Question 1

Time value concepts may not be used to determine

Accepted Answer

Time value concepts are used to determine the present value, future value, or annuity payments of a sum of money. Margin requirements on a stock purchase are determined based on the volatility of the stock, the investor's risk tolerance, and other factors, but not on time value concepts.

Question 2

An investor expects the price of a stock to double after eight years. What is the expected annual rate of growth?

Accepted Answer

The answer of An investor expects the price of a...

Question 3

You are hurt in a car accident and your lawyer wins a $100,000 settlement to be distributed as follows:
$20,000 immediate payment
$5,000 a year for ten years
$30,000 after ten years.
If the lawyer's fee is $10,000, what is the value of this settlement if the interest rate is 6 percent?

Accepted Answer

The answer of You are hurt in a car accident...

Question 4

EEM, INC has a $1,000,000 debt outstanding that is due after 15 years. The contract required that after five years, the firm must set aside annually an amount so the debt is retired in full at maturity. If EEM can earn 8 percent on invested funds, how much must the company set aside each year?

Accepted Answer

The answer of EEM, INC has a $1,000,000 debt outstanding...

Question 5

Worker A annually invests $1,000 in an IRA for nine years (ages 27 through 35) and never makes another contribution. Worker B annually invests $1,000 in an IRA for thirty years (ages 36 through 65). Which worker will have more in his or her account when he or she retires if they both earn 8 percent on their investments?

Accepted Answer

The answer of Worker A annually invests $1,000 in an...

Question 6

An investment offers $10,000 at the end of each year for ten years. (a) If you can earn 5 percent annually, what is this investment worth today? (b) If you do not spend the annual payment but invest it at 5 percent, how much will you have after the ten years have lapsed?

Accepted Answer

The answer of An investment offers $10,000 at the end...

Question 7

A firm currently earns $1.00 per share. A financial analyst believes that earnings will grow annually at the rate of 10 percent for five years and then decline to 5 percent. What are the expected earnings after ten years?

Accepted Answer

The answer of A firm currently earns $1.00 per share....

Question 8

Which is the smallest if the interest rate is
8 percent?

Accepted Answer

The answer of Which is the smallest if the interest...

Question 9

Time value concepts may be used to determine
1) the annual growth rate in dividends
2) the amount in an IRA account after ten years
3) the tax owed on a capital gain

Accepted Answer

Time value concepts, such as present value and future value, can be used to calculate the growth rate in dividends (1) and the amount in an IRA account after ten years (2). They are not used to calculate tax owed on a capital gain (3).

Question 10

A homeowner has a ten?year home-improvement loan for $36,875. What are the annual payments required by the loan if the annual rate of interest is 4 percent?

Accepted Answer

The answer of A homeowner has a ten?year home-improvement loan...

Question 11

The present value of an annuity is
1) larger the greater the rate of interest
2) smaller the greater the rate of interest
3) larger as the number of years increases
4) smaller as the number of years increases

Accepted Answer

The answer of The present value of an annuity is
1)...

Question 12

AIR National's capacity is 120 passengers per flight. It currently carries 74 passengers per flight. Growth in passengers is expected to be 6 percent annually. New plans will have to be ordered when the company is carrying 90 percent of capacity. How long will it be before the firm must order new planes?

Accepted Answer

The answer of AIR National's capacity is 120 passengers per...

Question 13

You wish to have $100,000 after ten years for a major purchase such as a boat. How much must you invest at the end of each year if you earn 8 percent annually on your funds?

Accepted Answer

The answer of You wish to have $100,000 after ten...

Question 14

A state's lottery winner is promised $200,000 a year for twenty years (starting at the end of the first year). How much must the state invest now to guarantee the prize if the state can earn annually 7 percent on its funds? How much must the state invest if the annual payments are to be made at the beginning of the year?

Accepted Answer

The answer of A state's lottery winner is promised $200,000...

Question 15

A state lotto awarded a prize of $560,000 a year for the next 20 years starting today. If the state sold $21,900,000 in lotto tickets, what proportion of the sales will the state distribute if it earns 8% annually on invested funds?

Accepted Answer

The answer of A state lotto awarded a prize of...

Question 16

Your brother, who is prone to bearing substantial risk, suggests that you buy a security for $10,000 that promises to pay you $100,000 at the end of 15 years. What is the implied annual return or yield on this investment?

Accepted Answer

The answer of Your brother, who is prone to bearing...

Question 17

A piece of rental property will generate $10,000 a year for five years, $12,000 for the next five years, and then be sold at the end of the tenth year for $100,000. If you can earn 10 percent on your funds, what is the maximum you should pay for the property?

Accepted Answer

The answer of A piece of rental property will generate...

Question 18

Your uncle plans to leave you an inheritance of $200,000. If his life expectancy is twenty years, what is your inheritance currently worth if the anticipated return on investments is 9 percent?

Accepted Answer

The answer of Your uncle plans to leave you an...

Question 19

A firm has a $1,000,000 debt (e.g., a bond) outstanding that matures after 10 years. The sinking fund requires the firm to set aside annually an amount so the debt may be retired at maturity. If the firm can earn 10% annually on these funds, how much must it invest annually to meet the sinking fund?

Accepted Answer

The answer of A firm has a $1,000,000 debt (e.g.,...

Question 20

If you open an IRA and invest $3,000 a year (at the end of the year), how much will be in the account after twenty?five years if the funds earn 5 percent annually? How much would be in the account if payments were made at the beginning of the year?

Accepted Answer

The answer of If you open an IRA and invest...

Quiz 3: The Time Value of Moneyprivate