Exam 5: The Time Value of Money

A deferred annuity will pay you $500 at the end of each year for 10 years,however the first payment will not be made until three years from today (payments will be made at the end of years 3 through 12).What amount will you have to deposit today to fund this deferred annuity? Use an 8% discount rate and round your answer to the nearest $100.

(Multiple Choice)

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Question 141

The future value of a 10-year ordinary annuity is twice as much as the future value of an otherwise identical 5-year annuity.

(True/False)

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Question 142

If you wish to accumulate $200,000 in the child's college fund after 18 years,and can invest at a 7.5% annual rate,how much must you invest at the end of each year if the first deposit is made at the end of the first year?

(Short Answer)

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Question 143

Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.)

(Multiple Choice)

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Question 144

A car manufacturer offers either $2,000 cash back or zero percent financing for 5 years.A rational consumer will always take the cash back because money received today is worth more than money received in the future.

(True/False)

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Question 145

You inherit $300,000 from your parents and want to use the money to supplement your retirement.You receive the money on your 65^th birthday,the day you retire.You want to withdraw equal amounts at the end of each of the next 20 years.What constant amount can you withdraw each month and have nothing remaining at the end of 20 years if you are earning 7% interest compounded monthly?

(Multiple Choice)

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Question 146

The value of a bond investment,which provides fixed interest payments,will increase when discounted at a 8% rate rather than at a 11% rate.

(True/False)

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Question 147

You are going to pay $100 into an account at the beginning of each of the next 40 years.At the beginning of the 41st year you buy a 30 year annuity whose first payment comes at the end of the 41st year (the accounts earn 12%).How much will you receive at the end of the 41st year (i.e.the first annuity payment).Round to nearest $100.

(Multiple Choice)

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Question 148

You own an ordinary annuity contract that will pay you $3,000 per year for 12 years.You need money to pay back a loan in 6 years,and you are afraid if you get the annuity payments annually you will spend the money and not be able to pay back your loan.You decide to sell your annuity for a lump sum of cash to be paid to you five years from today.If the interest rate is 8%,what is the equivalent value of your 12-year annuity if paid in one lump sum five years from today?

(Multiple Choice)

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Question 149

Today is your 21^st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded monthly.How much will be in the account on your 50^th birthday?

(Multiple Choice)

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Question 150

Suppose a corporation can change its depreciation method so that its tax payments will decrease by $1,000 this year but increase by $1,000 next year.

(Multiple Choice)

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Question 151

A bond will pay $5,000 at maturity in 9 years.It also makes semi-annual interest payments of $400 until maturity.If the discount rate is 7% compounded semi-annually,what should be the market price of the bond?

(Short Answer)

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Question 152

Your company has received a $50,000 loan from an industrial finance company.The annual payments are $6,202.70.If the company is paying 9 percent interest per year,how many loan payments must the company make?

(Multiple Choice)

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Question 153

Which of the following conclusions would be true if you earn a higher rate of return on your investments?

(Multiple Choice)

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Question 154

$10,000 invested at 10% per year for 5 years earns interest equal to $6,105.10; therefore,$10,000 invested at 10% per year for 10 years will earn interest equal to $12,210.20 (2 times $6,105.10).

(True/False)

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Question 155

For a given stated interest rate,an investor would receive a greater future value with daily compounding as opposed to monthly compounding.

(True/False)

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Question 156

Bill wants to buy a new boat in 7 years.He expects the new boat will cost $28,000.Bill has $18,000 in an investment account today.What rate of return must Bill earn on his investments to be able to buy the boat on time?

(Essay)

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Question 157

Inputs using an Excel spreadsheet are almost identical to those on a financial calculator,except the interest rate is entered either as a decimal (.05)or a whole number followed by a % sign (5%)rather than simply a whole number (5)as you would enter using a financial calculator.

(True/False)

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Question 158

What is the future value of $500 invested at 9.5% compounded quarterly for 12.5 years (round to nearest $1)?

(Multiple Choice)

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Question 159

At 6 percent compounded monthly,how long will it take to triple your money?

(Multiple Choice)

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Question 160

Showing 141 - 160 of 162

The future value of a 10-year ordinary annuity is twice as much as the future value of an otherwise identical 5-year annuity.

