Question 1

The interest rate on a financial calculator to be inputted using the I/Yr key means to enter the rate per period.

Accepted Answer

I/Yr is the interest rate per period.

Question 2

If an investment is made that pays 6% annual interest for a 4-year period with quarterly compounding, the number of periods is 36.

Accepted Answer

There are 16 quarterly periods in three years: 4 years × 4 times per year = 16 periods of compounding.

Question 3

Installment loans require a series of equal payments that often vary in the time period between each payment.

Accepted Answer

Installment notes have equal payments on a periodic basis, such that the time period between each payment must be the same.

Question 4

There are two cash flows associated with bonds-a balloon payment and periodic interest payments.

Accepted Answer

The balloon payment is the principal due when the bond matures. Interest payments are most often paid semi-annually.

Question 5

R&L Repair Services issued bonds with a face value of $10,000,000 and a coupon rate of 6% paid semiannually for 6 years. The market rate of interest is 5%.
How much is the market value of the bond?
A) $ 2,128,180
B) $ 8,410,310
C) $10,512,888
D) $ 6,581,880

Accepted Answer

Interest payment = $10,000,000 × 6% × 6/12 = $300,000
N = 12 (6 *2) I/Y = 2.5 (5% / 2) PV = ? PMT = 300,000 FV = 10,000,000
PV = $10,512,888

Question 6

If Wise Saver invests $1,800,000 today at 6% interest and the money is compounded semiannually, how much will be in the bank account one year from the date invested? (Select the closest amount)
A) $1,648,000
B) $1,909,620
C) $1,908,000
D) $1,697,440

Accepted Answer

Rationale:
N = 2 (1 * 2) I/Y = 3.0 (6% / 2) PV = 1,800,000 PMT = 0 FV = ?
FV = $1,909,620

Question 7

Nickolas Industries issued bonds with a face value of $12,000,000 and a coupon rate of 5% paid semiannually for 4 years. The market rate of interest is 6%.
How much is the market value of the bond using a financial calculator?
A) $11,578,818
B) $ 9,894,092
C) $11,649,016
D) $13,826,572

Accepted Answer

Interest payment = $12,000,000 × 5% × 6/12 = $300,000
N = 8 (4*2) I/Y = 3.0 (6%/2) PV = ? PMT = 300,000 FV = 12,000,000
PV = $11,578,818

Question 8

Nickolas Industries issued bonds with a face value of $12,000,000 and a coupon rate of 5% paid semiannually for 6 years. The market rate of interest is 6%.
How much is the market value of the bond?
A) $12,500,000
B) $11,649,022
C) $11,653,456
D) $11,402,760

Accepted Answer

Interest payment = $12,000,000 × 5% × 6/12 = $300,000
N =12 (6* 2) I/Y = 3.0 (6% /2) PV = ? PMT = 300,000 FV = 12,000,000
PV = $11,402,760

Question 9

Which of the following determines the present value of a single cash payment?
A) Future value × (1 + discount rate)
B) Future value ÷ (1 + discount rate)
C) Future value × (1 ? discount rate)
D) Future value ÷ (1 ? discount rate)

Accepted Answer

1 plus the discount rate is divided into the future amount.

Question 10

Cari, Inc. wishes to accumulate 1,000,000 to be used to pay off a balloon note at the end of 4 years. How much will Cari, Inc. invest today to accumulate the desired amount if the investment earns an annual rate of 12% compounded quarterly? (Select the closest amount)
A) $623,167
B) $530,496
C) $708,416
D) $698,536

Accepted Answer

N =16 (4*4) I/Y = 3.0 (12%/4) PV = ? FV = 1,000,000
PV = $623,167

Question 11

Cari, Inc. wishes to accumulate $1,000,000 to be used to pay off a loan at the end of 2 years. How much will Cari, Inc. deposit each month for two years, beginning at the end of the first month, to accumulate the desired amount if the investment earns an annual rate of 12%? (Select the closest amount)
A) $ 37,658
B) $ 47,358
C) $ 37,073
D) $ 26,432

Accepted Answer

N = 24 (2*12) I/Y = 1.0 (12%/12) PMT = ? FV =1,000,000
PMT = $37,073

Question 12

Bob Sarto Motor Company wants to accumulate $1,800,000 to pay off an equipment loan due in 5 years.
How much should Bob Sarto Motor Company deposit today if the bank pays 6% interest compounded annually?

Accepted Answer

The answer of Bob Sarto Motor Company wants to accumulate...

Question 13

Bob Sarto Motor Company wants to accumulate $1,800,000 to pay off an equipment loan due in 5 years.
How much should Bob Sarto Motor Company deposit today if the bank pays 6% interest compounded semi-annually?

Accepted Answer

The answer of Bob Sarto Motor Company wants to accumulate...

Question 14

Bob Sarto Motor Company wants to accumulate $1,400,000 to pay off an equipment balloon note due in 3 years.
How much should Bob Sarto Motor Company deposit each quarter beginning one quarter from today to accumulate the amount required if the bank pays 4% annual interest compounded quarterly?

Accepted Answer

The answer of Bob Sarto Motor Company wants to accumulate...

Question 15

Bob Sarto Motor Company wants to accumulate $1,400,000 to pay off an equipment loan due in 2 years.
How much should Bob Sarto Motor Company deposit each month beginning one month from today in order to accumulate $1,400,000 if the bank pays 12% annual interest with monthly compounding?

