Question 1

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 11% interest rate?

Accepted Answer

70 ´ {[{[(1.11)⁵ - 1]/.11} ´ 1.11]+1} = 553.90

Question 2

You want to buy a new car.The car you picked will cost you $32,000 and you decide to go with the dealer's financing offer of 5.9% compounded monthly for 60 months.Unfortunately,you can only afford monthly loan payments of $300.However,the dealer allows you to pay off the rest of the loan in a one time lump sum payment at the end of the loan.How much do you have to pay to the dealer when the lump sum is due?

Accepted Answer

PMT: 300
FV:0
I/Y: 5.9/12
N: 60
PV: 15555
lump sum: (32000-15555)(1+.059/12)^60 = 22071.75

Question 3

When you retire you expect to live for another 30 years.During those 30 years you want to be able to withdraw $4,000 at the BEGINNING of every month for living expenses.How much money do you have to have in your retirement account to make this happen.Assume that you can earn 8% on your investments.

Accepted Answer

FV: 0
PMT: 4000
I/Y: 8/12
N: 30*12
PV: 548768.2

Question 4

If the rate of interest that investors can earn on a 2-year investment is zero then

Accepted Answer

When the rate of interest is zero, it means there is no additional cost or gain from borrowing or investing money over the specified period. Therefore, the amount repaid for a loan, the cost of using money, and the amount received from an investment at maturity would all be the same as the initial amount.

Question 5

If you were to invest $120 for two years,while earning 8% compound interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

Accepted Answer

{[(1.08)^2] ´ 120}- 120 = 19.97

Question 6

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today.If the discount rate for such a cash flow is 9.5%,then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

Accepted Answer

1,000/(1.095)⁵ = 635.23

Question 7

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1)³

Accepted Answer

The exponent "3" in the equation represents the number of periods that the present value is left on deposit, as it is the power to which the interest factor (1 + .1) is raised.

Question 8

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years.You can invest into an retirement account that guarantees you a 5% return.How much do you have to put into your account at the end of every month to reach your retirement goal?

Accepted Answer

FV: 1250000
PV: 0
I/Y: 5/12
N: 12*30
PMT: 1501.94

Question 9

You will receive a stream of $50 payments BEGINNING at the end of year 1 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 9% interest rate?

Accepted Answer

50 ´ [{(1.09)⁵ - 1}/.09] = 299.24

Question 10

The amount that someone is willing to pay today,for a single cash flow in the future is

Accepted Answer

The amount that someone is willing to pay today for a single cash flow in the future is the present value of the cash flow. The future value of a cash flow represents the value it will have at a future point in time, whereas the present value represents the value it has today, taking into account the time value of money. The future value of a stream of cash flows or an annuity represents the total value of all the cash flows or payments at a future point in time, which is not relevant for calculating the value of a single cash flow. Therefore, the best choice is C, the present value of the cash flow.

Question 11

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the BEGINNING of year 5.What amount will you have at the end of year 5 if you can invest all amounts at an 11% interest rate?

Accepted Answer

70 ´ [{[(1.11)⁵ - 1]/.11} ´ 1.11] = 483.90

Question 12

Your father's pension recently vested and he is told that if he never works another day in his life,he will receive a lump sum of $1,500,000 on his 65th birthday (exactly 15 years from today).Assume that your father needs to permanently retire today.What could he sell the rights to his lump sum for,today,if the correct discount rate for such a calculation is 6%?

Accepted Answer

1,500,000/[1.06]¹⁵ = 625,897.59

Question 13

You found your dream house.It will cost you $175,000 and you will put down $35,000 as a down payment.For the rest you get a 30-year 6.25% mortgage.What will be your monthly mortgage payment (assume no early repayment)?

Accepted Answer

PV: 175000-35000
FV: 0
I/Y: 6.25/12
N: 30*12
PMT: 862

Question 14

You will receive a stream of payments BEGINNING at the end of year 1 and the amount will increase by $10 each year until the final payment at the end of year 5.If the first payment is $50,what amount will you have at the end of year 5 if you can invest all amounts at a 7% interest rate?

Accepted Answer

50 ´ (1.07)⁴ + 60 ´ (1.07)³ +70 ´ (1.07)² +80 ´ (1.07)¹ +90 ´ (1.07)⁰ = 394.79

Question 15

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

Accepted Answer

2000e^(.12´5)= 3644.24

Question 16

You want to buy a new plasma television in 3 years,when you think prices will have gone down to a more reasonable level.You anticipate that the television will cost you $2,500.If you can invest your money at 8% compounded monthly,how much do you need to put aside today?

Accepted Answer

FV: 2500 PMT: 0 I/Y: 8/12 N:3*12 PV: 1968.14

Question 17

You are asked to choose between a 4-year investment that pays 10% compound interest and a similar investment that pays 11.5% SIMPLE interest.Which investment will you choose?

Accepted Answer

Assume a $10 investment: compound interest value is: $10 ´ (1.1)⁴= $14.64 simple interest value is: $10 * (1 + [.115 ´ 4])= $14.60 ====> select the compound interest investment.

