Question 1

How much do you have to invest today at an annual rate of 8%, if you need to have $5,000 six years from today?
A) $3,150.85
B) $4,236.75
C) $7,934.37
D) $2,938.48

Accepted Answer

FV: 5000 PMT: 0 I/Y:8 N:6 PV: 3150.85

Question 2

What is the future value of cash flows 1-5 at the end of year 5, assuming a 6% interest rate (compounded annually)? ? 
A) $13,879.36
B) $13,093.74
C) $9,7844.40
D) $11,548.48

Accepted Answer

2500(1.06)^4+3000(1.06)^3+1250(1.06)^2+3500(1.06)+1250 = 13093.74

Question 3

What is the present value of these cash flows, if the discount rate is 10% annually? ? 
A) $18,380.00
B) $12,620.90
C) $22,358.69
D) $14,765.52

Accepted Answer

CF0:0 CF1:2500 CF2:3000 CF3:1250 CF4:3500 CF5:1250 CF6:4530 CF7:2350
I/Y:10
NPV: 12620.90

Question 4

If you invested $2,000 in an account that pays 12% interest, compounded continuously, how much would be in the account in 5 years?
A) $3,524.68
B) $3,644.24
C) $3,581.70
D) $3,200.00

Accepted Answer

2000e^(.12F1F1F1S1?F1F1F105) = 3644.24

Question 5

Which of the following statements are TRUE?
Statement I: As you increase the interest rate, the future value of an investment increases.
Statement II: As you increase the length of the investment (to receive some lump sum), the present value of the investment increases.
Statement III: The present value of an ordinary annuity is larger than the present value of an annuity due. (all else equal)
A) Statement I only
B) Statements I and II
C) Statement II only
D) Statements I and III only

Accepted Answer

Statement I is true because increasing the interest rate increases the amount of interest earned, thus increasing the future value of an investment. Statement II is incorrect because increasing the length of the investment decreases the present value due to the time value of money. Statement III is incorrect because the present value of an annuity due is larger than that of an ordinary annuity, as payments for an annuity due are received one period sooner, increasing their present value.

Question 6

A bank is offering a new savings account that pays 8% per year. Which formula below shows the calculation for determining how long it will take a $100 investment to double?
A) ? 
B) ? 
C) ? 
D) ?

Accepted Answer

$200 = $100 * (1.08)^n
ln 2 = n ln (1.08)
n = ln 2/ ln (1.08)

Question 7

In five years, you plan on starting graduate school to earn your MBA. You know that graduate school can be expensive and you expect you will need $15,000 per year for tuition and other school expenses. These payments will be made at the BEGINNING of the school year. To have enough money to attend graduate school, you decide to start saving TODAY by investing in a money market fund that pays 4% APR with monthly compounding. You will make monthly deposits into the account starting TODAY for the next five years. How much will you need to deposit each month to have enough savings for graduate school? (Assume that money that is not withdrawn remains in the account during graduate school and the MBA will take two years to complete.)
A) $438.15
B) $440.26
C) $442.16
D) $443.64

Accepted Answer

VALUE OF TUITION PAYMENTS:
PV = $15,000 + $15,000/(1+.040742)= $29,412.80
SAVINGS: (set calculator to BEGIN)
n=60, r=4%/12, PV = 0, PMT = ?, FV = $29,412.80

Question 8

As a young graduate, you have plans on buying your dream car in three years. You believe the car will cost $50,000. You have two sources of money to reach your goal of $50,000. First, you will save money for the next three years in a money market fund that will return 8% annually. You plan on making $5,000 annual payments to this fund. You will make yearly investments at the BEGINNING of the year. The second source of money will be a car loan that you will take out on the day you buy the car. You anticipate the car dealer to offer you a 6% APR loan with monthly compounding for a term of 60 months. To buy your dream car, what monthly car payment will you anticipate?
A) $483.99
B) $540.15
C) $627.73
D) $652.83

Accepted Answer

VALUE OF CAR = FV of SAVINGS + PV of LOAN
SAVINGS: Set calculator to begin
n = 3, r = 8%, PV = $0, PMT = $5,000, FV = $17,530.56
Car loan = $50,000 - $17,530.56 = $32,469.44
LOAN:
n= 60, r=.5%, PV= $32,469.44, FV = $0, PMT = $627.73

Question 9

A $100 investment yields $112.55 in one year. The interest on the investment was compounded quarterly. From this information, what was the stated rate or APR of the investment?
A) 12.55%
B) 12.25%
C) 12.15%
D) 12.00%

Accepted Answer

n= 4, r= ?, PV = -$100, PMT = 0, FV= $112.55
r=3%, APR = 4*3% = 12%

Question 10

You inherit $15,000 from your aunt. You decide to invest the money in a three-year CD that pays 4% interest to use as a down payment on a house. How much money will you have when the CD matures?
A) $13,334.95
B) $15,600.00
C) $16,800.00
D) $16,872.96

Accepted Answer

PV = 15,000
N = 3
I/YR = 4
FV = ? = 16,872.96

Question 11

If you need $35,000 for a down payment on a house in six years, how much money must you invest today at 7% interest compounded annually to achieve your goal?
A) $14,700.00
B) $20,300.00
C) $23,321.98
D) $24,954.52

