Question 1

Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the beginning of each of the next 20 years?

Accepted Answer

A)   $22,598.63
B)   $23,788.03
C)   $25,040.03
D)   $26,357.92
E)   $27,675.82F) A) and D)
G) A) and C)

Question 2

You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters)  from now and another $7,500 to the account two years (8 quarters)  from now, how much will be in the account three years (12 quarters)  from now?

Accepted Answer

A)   $15,234.08
B)   $16,035.88
C)   $16,837.67
D)   $17,679.55
E)   $18,563.53F) B) and C)
G) A) and E)

Question 3

You have just purchased a U.S. Treasury bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate will you earn on this bond?

Accepted Answer

A)   4.37%
B)   4.86%
C)   5.40%
D)   6.00%
E)   6.60%F) A) and B)
G) A) and C)

Question 4

Partners Bank offers to lend you $50,000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly. An offer to lend you the $50,000 also comes from Community Bank, but it will charge 6.0%, simple interest, with interest paid at the end of the year. What's the difference in the effective annual rates charged by the two banks?

Accepted Answer

A)   1.56%
B)   1.30%
C)   1.09%
D)   0.91%
E)   0.72%F) All of the above
G) C) and D)

Question 5

At a rate of 6.5%, what is the future value of the following cash flow stream?

Accepted Answer

A)   $526.01
B)   $553.69
C)   $582.83
D)   $613.51
E)   $645.80F) B) and D)
G) All of the above

Question 6

All other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Suppose United Bank offers to lend you $10,000 for one year at a nominal annual rate of 8.00%, 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)   8.24%
B)   8.45%
C)   8.66%
D)   8.88%
E)   9.10%F) D) and E)
G) A) and B)

Question 9

A new investment opportunity for you is an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Accepted Answer

A)   $1,412.84
B)   $1,487.20
C)   $1,565.48
D)   $1,643.75
E)   $1,725.94F) C) and D)
G) B) and C)

Question 10

You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th month, you will have $13,000 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

Accepted Answer

A)   7.62%
B)   8.00%
C)   8.40%
D)   8.82%
E)   9.26%F) A) and D)
G) All of the above

Question 11

Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Accepted Answer

A)   $205.83
B)   $216.67
C)   $228.07
D)   $240.08
E)   $252.08F) A) and B)
G) B) and C)

Question 12

Which of the following statements is CORRECT?

Accepted Answer

A)   If CF0 is positive and all the other CFs are negative, then you cannot solve for I.
B)   If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
C)   If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
D)   To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
E)   If you solve for I and get a negative number, then you must have made a mistake.F) C) and D)
G) A) and B)

Question 13

Wildwoods, Inc. earned $1.50 per share five years ago. Its earnings this year were $3.20. What was the growth rate in earnings per share (EPS)  over the 5-year period?

Accepted Answer

A)   15.54%
B)   16.36%
C)   17.18%
D)   18.04%
E)   18.94%F) A) and B)
G) D) and E)

Question 14

Your aunt wants to retire and has $375,000. She expects to live for another 25 years and to earn 7.5% on her invested funds. How much could she withdraw at the end of each of the next 25 years and end up with zero in the account?

Accepted Answer

A)   $28,843.38
B)   $30,361.46
C)   $31,959.43
D)   $33,641.50
E)   $35,323.58F) A) and C)
G) A) and B)

Question 15

Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave her as well off financially as with the annuity?

Accepted Answer

A)   $225,367
B)   $237,229
C)   $249,090
D)   $261,545
E)   $274,622F) B) and E)
G) None of the above

Question 16

You have purchased a U.S. Treasury bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000. What interest rate will you earn on this bond?

Accepted Answer

A)   3.82%
B)   4.25%
C)   4.72%
D)   5.24%
E)   5.77%F) C) and D)
G) A) and B)

Question 17

Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

Accepted Answer

A) True 
 B)False

Question 18

How much would $1, growing at 3.5% per year, be worth after 75 years?