If you wish to accumulate $200,000 in the child's college fund after 18 years,and can invest at a 7.5% annual rate,how much must you invest at the end of each year if the first deposit is made at the end of the first year?

Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.)

A car manufacturer offers either $2,000 cash back or zero percent financing for 5 years.A rational consumer will always take the cash back because money received today is worth more than money received in the future.

The value of a bond investment,which provides fixed interest payments,will increase when discounted at a 8% rate rather than at a 11% rate.

Today is your 21^st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded monthly.How much will be in the account on your 50^th birthday?

Suppose a corporation can change its depreciation method so that its tax payments will decrease by $1,000 this year but increase by $1,000 next year.

A bond will pay $5,000 at maturity in 9 years.It also makes semi-annual interest payments of $400 until maturity.If the discount rate is 7% compounded semi-annually,what should be the market price of the bond?

Your company has received a $50,000 loan from an industrial finance company.The annual payments are $6,202.70.If the company is paying 9 percent interest per year,how many loan payments must the company make?

Which of the following conclusions would be true if you earn a higher rate of return on your investments?

$10,000 invested at 10% per year for 5 years earns interest equal to $6,105.10; therefore,$10,000 invested at 10% per year for 10 years will earn interest equal to $12,210.20 (2 times $6,105.10).

For a given stated interest rate,an investor would receive a greater future value with daily compounding as opposed to monthly compounding.

Bill wants to buy a new boat in 7 years.He expects the new boat will cost $28,000.Bill has $18,000 in an investment account today.What rate of return must Bill earn on his investments to be able to buy the boat on time?

Inputs using an Excel spreadsheet are almost identical to those on a financial calculator,except the interest rate is entered either as a decimal (.05)or a whole number followed by a % sign (5%)rather than simply a whole number (5)as you would enter using a financial calculator.

What is the future value of $500 invested at 9.5% compounded quarterly for 12.5 years (round to nearest $1)?

At 6 percent compounded monthly,how long will it take to triple your money?

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 future value of a 10-year ordinary annuity is twice as much as the future value of an otherwise identical 5-year annuity.

If you wish to accumulate $200,000 in the child's college fund after 18 years,and can invest at a 7.5% annual rate,how much must you invest at the end of each year if the first deposit is made at the end of the first year?

Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.)

A car manufacturer offers either $2,000 cash back or zero percent financing for 5 years.A rational consumer will always take the cash back because money received today is worth more than money received in the future.

The value of a bond investment,which provides fixed interest payments,will increase when discounted at a 8% rate rather than at a 11% rate.

Today is your 21st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded monthly.How much will be in the account on your 50th birthday?

Suppose a corporation can change its depreciation method so that its tax payments will decrease by $1,000 this year but increase by $1,000 next year.

A bond will pay $5,000 at maturity in 9 years.It also makes semi-annual interest payments of $400 until maturity.If the discount rate is 7% compounded semi-annually,what should be the market price of the bond?

Your company has received a $50,000 loan from an industrial finance company.The annual payments are $6,202.70.If the company is paying 9 percent interest per year,how many loan payments must the company make?

Which of the following conclusions would be true if you earn a higher rate of return on your investments?

$10,000 invested at 10% per year for 5 years earns interest equal to $6,105.10; therefore,$10,000 invested at 10% per year for 10 years will earn interest equal to $12,210.20 (2 times $6,105.10).

For a given stated interest rate,an investor would receive a greater future value with daily compounding as opposed to monthly compounding.

Bill wants to buy a new boat in 7 years.He expects the new boat will cost $28,000.Bill has $18,000 in an investment account today.What rate of return must Bill earn on his investments to be able to buy the boat on time?

Inputs using an Excel spreadsheet are almost identical to those on a financial calculator,except the interest rate is entered either as a decimal (.05)or a whole number followed by a % sign (5%)rather than simply a whole number (5)as you would enter using a financial calculator.

What is the future value of $500 invested at 9.5% compounded quarterly for 12.5 years (round to nearest $1)?

At 6 percent compounded monthly,how long will it take to triple your money?

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

Today is your 21^st birthday and your bank account balance is $25,000.Your account is earning 6.5% interest compounded monthly.How much will be in the account on your 50^th birthday?