Question 1

When computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining:

Accepted Answer

A) the annual rate earned. 
B) the annual payments required. 
C) whether the present value or the future value is a cash inflow. 
D) whether the present value or the future value is a cash outflow.

Question 2

What is the future value of $600 deposited for 4 years earning an 11 percent interest rate annually?

Accepted Answer

A) $792.90 
B) $803.61 
C) $899.23 
D) $910.84

Question 3

How long will it take $4,000 to reach $4,500 when it grows at 8 percent per year?

Accepted Answer

A) 1.12 years 
B) 1.48 years 
C) 1.53 years 
D) 9.00 years

Question 4

What is the value in year 3 of a $500 cash flow made in year 5 when interest rates are 6 percent?

Accepted Answer

A) $374 
B) $420 
C) $440 
D) $445

Question 5

Approximately what interest rate is needed to double an investment over eight years?

Accepted Answer

A) 8 percent 
B) 9 percent 
C) 12 percent 
D) 100 percent

Question 6

A stock investor deposited $3,450 six years ago. Today the account is valued at $2,180. What annual rate of return has this investor earned?

Accepted Answer

A) 7.95 percent 
B) -7.37 percent 
C) 10.26 percent 
D) -9.74 percent

Question 7

You are scheduled to pay a $350 cash flow in one year, and receive a $1,000 cash flow in years 3 and 4. If interest rates are 10 percent per year, what is the combined present value of these cash flows?

Accepted Answer

A) $991.38 
B) $1,097.14 
C) $1,116.14 
D) $1,213.92

Question 8

Determine the interest rate earned on a $500 deposit when $650 is paid back in one year.

Accepted Answer

A) 0.77 percent 
B) 1.30 percent 
C) 30.0 percent 
D) 77.0 percent

Question 9

What annual rate of return is implied on a $700 loan taken next year when $800 must be repaid in year 3?

Accepted Answer

A) 4.55 percent 
B) 4.76 percent 
C) 6.90 percent 
D) 7.14 percent

Question 10

You invested $5,000 in the stock market one year ago. Today, the investment is valued at $4,500. What return did you earn? What return would you need to get next year to break even overall?

Accepted Answer

A) -111.11 percent, +90 percent, respectively 
B) -90 percent, +111.11 percent, respectively 
C) -10 percent, +11.11 percent, respectively 
D) -11.11 percent, +10 percent, respectively

Question 11

Determine the interest rate earned on a $450 deposit when $475 is paid back in one year.

Accepted Answer

A) 0.89 percent 
B) 1.13 percent 
C) 5.56 percent 
D) 13.0 percent

Question 12

What annual rate of return is implied on a $5,000 loan taken next year when $7,700 must be repaid in year 8?

Accepted Answer

A) 6.36 percent 
B) 7.12 percent 
C) 8.54 percent 
D) 11.62 percent

Question 13

A deposit of $500 earns the following interest rates: 5 percent in the first year,
6 percent in the second year, and
8 percent in the third year.What would be the third year future value?

Accepted Answer

A) $527.14 
B) $595.00 
C) $601.02 
D) $1595.00

Question 14

What is the value in year 7 of a $700 cash flow made in year 3 when the interest rates are 10 percent?

Accepted Answer

A) $478.11 
B) $980.00 
C) $1,024.87 
D) $1,364.10

Question 15

Approximately what interest rate is needed to double an investment over four years?

Accepted Answer

A) 4 percent 
B) 18 percent 
C) 25 percent 
D) 100 percent

Question 16

Approximately what interest rate is needed to double an investment over six years?

Accepted Answer

A) 6 percent 
B) 12 percent 
C) 17 percent 
D) 100 percent

Question 17

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7 and increase to 13 percent in the remaining years?

Accepted Answer

A) $1,538.62 
B) $1,691.47 
C) $1,714.31 
D) $1,799.42

Question 18

How many years (and months) will it take $1 million to grow to $3 million with an annual interest rate of 7.5 percent?

Accepted Answer

A) 15 years and 2.29 month 
B) 17 years and 5.6 months 
C) 18 years and 3.8 months 
D) 19 years and 2.4 months

Question 19

You invested $1,000 in the stock market one year ago. Today, the investment is valued at $750. What return did you earn? What return would you need to get next year to break even overall?

Accepted Answer

A) -112.5 percent, +75 percent, respectively 
B) -75 percent, +112.5 percent, respectively 
C) -33.33 percent, +25 percent, respectively 
D) -25 percent, +33.33 percent, respectively

Question 20

Assume that you borrow $2,000 from your sister and that you will pay her back in one lump sum. She charges you 9 percent interest in year 1 and increases the rate by 1 percent per year until the loan is paid off. How much will you owe if you wait until year 3 to pay off the loan?

Accepted Answer

A) $2,467.91 
B) $2,661.78 
C) $2,775.23 
D) $2,809.53

Exam 4: Time Value of Money 1: Analyzing Single Cash Flows