Question 1

The time value of money suggests​ ​

Accepted Answer

The time value of money suggests that individuals prefer a dollar in the present to a dollar in the future. This is because a dollar received today can be invested and earn interest, making it worth more in the future. Conversely, a dollar received in the future is worth less because it could have been invested and earned interest if it were received today.

Question 2

If interest rates rise,​

Accepted Answer

When interest rates rise, the present value of an annuity falls because future cash flows are discounted at a higher rate, reducing their present value.

Question 3

The New Jersey 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 The New Jersey lotto awarded a prize...

Question 4

For investors, an annuity due ​

Accepted Answer

An annuity due is preferable to an ordinary annuity because it provides payments at the beginning of each period, rather than at the end, which increases the present value of the annuity. This means that an annuity due is worth more than an equivalent ordinary annuity. Therefore, choice A is the best choice.

Question 5

​An investment is expected to generate $1,000,000 each year for 4 years. If the firm's cost of funds is 10%, what is the maximum amount the firm should pay for the investment?

Accepted Answer

The answer of ​An investment is expected to generate $1,000,000...

Question 6

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 7

The present value of a dollar​
1) is larger the longer the time period
2) is larger the shorter the time period
3) is larger the greater the interest rate
4) is larger the smaller the interest rate

Accepted Answer

The present value of a dollar is larger the shorter the time period because it has less time to be discounted, and it is larger the smaller the interest rate because the discounting effect is less pronounced.

Question 8

You open an individual retirement account (IRA) with a mutual fund and contribute $1,000 into the account each year. How much will be in the account after 20 years if the investment earns 7% annually?

Accepted Answer

The answer of You open an individual retirement account (IRA)...

Question 9

​You borrow $100,000 to buy a house; if the annual interest rate is 6% and the term of the loan is 20 years, what is the annual payment required to retire the mortgage loan?

Accepted Answer

The answer of ​You borrow $100,000 to buy a house;...

Question 10

Discounting is​
1) the determination of present value
2) the determination of future value
3) expressing the present in the future
4) expressing the future in the present

Accepted Answer

Discounting is the process of finding the present value of future cash flows, which involves expressing the future cash flows in terms of present-day dollars. Therefore, the correct option is 1 and 4, i.e., discounting is the determination of present value (Option 1) and expressing the future in the present (Option 4).

Question 11

You bought an asset for $10,000 and sold it for $20,000 after 10 years. What was the annual rate of return on this investment?​

Accepted Answer

The answer of You bought an asset for $10,000 and...

Question 12

An investor expects a stock to double in 7 years. What is the expected annual rate of growth in the price of the stock?​

Accepted Answer

The answer of An investor expects a stock to double...

Question 13

A person has an individual retirement account and can deposit $2,000 a year. What will be the difference in the amount in the account if this investor earns 8% instead of 6%?​

Accepted Answer

The answer of A person has an individual retirement account...

Question 14

An apartment will generate $12,000 a year for 5 years, after which you expect to sell the property for $100,000. What is the maximum you should pay for the property if your cost of money is 10%?​

Accepted Answer

The answer of An apartment will generate $12,000 a year...

Question 15

You are offered two jobs. One initially pays $45,000 annually, and your salary will grow annually at 10%. The other pays $42,000 annually, but your salary will grow at 12%. After 10 years, which job pays the higher salary?​

Accepted Answer

The answer of You are offered two jobs. One initially...

Question 16

You bought a stock for $30 and after 10 years sold it for $50. It paid an annual dividend of $2. Set up an equation that illustrates how the annual return is determined. Show that this return is not 14%.​

Accepted Answer

The answer of You bought a stock for $30 and...

Question 17

The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?​

Accepted Answer

The answer of The Big-Sox currently have 30,000 spectators per...

Question 18

Which of the following is the largest if the interest rate is 12 percent annually?​
1) $100 compounded for three years
2) $100 annuity compounded for three years
​3) the present value of $100 received after three years

Accepted Answer

An annuity compounded for three years at a 12 percent annual interest rate will accumulate interest each year not only on the original amount but also on the interest from previous years, as well as the additional payments made each year. This results in a higher amount compared to a single sum compounded for the same period or the present value of a future sum.

Question 19

​An annuity due is a set of

Accepted Answer

An annuity due is a set of equal, annual payments made at the beginning of the year, which distinguishes it from a regular annuity that makes payments at the end of the year. Therefore, the correct choice is C, as it specifies payments made at the beginning of the year.

Question 20

You purchase a home for $100,000 with a 20-year mortgage at 12%. If you make annual mortgage payments that pay the interest and reduce the principal, by how much is the loan reduced at the end of the first year?​

Accepted Answer

The answer of You purchase a home for $100,000 with...

Quiz 7: The Time Value of Money

The time value of money suggests

If interest rates rise,

The New Jersey 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?

For investors, an annuity due

An investment is expected to generate $1,000,000 each year for 4 years. If the firm's cost of funds is 10%, what is the maximum amount the firm should pay for the investment?

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?

The present value of a dollar 1) is larger the longer the time period 2) is larger the shorter the time period 3) is larger the greater the interest rate 4) is larger the smaller the interest rate

You open an individual retirement account (IRA) with a mutual fund and contribute $1,000 into the account each year. How much will be in the account after 20 years if the investment earns 7% annually?

You borrow $100,000 to buy a house; if the annual interest rate is 6% and the term of the loan is 20 years, what is the annual payment required to retire the mortgage loan?