Question 18

In the equation below,the number "100" represents $75.13 = $100 / (1 + .1)³

Accepted Answer

The equation is a basic finance formula that calculates the future value of a cash flow ($75.13) when it is discounted back to the present value at a 10% discount rate for a certain number of periods. The number "100" represents the future value of the cash flow to be received at a later date, before it is discounted to its present value.

Question 19

If you were to invest $120 for two years,while earning 8% SIMPLE interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

Accepted Answer

120 ´ [.08 ´ 2] = 19.20

Question 20

Your parents set up a trust for you that you will not have access to until your 30th birthday,which is exactly 9 years from today.By prior arrangement,the trust will be worth exactly $200,000 on your 30th birthday.You need cash today and are willing to sell the rights to that trust today for a set amount.If the discount rate for such a cash flow is 12%,what is the maximum amount that someone should be willing to pay you today for the rights to the trust on your 30th birthday?

Accepted Answer

200,000/(1.12)⁹ = 72,122.00

Quiz 3: The Time Value of Money

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 11% interest rate?

When you retire you expect to live for another 30 years.During those 30 years you want to be able to withdraw $4,000 at the BEGINNING of every month for living expenses.How much money do you have to have in your retirement account to make this happen.Assume that you can earn 8% on your investments.

If the rate of interest that investors can earn on a 2-year investment is zero then

If you were to invest $120 for two years,while earning 8% compound interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today.If the discount rate for such a cash flow is 9.5%,then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1) ³

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years.You can invest into an retirement account that guarantees you a 5% return.How much do you have to put into your account at the end of every month to reach your retirement goal?

You will receive a stream of $50 payments BEGINNING at the end of year 1 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 9% interest rate?

The amount that someone is willing to pay today,for a single cash flow in the future is

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the BEGINNING of year 5.What amount will you have at the end of year 5 if you can invest all amounts at an 11% interest rate?

You found your dream house.It will cost you $175,000 and you will put down $35,000 as a down payment.For the rest you get a 30-year 6.25% mortgage.What will be your monthly mortgage payment (assume no early repayment) ?

You will receive a stream of payments BEGINNING at the end of year 1 and the amount will increase by $10 each year until the final payment at the end of year 5.If the first payment is $50,what amount will you have at the end of year 5 if you can invest all amounts at a 7% interest rate?

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

You want to buy a new plasma television in 3 years,when you think prices will have gone down to a more reasonable level.You anticipate that the television will cost you $2,500.If you can invest your money at 8% compounded monthly,how much do you need to put aside today?

You are asked to choose between a 4-year investment that pays 10% compound interest and a similar investment that pays 11.5% SIMPLE interest.Which investment will you choose?

In the equation below,the number "100" represents $75.13 = $100 / (1 + .1) ³

If you were to invest $120 for two years,while earning 8% SIMPLE interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

Quiz 3: The Time Value of Money

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 11% interest rate?

When you retire you expect to live for another 30 years.During those 30 years you want to be able to withdraw $4,000 at the BEGINNING of every month for living expenses.How much money do you have to have in your retirement account to make this happen.Assume that you can earn 8% on your investments.

If the rate of interest that investors can earn on a 2-year investment is zero then

If you were to invest $120 for two years,while earning 8% compound interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today.If the discount rate for such a cash flow is 9.5%,then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1) 3

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years.You can invest into an retirement account that guarantees you a 5% return.How much do you have to put into your account at the end of every month to reach your retirement goal?

You will receive a stream of $50 payments BEGINNING at the end of year 1 until the final payment at the end of year 5.What amount will you have at the end of year 5 if you can invest all amounts at a 9% interest rate?

The amount that someone is willing to pay today,for a single cash flow in the future is

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the BEGINNING of year 5.What amount will you have at the end of year 5 if you can invest all amounts at an 11% interest rate?

You found your dream house.It will cost you $175,000 and you will put down $35,000 as a down payment.For the rest you get a 30-year 6.25% mortgage.What will be your monthly mortgage payment (assume no early repayment) ?

You will receive a stream of payments BEGINNING at the end of year 1 and the amount will increase by $10 each year until the final payment at the end of year 5.If the first payment is $50,what amount will you have at the end of year 5 if you can invest all amounts at a 7% interest rate?

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

You want to buy a new plasma television in 3 years,when you think prices will have gone down to a more reasonable level.You anticipate that the television will cost you $2,500.If you can invest your money at 8% compounded monthly,how much do you need to put aside today?

You are asked to choose between a 4-year investment that pays 10% compound interest and a similar investment that pays 11.5% SIMPLE interest.Which investment will you choose?

In the equation below,the number "100" represents $75.13 = $100 / (1 + .1) 3

If you were to invest $120 for two years,while earning 8% SIMPLE interest,what is the TOTAL AMOUNT OF INTEREST that you will earn?

In the equation below,the exponent "3" represents $133.10 = $100 ´ (1 + .1) ³

In the equation below,the number "100" represents $75.13 = $100 / (1 + .1) ³