Question 1

Suppose your credit card issuer states that it charges a 23.75% nominal annual rate,but you must make monthly payments,which amounts to monthly compounding.What is the effective annual rate?

Accepted Answer

A)   28.90%
B)   30.23%
C)   26.51%
D)   26.78%
E)   28.37%F) None of the above
G) A) and E)

Question 2

What is the present value of the following cash flow stream at a rate of 11.00%? ​

Accepted Answer

A)   $523.93
B)   $362.72
C)   $447.80
D)   $465.71
E)   $501.54F) C) and D)
G) B) and D)

Question 3

What is the PV of an ordinary annuity with 5 payments of $8,500 if the appropriate interest rate is 4.5%?

Accepted Answer

A)   $31,717.58
B)   $38,434.25
C)   $44,031.47
D)   $37,314.80
E)   $29,851.84F) B) and C)
G) A) and E)

Question 4

Your uncle will sell you his bicycle shop for $150,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon) payment of $50,000 at the end of the last month.What would your equal monthly payments be?

Accepted Answer

A)   $2,468.58
B)   $2,598.50
C)   $2,988.28
D)   $2,338.65
E)   $2,208.73F) A) and B)
G) B) and E)

Question 5

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Accepted Answer

A)   The annual payments would be larger if the interest rate were lower.
B)   If the loan were amortized over 10 years rather than 7 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 7-year amortization plan.
C)   The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.
D)   The last payment would have a higher proportion of interest than the first payment.
E)   The proportion of interest versus principal repayment would be the same for each of the 7 payments.F) None of the above
G) A) and D)

Question 6

The present value of a future sum increases as either the discount rate or the number of periods per year increases,other things held constant.

Accepted Answer

A) True 
 B)False

Question 7

Sue now has $410.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Accepted Answer

A)   $787.45
B)   $724.45
C)   $929.19
D)   $716.58
E)   $677.21F) B) and D)
G) All of the above

Question 8

Which of the following bank accounts has the lowest effective annual return?

Accepted Answer

A)   An account that pays 8% nominal interest with monthly compounding.
B)   An account that pays 8% nominal interest with annual compounding.
C)   An account that pays 7% nominal interest with daily (365-day) compounding.
D)   An account that pays 7% nominal interest with monthly compounding.
E)   An account that pays 8% nominal interest with daily (365-day) compounding.F) B) and E)
G) None of the above

Question 9

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $1,550 at the end of Year 4 if the interest rate is 5%?

Accepted Answer

A)   $7,773.01
B)   $9,253.58
C)   $11,474.44
D)   $7,125.25
E)   $7,402.86F) C) and D)
G) C) and E)

Question 10

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

Accepted Answer

A)   The present value of a 5-year,$250 annuity due will be lower than the PV of a similar ordinary annuity.
B)   A 30-year,$150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
C)   A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate.
D)   If an investment pays 10% interest,compounded quarterly,its effective annual rate will be greater than 10%.
E)   Banks A and B offer the same nominal annual rate of interest,but A pays interest quarterly and B pays semiannually.Deposits in Bank B will provide the higher future value if you leave your funds on deposit.F) B) and D)
G) A) and E)

Question 11

Suppose you borrowed $35,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?

Accepted Answer

A)   $5,906.80
B)   $5,788.67
C)   $6,261.21
D)   $5,375.19
E)   $7,324.43F) C) and E)
G) A) and B)

Question 12

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would lower the calculated value of the investment?

Accepted Answer

A)   The cash flows are in the form of a deferred annuity,and they total to $100,000.You learn that the annuity lasts for only 5 rather than 10 years,hence that each payment is for $20,000 rather than for $10,000.
B)   The discount rate increases.
C)   The riskiness of the investment's cash flows decreases.
D)   The total amount of cash flows remains the same,but more of the cash flows are received in the earlier years and less are received in the later years.
E)   The discount rate decreases.F) C) and D)
G) B) and E)

Question 13

Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 10.0% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?

Accepted Answer

A)   78.50%
B)   83.97%
C)   84.89%
D)   91.28%
E)   71.19%F) A) and D)
G) D) and E)

Question 14

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

Accepted Answer

A) True 
 B)False

Question 15

A $150,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Accepted Answer

A)   The annual payments would be larger if the interest rate were lower.
B)   If the loan were amortized over 10 years rather than 7 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 7-year amortization plan.
C)   The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.
D)   The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.
E)   The proportion of interest versus principal repayment would be the same for each of the 7 payments.F) None of the above
G) B) and C)

Question 16

Ten years ago,Lucas Inc.earned $0.50 per share.Its earnings this year were $3.60.What was the growth rate in earnings per share (EPS) over the 10-year period?