Accepted Answer

A)   $12.54
B)   $13.20
C)   $13.86
D)   $14.55
E)   $15.28F) All of the above
G) A) and B)

Question 19

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Accepted Answer

A)   $969
B)   $1,020
C)   $1,074
D)   $1,131
E)   $1,187F) A) and B)
G) All of the above

Question 20

You want to buy new kitchen appliances 2 years from now, and you plan to save $8,200 per year, beginning one year from today. You will deposit your savings in an account that pays 6.2% interest. How much will you have just after you make the 2nd deposit, 2 years from now?

Accepted Answer

A)   $15,260
B)   $16,063
C)   $16,908
D)   $17,754
E)   $18,642F) C) and E)
G) B) and D)

Exam 4: Time Value of Money

A new investment opportunity for you is an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Correct Answer
verified

Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the beginning of each of the next 20 years?

Correct Answer
verified

Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave her as well off financially as with the annuity?

Correct Answer
verified

At a rate of 6.5%, what is the future value of the following cash flow stream?

Correct Answer
verified

Correct Answer
verified

Wildwoods, Inc. earned $1.50 per share five years ago. Its earnings this year were $3.20. What was the growth rate in earnings per share (EPS) over the 5-year period?

Correct Answer
verified

How much would $1, growing at 3.5% per year, be worth after 75 years?

Correct Answer
verified

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Correct Answer
verified

You have just purchased a U.S. Treasury bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate will you earn on this bond?

Correct Answer
verified

You have purchased a U.S. Treasury bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000. What interest rate will you earn on this bond?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Correct Answer
verified

Suppose United Bank offers to lend you $10,000 for one year at a nominal annual rate of 8.00%, 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

Correct Answer
verified

You want to buy new kitchen appliances 2 years from now, and you plan to save $8,200 per year, beginning one year from today. You will deposit your savings in an account that pays 6.2% interest. How much will you have just after you make the 2nd deposit, 2 years from now?

Correct Answer
verified

All other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

Correct Answer
verified

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

Correct Answer
verified

Your aunt wants to retire and has $375,000. She expects to live for another 25 years and to earn 7.5% on her invested funds. How much could she withdraw at the end of each of the next 25 years and end up with zero in the account?

Correct Answer
verified

Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

Correct Answer
verified

You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24^th month, you will have $13,000 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

Correct Answer
verified

Exam 4: Time Value of Money

A new investment opportunity for you is an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Correct AnswerverifiedShow Answer

Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the beginning of each of the next 20 years?

Correct AnswerverifiedShow Answer

Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave her as well off financially as with the annuity?

Correct AnswerverifiedShow Answer

At a rate of 6.5%, what is the future value of the following cash flow stream?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Wildwoods, Inc. earned $1.50 per share five years ago. Its earnings this year were $3.20. What was the growth rate in earnings per share (EPS) over the 5-year period?

Correct AnswerverifiedShow Answer

How much would $1, growing at 3.5% per year, be worth after 75 years?

Correct AnswerverifiedShow Answer

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Correct AnswerverifiedShow Answer

You have just purchased a U.S. Treasury bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate will you earn on this bond?

Correct AnswerverifiedShow Answer

You have purchased a U.S. Treasury bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000. What interest rate will you earn on this bond?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Correct AnswerverifiedShow Answer

Suppose United Bank offers to lend you $10,000 for one year at a nominal annual rate of 8.00%, 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

Correct AnswerverifiedShow Answer

You want to buy new kitchen appliances 2 years from now, and you plan to save $8,200 per year, beginning one year from today. You will deposit your savings in an account that pays 6.2% interest. How much will you have just after you make the 2nd deposit, 2 years from now?

Correct AnswerverifiedShow Answer

All other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Your aunt wants to retire and has $375,000. She expects to live for another 25 years and to earn 7.5% on her invested funds. How much could she withdraw at the end of each of the next 25 years and end up with zero in the account?

Correct AnswerverifiedShow Answer

Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

Correct AnswerverifiedShow Answer

You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th month, you will have $13,000 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

Correct AnswerverifiedShow Answer

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Correct Answer
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You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24^th month, you will have $13,000 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

Correct Answer
verified