Question 1

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 2

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 money would you have to deposit now in a savings account earning 3.5 percent APR,compounded monthly,to pay the $3,500 bill in three years?

Accepted Answer

A) $2,981.17 
B) $3,151.62 
C) $3,200.61 
D) $3,886.89 
A) $2,981.17 
B) $3,151.62 
C) $3,200.61 
D) $3,886.89

Question 3

Given a 7 percent interest rate,compute the year 8 future value of deposits made in years 1,2,3,and 4 of $750,$1,200,$500,and $250.

Accepted Answer

A) $3,801.62 
B) $3,899.17 
C) $4,034.20 
D) $4,167.29 
A) $3,801.62 
B) $3,899.17 
C) $4,034.20 
D) $4,167.29

Question 4

Consider that you are 30 years old and have just changed to a new job.You have $91,000 in the retirement plan from your former employer.You can roll that money into the retirement plan of the new employer.You will also contribute $4,800 each year into your new employer's plan.If the rolled-over money and the new contributions both earn a 7 percent return,how much should you expect to have when you retire in 38 years?

Accepted Answer

A) $2,012,560.60 
B) $2,018,506.60 
C) $2,106,718.60 
D) $2,216,781.60 
A) $2,012,560.60 
B) $2,018,506.60 
C) $2,106,718.60 
D) $2,216,781.60

Question 5

Explain why the effective annual rate (EAR)is a more accurate measure of the interest rate paid than the annual percentage rate (APR)?

Accepted Answer

Compounding causes t

Question 6

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual rate interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how soon do you pay off your mortgage?

Accepted Answer

A) 329.67 months 
B) 311.56 months 
C) 291.78 months 
D) 288.45 months 
A) 329.67 months 
B) 311.56 months 
C) 291.78 months 
D) 288.45 months

Question 7

When moving from the left to the right of a time line,we are using:

Accepted Answer

A) compound interest to calculate future values. 
B) discounted cash flows to calculate present values. 
C) only payments to calculate future values. 
D) simple interest to calculate future values. 
A) compound interest to calculate future values. 
B) discounted cash flows to calculate present values. 
C) only payments to calculate future values. 
D) simple interest to calculate future values.

Question 8

What is the interest rate of a 6-year,annual $10,000 annuity with a present value of $40,000?

Accepted Answer

A) 11.94 percent 
B) 12.24 percent 
C) 12.98 percent 
D) 13.12 percent 
A) 11.94 percent 
B) 12.24 percent 
C) 12.98 percent 
D) 13.12 percent

Question 9

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 10

Your company borrows $55,000 today to fund its growth initiatives.It must repay the bank in four annual payments of $17,100 at the end of each year.What annual interest rate is your firm paying?

Accepted Answer

A) 7.76 percent 
B) 8.26 percent 
C) 9.33 percent 
D) 10.26 percent 
A) 7.76 percent 
B) 8.26 percent 
C) 9.33 percent 
D) 10.26 percent

Question 11

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

Accepted Answer

A) The number of periods decreases. 
B) The interest rate decreases. 
C) The amortization schedule decreases. 
D) The effective rate is calculated over fewer years. 
A) The number of periods decreases. 
B) The interest rate decreases. 
C) The amortization schedule decreases. 
D) The effective rate is calculated over fewer years.

Question 12

Annuity Interest Rate 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 13

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 14

Given a 10 percent interest rate,compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively,and a withdrawal of $5,000 is made in year 7.

Accepted Answer

A) $44,667.89 
B) $45,103.47 
C) $46,585.66 
D) $47,002.89 
A) $44,667.89 
B) $45,103.47 
C) $46,585.66 
D) $47,002.89

Question 15

You have reviewed your budget and determine that the most you can afford on a car loan is $455 per month.What is the most you can borrow if interest rates are 7 percent and you can pay the loan over four years?

Accepted Answer

A) $19,000.89 
B) $19,741.29 
C) $20,074.82 
D) $21,671.53 
A) $19,000.89 
B) $19,741.29 
C) $20,074.82 
D) $21,671.53

Question 16

A perpetuity pays $250 per year and interest rates are 5.5 percent.How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?