Discounting is 1) the determination of present value 2) the determination of future value 3) expressing the present in the future 4) expressing the future in the present

You bought an asset for $10,000 and sold it for $20,000 after 10 years. What was the annual rate of return on this investment?

An investor expects a stock to double in 7 years. What is the expected annual rate of growth in the price of the stock?

A person has an individual retirement account and can deposit $2,000 a year. What will be the difference in the amount in the account if this investor earns 8% instead of 6%?

An apartment will generate $12,000 a year for 5 years, after which you expect to sell the property for $100,000. What is the maximum you should pay for the property if your cost of money is 10%?

You are offered two jobs. One initially pays $45,000 annually, and your salary will grow annually at 10%. The other pays $42,000 annually, but your salary will grow at 12%. After 10 years, which job pays the higher salary?

You bought a stock for $30 and after 10 years sold it for $50. It paid an annual dividend of $2. Set up an equation that illustrates how the annual return is determined. Show that this return is not 14%.

The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?

Which of the following is the largest if the interest rate is 12 percent annually? 1) $100 compounded for three years 2) $100 annuity compounded for three years 3) the present value of $100 received after three years

An annuity due is a set of

You purchase a home for $100,000 with a 20-year mortgage at 12%. If you make annual mortgage payments that pay the interest and reduce the principal, by how much is the loan reduced at the end of the first year?

Quiz 7: The Time Value of Money

The time value of money suggests​ ​

If interest rates rise,​

The New Jersey 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?​

For investors, an annuity due ​

​An investment is expected to generate $1,000,000 each year for 4 years. If the firm's cost of funds is 10%, what is the maximum amount the firm should pay for the investment?

The present value of a dollar​ 1) is larger the longer the time period 2) is larger the shorter the time period 3) is larger the greater the interest rate 4) is larger the smaller the interest rate

You open an individual retirement account (IRA) with a mutual fund and contribute $1,000 into the account each year. How much will be in the account after 20 years if the investment earns 7% annually?

​You borrow $100,000 to buy a house; if the annual interest rate is 6% and the term of the loan is 20 years, what is the annual payment required to retire the mortgage loan?

Discounting is​ 1) the determination of present value 2) the determination of future value 3) expressing the present in the future 4) expressing the future in the present

You bought an asset for $10,000 and sold it for $20,000 after 10 years. What was the annual rate of return on this investment?​

An investor expects a stock to double in 7 years. What is the expected annual rate of growth in the price of the stock?​

A person has an individual retirement account and can deposit $2,000 a year. What will be the difference in the amount in the account if this investor earns 8% instead of 6%?​

An apartment will generate $12,000 a year for 5 years, after which you expect to sell the property for $100,000. What is the maximum you should pay for the property if your cost of money is 10%?​

You are offered two jobs. One initially pays $45,000 annually, and your salary will grow annually at 10%. The other pays $42,000 annually, but your salary will grow at 12%. After 10 years, which job pays the higher salary?​

You bought a stock for $30 and after 10 years sold it for $50. It paid an annual dividend of $2. Set up an equation that illustrates how the annual return is determined. Show that this return is not 14%.​

The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?​

Which of the following is the largest if the interest rate is 12 percent annually?​ 1) $100 compounded for three years 2) $100 annuity compounded for three years ​3) the present value of $100 received after three years

​An annuity due is a set of

You purchase a home for $100,000 with a 20-year mortgage at 12%. If you make annual mortgage payments that pay the interest and reduce the principal, by how much is the loan reduced at the end of the first year?​

The time value of money suggests

If interest rates rise,

The New Jersey 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?

For investors, an annuity due

An investment is expected to generate $1,000,000 each year for 4 years. If the firm's cost of funds is 10%, what is the maximum amount the firm should pay for the investment?

The present value of a dollar 1) is larger the longer the time period 2) is larger the shorter the time period 3) is larger the greater the interest rate 4) is larger the smaller the interest rate

You borrow $100,000 to buy a house; if the annual interest rate is 6% and the term of the loan is 20 years, what is the annual payment required to retire the mortgage loan?

Discounting is 1) the determination of present value 2) the determination of future value 3) expressing the present in the future 4) expressing the future in the present

You bought an asset for $10,000 and sold it for $20,000 after 10 years. What was the annual rate of return on this investment?

An investor expects a stock to double in 7 years. What is the expected annual rate of growth in the price of the stock?

A person has an individual retirement account and can deposit $2,000 a year. What will be the difference in the amount in the account if this investor earns 8% instead of 6%?

An apartment will generate $12,000 a year for 5 years, after which you expect to sell the property for $100,000. What is the maximum you should pay for the property if your cost of money is 10%?

You are offered two jobs. One initially pays $45,000 annually, and your salary will grow annually at 10%. The other pays $42,000 annually, but your salary will grow at 12%. After 10 years, which job pays the higher salary?

You bought a stock for $30 and after 10 years sold it for $50. It paid an annual dividend of $2. Set up an equation that illustrates how the annual return is determined. Show that this return is not 14%.

The Big-Sox currently have 30,000 spectators per game and anticipate annual growth in attendance of 9%. If the Big Stadium holds 65,000 people, how long will it take for the team reach capacity?

Which of the following is the largest if the interest rate is 12 percent annually? 1) $100 compounded for three years 2) $100 annuity compounded for three years 3) the present value of $100 received after three years

An annuity due is a set of

You purchase a home for $100,000 with a 20-year mortgage at 12%. If you make annual mortgage payments that pay the interest and reduce the principal, by how much is the loan reduced at the end of the first year?