Time Value of Money Analysis
Assess your learning of Time Value of Money concepts and analysis.
Assessment Concepts: Future Value, Present Value, Future Value of Annuity, Present Value of Annuity, Continuous Compounding, Finding Rate, Finding Number of periods, Installment, Perpetuity,
Application of Microsoft Excel Functions: FV, PV, RATE, PMT, Effect
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Interest paid (earned) on both the original principal borrowed (lent) and previous interest earned is often referred to as __________.
1 point
present value
simple interest
future value
compound interest
Clear selection
For $1,000 you can purchase a 5year ordinary annuity which will pay you a yearly payment of $263.80 for 5 years. What is the annual interest rate implicit in this investment to the nearest whole percentage point?
2 points
8 percent.
9 percent.
10 percent.
11 percent.
Clear selection
You are considering borrowing $100,000 for 30 years at a compound annual interest rate of 9 percent. The loan agreement calls for 30 equal annual payments, to be paid at the end of each of the next 30 years. (Payments include both principal and interest.) What is the annual payment that will fully amortize the loan?
2 points
$3,333.33
$6,400.30
$9,733.63
$12,333.33
Clear selection
What is the present value of a $1,000 ordinary annuity that earns 8% annually for an infinite number of periods?
2 points
$80
$800
$1,000
$12,500
Clear selection
You expect to deposit the following cash flows at the end of years 1 through 5, $1,000; $4,000; $9,000; $5,000; and $2,000 respectively. What is the future account value at the end of year 6 if you can earn 10% compounded annually?
2 points
$15,633.62
$21,000.00
$25,178.10
$27,695.91
Clear selection
You are considering investing in a zerocoupon bond that sells for $500. At maturity in 8 years, it will be redeemed for $1,000. During the life of the bond NO interest coupons will be paid. Using the Rule of 72, what approximate annual rate of growth does this represent?
1 point
8 percent.
9 percent.
12 percent.
25 percent.
Clear selection
To increase a given future value, the discount rate should be adjusted __________.
1 point
upward
downward
first upward and then downward
None of the above answers are correct; you should use PVIF.
Clear selection
You are going to place $12,500 into a certificate of deposit (CD) at a 6% annual rate (compounded annually) with a maturity of 30 months. How much money will you receive when the CD matures?
2 points
Necessary information is not available to solve the problem.
$14,460
$14,491
$14,518
Clear selection
You have just graduated and have decided to purchase a brand new sports car to enjoy your newfound freedom. Your local credit union will provide financing for 60 months at a 9 percent annual rate, compounded monthly. You will give 15 percent of the $26,000 purchase price in cash to the dealer. The credit union will be used to finance the remaining 85 percent of the purchase price with the first payment due 1 month from today. What will be your monthly payment?
2 points
$539.71
$458.76
$433.33
$368.33
Clear selection
Interest paid (earned) on only the original principal borrowed (lent) is often referred to as __________.
1 point
present value
simple interest
future value
compound interest
Clear selection
Assume that the interest rate is greater than zero. Which of the following cashinflow streams totaling $1,500 would you prefer? The cash flows are listed in order for Year 1, Year 2, and Year 3 respectively.
1 point
$700 $500 $300
$300 $500 $700
$500 $500 $500
Any of the above, since they each sum to $1,500.
Clear selection
Which of the following investment alternatives would provide the greatest ending wealth for your investment?
2 points
10% compounded daily (360 days).
10.5% compounded annually.
10.25% compounded quarterly.
There is not sufficient information to determine the best alternative from the above information.
Clear selection
The ShortHolder bank pays 5.60%, compounded daily (based on 360 days), on a 9month certificate of deposit. If you deposit $20,000 you would expect to earn around __________ in interest.
2 points
$840
$858
$1,032
$1,121
Clear selection
In 2 years you are to receive $10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would __________.
1 point
fall
rise
remain unchanged
The correct answer cannot be determined without more information.
Clear selection
With continuous compounding at 8 percent for 20 years, what is the approximate future value of a $20,000 initial investment?
2 points
$52,000
$93,219
$99,061
$915,240
Clear selection
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