Accepted Answer

A) $1,604.27; increase 
B) $1,604.27; decrease 
C) $1,508.29; increase 
D) $1,508.29; decrease 
A) $1,604.27; increase 
B) $1,604.27; decrease 
C) $1,508.29; increase 
D) $1,508.29; decrease

Question 17

Future Value of an Annuity Due If the future value of an ordinary,4-year annuity is $1,000 and interest rates are 6 percent,what is the future 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 18

Future Value 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

Question 19

Your company borrows $75,000 today to fund its growth initiatives.It must repay the bank in four annual payments of $26,600 at the end of each year.What annual interest rate is your firm paying?

Accepted Answer

A) 15.62 percent 
B) 17.18 percent 
C) 14.74 percent 
D) 16.97 percent 
A) 15.62 percent 
B) 17.18 percent 
C) 14.74 percent 
D) 16.97 percent

Question 20

Compound Frequency Payday loans are very short-term loans that charge very high interest rates.You can borrow $500 today and repay $550 in two weeks.What is the compound annual rate implied by this 10 percent rate charged for only two weeks?

Accepted Answer

A) 10.50 percent 
B) 12.00 percent 
C) 1091.78 percent 
D) 110.50 percent 
A) 10.50 percent 
B) 12.00 percent 
C) 1091.78 percent 
D) 110.50 percent

Level sets of frequent,consistent cash flows are called:

Given a 7 percent interest rate,compute the year 8 future value of deposits made in years 1,2,3,and 4 of $750,$1,200,$500,and $250.

Explain why the effective annual rate (EAR)is a more accurate measure of the interest rate paid than the annual percentage rate (APR)?

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual rate interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how soon do you pay off your mortgage?

When moving from the left to the right of a time line,we are using:

What is the interest rate of a 6-year,annual $10,000 annuity with a present value of $40,000?

Your company borrows $55,000 today to fund its growth initiatives.It must repay the bank in four annual payments of $17,100 at the end of each year.What annual interest rate is your firm paying?

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

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

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

Given a 10 percent interest rate,compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively,and a withdrawal of $5,000 is made in year 7.

You have reviewed your budget and determine that the most you can afford on a car loan is $455 per month.What is the most you can borrow if interest rates are 7 percent and you can pay the loan over four years?

A perpetuity pays $250 per year and interest rates are 5.5 percent.How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?

Future Value of an Annuity Due If the future value of an ordinary,4-year annuity is $1,000 and interest rates are 6 percent,what is the future value of the same annuity due?

Future Value 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.

Your company borrows $75,000 today to fund its growth initiatives.It must repay the bank in four annual payments of $26,600 at the end of each year.What annual interest rate is your firm paying?

Compound Frequency Payday loans are very short-term loans that charge very high interest rates.You can borrow $500 today and repay $550 in two weeks.What is the compound annual rate implied by this 10 percent rate charged for only two weeks?

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

Level sets of frequent,consistent cash flows are called:

Given a 7 percent interest rate,compute the year 8 future value of deposits made in years 1,2,3,and 4 of $750,$1,200,$500,and $250.

Explain why the effective annual rate (EAR)is a more accurate measure of the interest rate paid than the annual percentage rate (APR)?

Your current $95,000 mortgage calls for monthly payments over 30 years at an annual rate interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how soon do you pay off your mortgage?

When moving from the left to the right of a time line,we are using:

What is the interest rate of a 6-year,annual $10,000 annuity with a present value of $40,000?

Your company borrows $55,000 today to fund its growth initiatives.It must repay the bank in four annual payments of $17,100 at the end of each year.What annual interest rate is your firm paying?

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

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

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

Given a 10 percent interest rate,compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively,and a withdrawal of $5,000 is made in year 7.

You have reviewed your budget and determine that the most you can afford on a car loan is $455 per month.What is the most you can borrow if interest rates are 7 percent and you can pay the loan over four years?

A perpetuity pays $250 per year and interest rates are 5.5 percent.How much would its value change if interest increased to 8.5 percent? Did the value increase or decrease?

Future Value of an Annuity Due If the future value of an ordinary,4-year annuity is $1,000 and interest rates are 6 percent,what is the future value of the same annuity due?

Future Value 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.

Your company borrows $75,000 today to fund its growth initiatives.It must repay the bank in four annual payments of $26,600 at the end of each year.What annual interest rate is your firm paying?

Compound Frequency Payday loans are very short-term loans that charge very high interest rates.You can borrow $500 today and repay $550 in two weeks.What is the compound annual rate implied by this 10 percent rate charged for only two weeks?

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