Accepted Answer

A)   18.99%
B)   23.35%
C)   21.82%
D)   19.64%
E)   24.44%F) A) and B)
G) A) and C)

Question 17

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

Accepted Answer

A)   The present value of a 5-year,$250 annuity due will be lower than the PV of a similar ordinary annuity.
B)   A 30-year,$150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
C)   A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
D)   If an investment pays 10% interest,compounded annually,its effective annual rate will be less than 10%.
E)   Banks A and B offer the same nominal annual rate of interest,but A pays interest quarterly and B pays semiannually.Deposits in Bank B will provide the higher future value if you leave your funds on deposit.F) None of the above
G) A) and D)

Question 18

Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 19.50%,but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.What is the effective annual rate on the loan?

Accepted Answer

A)   19.71%
B)   15.94%
C)   22.02%
D)   20.97%
E)   17.62%F) B) and D)
G) D) and E)

Question 19

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

Accepted Answer

A) True 
 B)False

Question 20

Your sister turned 35 today,and she is planning to save $50,000 per year for retirement,with the first deposit to be made one year from today.She will invest in a mutual fund that's expected to provide a return of 7.5% per year.She plans to retire 30 years from today,when she turns 65,and she expects to live for 25 years after retirement,to age 90.Under these assumptions,how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

Accepted Answer

A)   $542,647.75
B)   $570,475.84
C)   $384,955.24
D)   $463,801.49
E)   $459,163.48F) C) and E)
G) B) and D)

Exam 5: Time Value of Money

What is the PV of an ordinary annuity with 5 payments of $8,500 if the appropriate interest rate is 4.5%?

Correct Answer
verified

Which of the following bank accounts has the lowest effective annual return?

Correct Answer
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A $150,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Correct Answer
verified

The present value of a future sum increases as either the discount rate or the number of periods per year increases,other things held constant.

Correct Answer
verified

Suppose you borrowed $35,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?

Correct Answer
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Correct Answer
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What is the present value of the following cash flow stream at a rate of 11.00%?

Correct Answer
verified

Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 19.50%,but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.What is the effective annual rate on the loan?

Correct Answer
verified

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Correct Answer
verified

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

Correct Answer
verified

Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 10.0% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?

Correct Answer
verified

Ten years ago,Lucas Inc.earned $0.50 per share.Its earnings this year were $3.60.What was the growth rate in earnings per share (EPS) over the 10-year period?

Correct Answer
verified

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

Correct Answer
verified

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $1,550 at the end of Year 4 if the interest rate is 5%?

Correct Answer
verified

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

Correct Answer
verified

Correct Answer
verified

Suppose your credit card issuer states that it charges a 23.75% nominal annual rate,but you must make monthly payments,which amounts to monthly compounding.What is the effective annual rate?

Correct Answer
verified

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

Correct Answer
verified

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would lower the calculated value of the investment?

Correct Answer
verified

Sue now has $410.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Correct Answer
verified

Exam 5: Time Value of Money

What is the PV of an ordinary annuity with 5 payments of $8,500 if the appropriate interest rate is 4.5%?

Correct AnswerverifiedShow Answer

Which of the following bank accounts has the lowest effective annual return?

Correct AnswerverifiedShow Answer

A $150,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Correct AnswerverifiedShow Answer

The present value of a future sum increases as either the discount rate or the number of periods per year increases,other things held constant.

Correct AnswerverifiedShow Answer

Suppose you borrowed $35,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the present value of the following cash flow stream at a rate of 11.00%? ​

Correct AnswerverifiedShow Answer

Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 19.50%,but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.What is the effective annual rate on the loan?

Correct AnswerverifiedShow Answer

A $50,000 loan is to be amortized over 7 years,with annual end-of-year payments.Which of these statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

Correct AnswerverifiedShow Answer

Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 10.0% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?

Correct AnswerverifiedShow Answer

Ten years ago,Lucas Inc.earned $0.50 per share.Its earnings this year were $3.60.What was the growth rate in earnings per share (EPS) over the 10-year period?

Correct AnswerverifiedShow Answer

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

Correct AnswerverifiedShow Answer

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $1,550 at the end of Year 4 if the interest rate is 5%?

Correct AnswerverifiedShow Answer

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose your credit card issuer states that it charges a 23.75% nominal annual rate,but you must make monthly payments,which amounts to monthly compounding.What is the effective annual rate?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

Correct AnswerverifiedShow Answer

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would lower the calculated value of the investment?

Correct AnswerverifiedShow Answer

Sue now has $410.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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What is the present value of the following cash flow stream at a rate of 11.00%?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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