Accepted Answer

The answer of Bob Sarto Motor Company wants to accumulate...

Question 16

Mega Force Co. needs to have $200 million accumulated to fund health insurance payments for its retirees.
Will Mega Force Co. have enough accumulated at the end of 3 years if it deposits $164 million today if compounding occurs semi-annually with an annual rate of 8%?

Accepted Answer

The answer of Mega Force Co. needs to have $200...

Question 17

Mega Force Co. borrowed $1,000,000 to buy equipment to be repaid as a installment note monthly over 2.5 years.
How much will Mega Force Co. pay each month if payments begin one month from now and the annual loan rate is 12% compounded monthly?

Accepted Answer

The answer of Mega Force Co. borrowed $1,000,000 to buy...

Question 18

Mega Force Co. borrowed $600,000,000 to buy equipment with the principal to be repaid as a balloon note at the end of 5 years.
How much will Mega Force Co. pay to liquidate the principal of the note at the maturity date if interest is 8% compounded quarterly?

Accepted Answer

The answer of Mega Force Co. borrowed $600,000,000 to buy...

Question 19

Stuttgart Investments recently issued bonds with a face value of $3,000,000 and a coupon rate of 5% for 6 years. The market rate of interest is 4% and the bonds pay interest semi-annually.
Compute the market value of the bond on the issue date.

Accepted Answer

The answer of Stuttgart Investments recently issued bonds with a...

Question 20

Pharmaceutical Miracles is a new drug company entering the market. It plans to issue notes with a face value of $8,000,000 and a coupon rate of 7% for 8 years. The market rate of interest is 6%.
Compute the market value of the notes on the issue date if interest is paid semi-annually.

Accepted Answer

The answer of Pharmaceutical Miracles is a new drug company...

Quiz 13: Appendix : Compound Interest and the Time-Value of Money

The interest rate on a financial calculator to be inputted using the I/Yr key means to enter the rate per period.

If an investment is made that pays 6% annual interest for a 4-year period with quarterly compounding, the number of periods is 36.

Installment loans require a series of equal payments that often vary in the time period between each payment.

There are two cash flows associated with bonds-a balloon payment and periodic interest payments.

R&L Repair Services issued bonds with a face value of $10,000,000 and a coupon rate of 6% paid semiannually for 6 years. The market rate of interest is 5%. How much is the market value of the bond?

If Wise Saver invests $1,800,000 today at 6% interest and the money is compounded semiannually, how much will be in the bank account one year from the date invested? (Select the closest amount)

Nickolas Industries issued bonds with a face value of $12,000,000 and a coupon rate of 5% paid semiannually for 4 years. The market rate of interest is 6%. How much is the market value of the bond using a financial calculator?

Nickolas Industries issued bonds with a face value of $12,000,000 and a coupon rate of 5% paid semiannually for 6 years. The market rate of interest is 6%. How much is the market value of the bond?

Which of the following determines the present value of a single cash payment?

Cari, Inc. wishes to accumulate 1,000,000 to be used to pay off a balloon note at the end of 4 years. How much will Cari, Inc. invest today to accumulate the desired amount if the investment earns an annual rate of 12% compounded quarterly? (Select the closest amount)

Bob Sarto Motor Company wants to accumulate $1,800,000 to pay off an equipment loan due in 5 years. How much should Bob Sarto Motor Company deposit today if the bank pays 6% interest compounded annually?

Bob Sarto Motor Company wants to accumulate $1,800,000 to pay off an equipment loan due in 5 years. How much should Bob Sarto Motor Company deposit today if the bank pays 6% interest compounded semi-annually?

Bob Sarto Motor Company wants to accumulate $1,400,000 to pay off an equipment balloon note due in 3 years. How much should Bob Sarto Motor Company deposit each quarter beginning one quarter from today to accumulate the amount required if the bank pays 4% annual interest compounded quarterly?

Bob Sarto Motor Company wants to accumulate $1,400,000 to pay off an equipment loan due in 2 years. How much should Bob Sarto Motor Company deposit each month beginning one month from today in order to accumulate $1,400,000 if the bank pays 12% annual interest with monthly compounding?

Mega Force Co. needs to have $200 million accumulated to fund health insurance payments for its retirees. Will Mega Force Co. have enough accumulated at the end of 3 years if it deposits $164 million today if compounding occurs semi-annually with an annual rate of 8%?

Mega Force Co. borrowed $1,000,000 to buy equipment to be repaid as a installment note monthly over 2.5 years. How much will Mega Force Co. pay each month if payments begin one month from now and the annual loan rate is 12% compounded monthly?

Mega Force Co. borrowed $600,000,000 to buy equipment with the principal to be repaid as a balloon note at the end of 5 years. How much will Mega Force Co. pay to liquidate the principal of the note at the maturity date if interest is 8% compounded quarterly?

Stuttgart Investments recently issued bonds with a face value of $3,000,000 and a coupon rate of 5% for 6 years. The market rate of interest is 4% and the bonds pay interest semi-annually. Compute the market value of the bond on the issue date.

Pharmaceutical Miracles is a new drug company entering the market. It plans to issue notes with a face value of $8,000,000 and a coupon rate of 7% for 8 years. The market rate of interest is 6%. Compute the market value of the notes on the issue date if interest is paid semi-annually.