Accepted Answer

FV = 35,000
N - 6
I/YR = 7
PV = ? = $23,321.98

Question 12

If you deposit $9,000 at the end of each year in an account earning 8% interest, what will be the value of the account in 25 years?
A) $600,882.83
B) $657,953.46
C) $710,589.74
D) $719,589.74

Accepted Answer

PMT = 9,000
N = 25
I/YR = 8
FV = ? = 710,589.74

Question 13

If you deposit $9,000 at the beginning of each year in an account earning 8% interest, what will be the value of the account in 25 years?
A) $609,216.17
B) $657,953.46
C) $710,589.74
D) $774,823.46

Accepted Answer

BEG Mode
PV = 9,000
I/YR = 10
N = 25
FV = ? = 710,589.74

Question 14

If you invest $2,500 in a bank account that pays 6% interest compounded quarterly, how much will you have in five years?
A) $2,546.96
B) $3,367.14
C) $8,017.84
D) $13,267.04

Accepted Answer

P/YR = 4
PV = 2,500
I/YR = 6
N = 20
FV = ? = 3,367.14

Question 15

Your credit card carries a 9.9% annual percentage rate, compounded daily. What is the effective annual rate, or annual percentage yield?
A) 0.03%
B) 9.90%
C) 10.41%
D) 18.00%

Accepted Answer

(1 + .099/365)³⁶⁵ - 1 = 10.41%

Question 16

Atlas Map Co. has purchased a new building for $45 million. If the value of the building increases at a rate of 5% per year, how much will the building be worth in 20 years?
A) $119,398,397
B) $113,712,759
C) $16,960,027
D) $16,131,867

Accepted Answer

PV = 45,000,000
I/YR = 5
N = 20
FV = ? = 119,398,397

Question 17

If you deposit $10,000 today in an account that pays 5% interest compounded annually for five years, how much interest will you earn?
A) $2,500.00
B) $2,762.82
C) $3,400.96
D) $12,762.82

Accepted Answer

PV = 10,000
I/YR = 5
N = 5
FV = ? = 12,762.82
12,762.82 - 10,000 = 2,762.82

Question 18

Herbilux Botanicals forecasts the following cash flows at the end of each year for a project. If the firm's discount rate is 9%, what is the present value of the project? Year

A) $7,634,980
B) $8,015,517
C) $8,736,914
D) $12,268,998

Accepted Answer

CF₁ = $697,000 CF₂ = $631,000 CF₃ = $574,000 CF₄ = $898,000 CF₅ = $9,981,000 I/YR = 9 NPV = ? = 8,736,914

Question 19

Mayfield Development, LLC forecasts the following cash flows at the beginning of each year for a project. If the firm's discount rate is 9%, what is the present value of the project? 
A) $7,634,980
B) $8,736,914
C) $9,523,236
D) $12,268,998

Accepted Answer

CF₀ = $697,000 CF₁ = $631,000 CF₂ = $574,000 CF₃ = $898,000 CF₄ = $9,981,000 I/YR = 9 NPV = ? = $9,523,236

Question 20

If you invest $2,500 in a bank account that pays 6% interest compounded monthly, how much will you have in five years?
A) $1,853.43
B) $3,345.56
C) $2,505.20
D) $3,372.13

Accepted Answer

P/YR = 12
I/YR = 6
N = 60
PV = 2,500
FV = ? = 3,372.13

Quiz 2: The Time Value of Money

How much do you have to invest today at an annual rate of 8%, if you need to have $5,000 six years from today?

What is the future value of cash flows 1-5 at the end of year 5, assuming a 6% interest rate (compounded annually) ? ?

What is the present value of these cash flows, if the discount rate is 10% annually? ?

If you invested $2,000 in an account that pays 12% interest, compounded continuously, how much would be in the account in 5 years?

A bank is offering a new savings account that pays 8% per year. Which formula below shows the calculation for determining how long it will take a $100 investment to double?

A $100 investment yields $112.55 in one year. The interest on the investment was compounded quarterly. From this information, what was the stated rate or APR of the investment?

You inherit $15,000 from your aunt. You decide to invest the money in a three-year CD that pays 4% interest to use as a down payment on a house. How much money will you have when the CD matures?

If you need $35,000 for a down payment on a house in six years, how much money must you invest today at 7% interest compounded annually to achieve your goal?

If you deposit $9,000 at the end of each year in an account earning 8% interest, what will be the value of the account in 25 years?

If you deposit $9,000 at the beginning of each year in an account earning 8% interest, what will be the value of the account in 25 years?

If you invest $2,500 in a bank account that pays 6% interest compounded quarterly, how much will you have in five years?

Your credit card carries a 9.9% annual percentage rate, compounded daily. What is the effective annual rate, or annual percentage yield?

Atlas Map Co. has purchased a new building for $45 million. If the value of the building increases at a rate of 5% per year, how much will the building be worth in 20 years?

If you deposit $10,000 today in an account that pays 5% interest compounded annually for five years, how much interest will you earn?

Herbilux Botanicals forecasts the following cash flows at the end of each year for a project. If the firm's discount rate is 9%, what is the present value of the project? Year

Mayfield Development, LLC forecasts the following cash flows at the beginning of each year for a project. If the firm's discount rate is 9%, what is the present value of the project?

If you invest $2,500 in a bank account that pays 6% interest compounded monthly, how much will you have in five years?