Question 1

When computing the future value of an annuity,the higher the compound frequency:

Accepted Answer

A) the lower the future value will be. 
B) the higher the future value will be. 
C) the less likely the future value can be calculated. 
D) the more likely the future value can be calculated. 
A) the lower the future value will be. 
B) the higher the future value will be. 
C) the less likely the future value can be calculated. 
D) the more likely the future value can be calculated.

Question 2

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

Accepted Answer

A) A 6 percent rate with monthly compounding 
B) A 6 percent rate with annual compounding 
C) A 6.08 percent rate with annual compounding 
D) A 6 percent rate with quarterly compounding 
A) A 6 percent rate with monthly compounding 
B) A 6 percent rate with annual compounding 
C) A 6.08 percent rate with annual compounding 
D) A 6 percent rate with quarterly compounding

Question 3

Loan Payments 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 4

Sally saves $500 per month in her retirement plan.She plans on making monthly contributions for 35 years.If her account earns a 12 percent annual interest rate,how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

Accepted Answer

A) $1,113,879.14; 43.72 percent 
B) $2,452,905.33; 12.07 percent 
C) $3,215,479.74; 6.53 percent 
D) $3,691,003.27; 8.28 percent 
A) $1,113,879.14; 43.72 percent 
B) $2,452,905.33; 12.07 percent 
C) $3,215,479.74; 6.53 percent 
D) $3,691,003.27; 8.28 percent

Question 5

Chase purchased a $30,000 car three years ago using a 10 percent,5-year car loan.He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan.What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

Accepted Answer

A) $12,000.00 
B) $13,813.25 
C) $21,500.75 
D) $23,739.05 
A) $12,000.00 
B) $13,813.25 
C) $21,500.75 
D) $23,739.05

Question 6

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 7

People refinance their home mortgages:

Accepted Answer

A) when rates fall. 
B) when rates rise. 
C) when rates fall and rise. 
D) whenever they need to, independent of rates. 
A) when rates fall. 
B) when rates rise. 
C) when rates fall and rise. 
D) whenever they need to, independent of rates.

Question 8

Effective Annual Rate A loan is offered with monthly payments and a 6.5 percent APR.What is the loan's effective annual rate (EAR)?

Accepted Answer

A) 5.69 percent 
B) 6.697 percent 
C) 7.28 percent 
D) 12.63 percent 
A) 5.69 percent 
B) 6.697 percent 
C) 7.28 percent 
D) 12.63 percent

Question 9

Present Value What is the present value of a $500 deposit in year 1 and another $100 deposit at the end of year 4 if interest rates are 5 percent?

Accepted Answer

A) $480.00 
B) $493.62 
C) $558.46 
D) $582.27 
A) $480.00 
B) $493.62 
C) $558.46 
D) $582.27

Question 10

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 11

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

Accepted Answer

A) $4,103.06 
B) $4,334.53 
C) $4,615.38 
D) $4,804.00 
A) $4,103.06 
B) $4,334.53 
C) $4,615.38 
D) $4,804.00

Question 12

Annuity Interest Rate What annual interest rate would you need to earn if you wanted a $500 per month contribution to grow to $27,050 in four years?

Accepted Answer

A) 2.37 percent 
B) 5.77 percent 
C) 6.00 percent 
D) 13.53 percent 
A) 2.37 percent 
B) 5.77 percent 
C) 6.00 percent 
D) 13.53 percent

Question 13

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 14

A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred).How much would you have to deposit each month in a savings account earning 3.5 percent APR,compounded monthly,to be able to pay the $3,500 bill in three years?

Accepted Answer

A) $92.35 
B) $108.13 
C) $112.86 
D) $121.97 
A) $92.35 
B) $108.13 
C) $112.86 
D) $121.97

Question 15

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 16

Number of Annuity Payments 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 17

If you start making $115 monthly contributions today and continue them for six years,what is their present value if the compounding rate is 12 percent APR? What is the present value of this annuity?

Accepted Answer

A) $5,512.90 
B) $5,633.10 
C) $5,882.30 
D) $5,941.12 
A) $5,512.90 
B) $5,633.10 
C) $5,882.30 
D) $5,941.12

Question 18

Investing for Retirement 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

Teaser Rate Mortgage A mortgage broker is offering a 30-year mortgage with a teaser rate.In the first two years of the mortgage,the borrower makes monthly payments on only a 5.5 percent APR interest rate.After the second year,the mortgage interest charged increases to 8.5 percent APR.What is the effective interest rate in the first two years? What is the effective interest rate after the second year?

Accepted Answer

A) 5.37 percent, 8.19 percent respectively 
B) 5.50 percent, 8.50 percent respectively 
C) 5.64 percent, 8.84 percent respectively 
D) 12.60 percent, 12.66 percent respectively 
A) 5.37 percent, 8.19 percent respectively 
B) 5.50 percent, 8.50 percent respectively 
C) 5.64 percent, 8.84 percent respectively 
D) 12.60 percent, 12.66 percent respectively

Question 20

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

When computing the future value of an annuity,the higher the compound frequency:

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

Loan Payments 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?

Sally saves $500 per month in her retirement plan.She plans on making monthly contributions for 35 years.If her account earns a 12 percent annual interest rate,how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

Chase purchased a $30,000 car three years ago using a 10 percent,5-year car loan.He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan.What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

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.

People refinance their home mortgages:

Effective Annual Rate A loan is offered with monthly payments and a 6.5 percent APR.What is the loan's effective annual rate (EAR)?

Present Value What is the present value of a $500 deposit in year 1 and another $100 deposit at the end of year 4 if interest rates are 5 percent?

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

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

Annuity Interest Rate What annual interest rate would you need to earn if you wanted a $500 per month contribution to grow to $27,050 in four years?

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?

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?

Number of Annuity Payments 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?

If you start making $115 monthly contributions today and continue them for six years,what is their present value if the compounding rate is 12 percent APR? What is the present value of this annuity?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Valuing Bonds

Valuing Stockspart

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 and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 5: Time Value of Money

When computing the future value of an annuity,the higher the compound frequency:

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

Loan Payments 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?

Sally saves $500 per month in her retirement plan.She plans on making monthly contributions for 35 years.If her account earns a 12 percent annual interest rate,how much will she have at the end of 35 years and what percent of the total are her out-of-pocket contributions?

Chase purchased a $30,000 car three years ago using a 10 percent,5-year car loan.He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan.What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

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.

People refinance their home mortgages:

Effective Annual Rate A loan is offered with monthly payments and a 6.5 percent APR.What is the loan's effective annual rate (EAR)?

Present Value What is the present value of a $500 deposit in year 1 and another $100 deposit at the end of year 4 if interest rates are 5 percent?

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

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

Annuity Interest Rate What annual interest rate would you need to earn if you wanted a $500 per month contribution to grow to $27,050 in four years?

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?

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?

Number of Annuity Payments 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?

If you start making $115 monthly contributions today and continue them for six years,what is their present value if the compounding rate is 12 percent APR? What is the present value of this annuity?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Valuing Bonds

Valuing Stockspart

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 and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters