Question 1

Loan amortization schedules show

Accepted Answer

A)  the principal balance paid per period only. 
B)  the interest paid per period only. 
C)  both the principal balance and interest paid per period. 
D)  the present value of the payments due. 
A)  the principal balance paid per period only. 
B)  the interest paid per period only. 
C)  both the principal balance and interest paid per period. 
D)  the present value of the payments due.

Question 2

You started your first job after graduating from college.Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year.You expect to contribute $2,000 per year from your salary.You decide to invest the contributions in assets that you expect to earn 10 percent per year.If you plan to retire in 40 years,how big will you expect that retirement account to be?

Accepted Answer

A)  $442,592.56 
B)  $885,185.11 
C)  $1,327,777.67 
D)  $1,527,787.70 
A)  $442,592.56 
B)  $885,185.11 
C)  $1,327,777.67 
D)  $1,527,787.70

Question 3

Compute the present value of a $2,500 deposit in year 4 and another $10,000 deposit at the end of year 8 if interest rates are 15 percent.

Accepted Answer

A)  $4,211.26 
B)  $4,572.19 
C)  $4,698.40 
D)  $4,901.57 
A)  $4,211.26 
B)  $4,572.19 
C)  $4,698.40 
D)  $4,901.57

Question 4

Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how much interest expense do you save by pre-paying?

Accepted Answer

A)  $15,981.28 
B)  $16,009.62 
C)  $17,152.22 
D)  $19,001.69 
A)  $15,981.28 
B)  $16,009.62 
C)  $17,152.22 
D)  $19,001.69

Question 5

Many people who want to start investing for their future want to start today,which implies an annuity stream that is paid at the beginning of the period.Beginning-of-period cash flows are referred to as

Accepted Answer

A)  ordinary annuities. 
B)  annuities due. 
C)  perpetuities. 
D)  present values. 
A)  ordinary annuities. 
B)  annuities due. 
C)  perpetuities. 
D)  present values.

Question 6

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 7

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 8

A perpetuity pays $100 per year and interest rates are 6.5 percent.How much would its value change if interest rates increased to 9 percent?

Accepted Answer

A)  $250.00 increase 
B)  $250.00 decrease 
C)  $427.35 increase 
D)  $427.35 decrease 
A)  $250.00 increase 
B)  $250.00 decrease 
C)  $427.35 increase 
D)  $427.35 decrease

Question 9

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

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

Accepted Answer

A)  5.20 percent 
B)  10.41 percent 
C)  59.94 percent 
D)  64.15 percent 
A)  5.20 percent 
B)  10.41 percent 
C)  59.94 percent 
D)  64.15 percent

Question 11

Isaac realizes that he charged too much on his credit card and has racked up $5,000 in debt.If he can pay $225 each month and the card charges 17.55 percent APR (compounded monthly),how long will it take him to pay off the credit card?

Accepted Answer

A)  19.14 months 
B)  21.77 months 
C)  22.62 months 
D)  27.07 months 
A)  19.14 months 
B)  21.77 months 
C)  22.62 months 
D)  27.07 months

Question 12

What annual interest rate would you need to earn if you wanted a $1,250 per month contribution to grow to $65,000 in three years?

Accepted Answer

A)  18.59 percent 
B)  21.26 percent 
C)  24.00 percent 
D)  25.19 percent 
A)  18.59 percent 
B)  21.26 percent 
C)  24.00 percent 
D)  25.19 percent

Question 13

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 14

Your firm needs to buy additional physical therapy equipment that costs $35,000.The equipment manufacturer will give you the equipment now if you will pay $8,000 per year for the next five years.Assume your firm can borrow at a 3 percent interest rate.You need to analyze if your firm should pay the manufacturer the $35,000 now or accept the five-year annuity offer of $8,000.Which of the following statements is correct?

Accepted Answer

A)  You decide to pay $35,000 today because paying in cash is always cheaper. 
B)  You decide to pay $35,000 today because paying for the equipment over time costs $36,637.66. 
C)  You decide to pay for the equipment over time because it only costs $39,112.86. 
D)  Paying for the equipment over time costs $36,637.66, which is less than paying $35,000 today. 
A)  You decide to pay $35,000 today because paying in cash is always cheaper. 
B)  You decide to pay $35,000 today because paying for the equipment over time costs $36,637.66. 
C)  You decide to pay for the equipment over time because it only costs $39,112.86. 
D)  Paying for the equipment over time costs $36,637.66, which is less than paying $35,000 today.

Question 15

Compounding monthly versus annually causes the interest rate to be effectively higher,and thus the future value

Accepted Answer

A)  grows. 
B)  decreases. 
C)  is independent of the monthly compounding. 
D)  is affected only if the calculation involves an annuity due. 
A)  grows. 
B)  decreases. 
C)  is independent of the monthly compounding. 
D)  is affected only if the calculation involves an annuity due.

Question 16

You just bought a new home and have a 30-year mortgage with monthly payments.Which statement regarding your mortgage is correct?

Accepted Answer

A)  Your monthly payments will decrease over time. 
B)  The dollar amount of interest expense you pay each year will remain the same each year. 
C)  The dollar amount of principal paid increases each month. 
D)  All of these choices are correct. 
A)  Your monthly payments will decrease over time. 
B)  The dollar amount of interest expense you pay each year will remain the same each year. 
C)  The dollar amount of principal paid increases each month. 
D)  All of these choices are correct.

Question 17

Given an 8 percent interest rate,compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3,respectively,and a withdrawal of $2,000 is made in year 5.

Accepted Answer

A)  $1,909.42 
B)  $3,272.41 
C)  $3,433.60 
D)  $5,656.34 
A)  $1,909.42 
B)  $3,272.41 
C)  $3,433.60 
D)  $5,656.34

Question 18

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 19

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 20

Given a 7 percent interest rate,compute the present value of deposits made in years 1,2,3,and 4 of $1,000,$1,200,$1,500,and $1,500.

Accepted Answer

A)  $3,967.06 
B)  $4,351.50 
C)  $4,859.81 
D)  $5,207.00 
A)  $3,967.06 
B)  $4,351.50 
C)  $4,859.81 
D)  $5,207.00

Loan amortization schedules show

Compute the present value of a $2,500 deposit in year 4 and another $10,000 deposit at the end of year 8 if interest rates are 15 percent.

Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how much interest expense do you save by pre-paying?

Many people who want to start investing for their future want to start today,which implies an annuity stream that is paid at the beginning of the period.Beginning-of-period cash flows are referred to as

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

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?

A perpetuity pays $100 per year and interest rates are 6.5 percent.How much would its value change if interest rates increased to 9 percent?

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?

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

Isaac realizes that he charged too much on his credit card and has racked up $5,000 in debt.If he can pay $225 each month and the card charges 17.55 percent APR (compounded monthly),how long will it take him to pay off the credit card?

What annual interest rate would you need to earn if you wanted a $1,250 per month contribution to grow to $65,000 in three years?

Your credit rating and current economic conditions will determine

Compounding monthly versus annually causes the interest rate to be effectively higher,and thus the future value

You just bought a new home and have a 30-year mortgage with monthly payments.Which statement regarding your mortgage is correct?

Given an 8 percent interest rate,compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3,respectively,and a withdrawal of $2,000 is made in year 5.

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?

Given a 7 percent interest rate,compute the present value of deposits made in years 1,2,3,and 4 of $1,000,$1,200,$1,500,and $1,500.

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

Loan amortization schedules show

Compute the present value of a $2,500 deposit in year 4 and another $10,000 deposit at the end of year 8 if interest rates are 15 percent.

Your current $155,000 mortgage calls for monthly payments over 25 years at an annual interest rate of 6 percent.If you pay an additional $50 each month beginning with the first payment,how much interest expense do you save by pre-paying?

Many people who want to start investing for their future want to start today,which implies an annuity stream that is paid at the beginning of the period.Beginning-of-period cash flows are referred to as

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

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?

A perpetuity pays $100 per year and interest rates are 6.5 percent.How much would its value change if interest rates increased to 9 percent?

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?

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

Isaac realizes that he charged too much on his credit card and has racked up $5,000 in debt.If he can pay $225 each month and the card charges 17.55 percent APR (compounded monthly),how long will it take him to pay off the credit card?

What annual interest rate would you need to earn if you wanted a $1,250 per month contribution to grow to $65,000 in three years?

Your credit rating and current economic conditions will determine

Compounding monthly versus annually causes the interest rate to be effectively higher,and thus the future value

You just bought a new home and have a 30-year mortgage with monthly payments.Which statement regarding your mortgage is correct?

Given an 8 percent interest rate,compute the year 7 future value if deposits of $1,500 and $2,500 are made in years 2 and 3,respectively,and a withdrawal of $2,000 is made in year 5.

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?

Given a 7 percent interest rate,compute the present value of deposits made in years 1,2,3,and 4 of $1,000,$1,200,$1,500,and $1,500.

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