C)  $22,334 
D)  $21,731

Question 17

Your son will be attending an expensive university in 12 years.You deposit $5,000 per year for 12 years,beginning today.How much money will be in the college fund 12 years from now if the fund earns 8% per year?

Accepted Answer

The answer of Your son will be attending an expensive...

Question 18

An investment earning simple interest is preferred over an investment earning compound interest because the simplicity adds value.

Accepted Answer

A) True 
 B)False

Question 19

Charlie wants to retire in 15 years,and he wants to have an annuity of $50,000 a year for 20 years after retirement.Charlie wants to receive the first annuity payment the day he retires.Using an interest rate of 8%,how much must Charlie invest today in order to have his retirement annuity (round to nearest $10).

Accepted Answer

A)  $167,130 
B)  $200,450 
C)  $256,890 
D)  $315,240 
A)  $167,130 
B)  $200,450 
C)  $256,890 
D)  $315,240

Question 20

Your son is born today and you want to make him a millionaire by the time he is 50 years old.You deposit $50,000 in an investment account and want to know what annual interest rate must you earn in order to have the account value equal to $1,000,000 on your son's 50th birthday.

Accepted Answer

A)  17.8% 
B)  12.4% 
C)  9.5% 
D)  6.2% 
A)  17.8% 
B)  12.4% 
C)  9.5% 
D)  6.2%

The present value of a single future sum

What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%.The first payment will be received one year from today (round to nearest $1).

Ann deposited $1,000 in a bank account,and 10 years later she closes out the account,which is worth $2,000.What annual rate of interest has she earned over the 10 years?

The present value of an annuity increases as the discount rate increases.

If you want to have $4,200 in 29 months,how much money must you put in a savings account today? Assume that the savings account pays 12% and it is compounded monthly (round to nearest $1).

What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today,and the discount rate is 9% (round to nearest $1).

A timeline identifies the timing and amount of a stream of cash flows,along with the interest rate it earns.

Timelines are used for simple time value of money problems,but cannot be used for more complex problems.

You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400.You auction it on Ebay and receive $8,000 for your item.What annual rate of return did you earn?

If you want to have $5,000 in 10 years,how much money must you put in a savings account today? (Assume that the savings account pays 4% and it is compounded daily; round to the nearest $1).

You have a savings bond that will be worth $500 when it matures in 3 years,but you need cash today.If the current going rate of interest is 5%,what is your bond worth if you sell it today (rounded to the nearest dollar)?

If you put $2,000 in a savings account that yields 8% compounded semi-annually,how much money will you have in the account in 20 years (round to nearest $10)?

If you invest $750 every six months at 8 percent compounded semi-annually,how much would you accumulate at the end of 10 years?

Your son will be attending an expensive university in 12 years.You deposit $5,000 per year for 12 years,beginning today.How much money will be in the college fund 12 years from now if the fund earns 8% per year?

An investment earning simple interest is preferred over an investment earning compound interest because the simplicity adds value.

Your son is born today and you want to make him a millionaire by the time he is 50 years old.You deposit $50,000 in an investment account and want to know what annual interest rate must you earn in order to have the account value equal to $1,000,000 on your son's 50^th birthday.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

International Business Finance

Filters

Exam 5: The Time Value of Money

The present value of a single future sum

What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%.The first payment will be received one year from today (round to nearest $1).

Ann deposited $1,000 in a bank account,and 10 years later she closes out the account,which is worth $2,000.What annual rate of interest has she earned over the 10 years?

The present value of an annuity increases as the discount rate increases.

If you want to have $4,200 in 29 months,how much money must you put in a savings account today? Assume that the savings account pays 12% and it is compounded monthly (round to nearest $1).

What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today,and the discount rate is 9% (round to nearest $1).

A timeline identifies the timing and amount of a stream of cash flows,along with the interest rate it earns.

Timelines are used for simple time value of money problems,but cannot be used for more complex problems.

You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400.You auction it on Ebay and receive $8,000 for your item.What annual rate of return did you earn?

If you want to have $5,000 in 10 years,how much money must you put in a savings account today? (Assume that the savings account pays 4% and it is compounded daily; round to the nearest $1).

You have a savings bond that will be worth $500 when it matures in 3 years,but you need cash today.If the current going rate of interest is 5%,what is your bond worth if you sell it today (rounded to the nearest dollar)?

If you put $2,000 in a savings account that yields 8% compounded semi-annually,how much money will you have in the account in 20 years (round to nearest $10)?

If you invest $750 every six months at 8 percent compounded semi-annually,how much would you accumulate at the end of 10 years?

Your son will be attending an expensive university in 12 years.You deposit $5,000 per year for 12 years,beginning today.How much money will be in the college fund 12 years from now if the fund earns 8% per year?

An investment earning simple interest is preferred over an investment earning compound interest because the simplicity adds value.

Your son is born today and you want to make him a millionaire by the time he is 50 years old.You deposit $50,000 in an investment account and want to know what annual interest rate must you earn in order to have the account value equal to $1,000,000 on your son's 50th birthday.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

International Business Finance

Filters

Your son is born today and you want to make him a millionaire by the time he is 50 years old.You deposit $50,000 in an investment account and want to know what annual interest rate must you earn in order to have the account value equal to $1,000,000 on your son's 50^th birthday.