- Description
FIN 370T Wk 2 – Practice: Ch. 4 and 5 Knowledge Check
Time value of money concepts can be used by
Multiple Choice
individuals doing personal financial planning.
CFOs and CEOs to make business decisions.
investors calculating a return on an investment.
All of these choices are correct.
With regard to money deposited in a bank, future values are
Multiple Choice
smaller than present values.
larger than present values.
equal to present values.
are completely independent of present values.
What is the future value of $1,000 deposited for one year earning 5 percent interest rate annually?
Multiple Choice
$1,000
$1,005
$1,050
$2,050
Approximately what interest rate is needed to double an investment over eight years?
Multiple Choice
8 percent
9 percent
12 percent
100 percent
A dollar paid (or received) in the future is
Multiple Choice
worth more than a dollar paid (or received) today.
worth as much as a dollar paid (or received) today.
not worth as much as a dollar paid (or received) today.
not comparable to a dollar paid (or received) today.
Approximately how many years does it take to double a $500 investment when interest rates are 4 percent per year?
Multiple Choice
0.06 year
6 years
6.94 years
18 years
When computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining
Multiple Choice
the annual rate earned.
the annual payments required.
whether the present value or the future value is a cash inflow.
whether the present value or the future value is a cash outflow.
Determine the interest rate earned on a $200 deposit when $208 is paid back in one year.
Multiple Choice
104 percent
8 percent
4 percent
2 percent
Which of the following will increase the future value of an annuity?
Multiple Choice
- The number of periods increases.
- The amount of the annuity increases.
- The interest rate increases.
- All of these choices are correct.
What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?
Multiple Choice
- $1,917.25
- $7,002.99
- $12,720.00
- $18,620.78
A perpetuity, a special form of annuity, pays cash flows
Multiple Choice
- and is not effected by interest rate changes.
- that do not have time value of money implications.
- continuously for one year.
- periodically forever.
What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?
Multiple Choice
- $204.17
- $440.80
- $1,197.81
- $1,938.96
What is the present value of a $600 annuity payment over 4 years if interest rates are 6 percent?
Multiple Choice
- $475.26
- $757.49
- $2,079.06
- $3,145.28
What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?
Multiple Choice
- $6.50
- $650.00
- $1,000.00
- $1,538.46
A loan is offered with monthly payments and a 14.5 percent APR. What is the loan’s effective annual rate (EAR)?
Multiple Choice
- 14.97 percent
- 15.50 percent
- 15.13 percent
- 15.63 percent
A loan is offered with monthly payments and a 10 percent APR. What is the loan’s effective annual rate (EAR)?
Multiple Choice
- 10.00 percent
- 10.47 percent
- 11.20 percent
- 12.67 percent
A loan is offered with monthly payments and a 6.5 percent APR. What is the loan’s effective annual rate (EAR)?
Multiple Choice
- 5.69 percent
- 6.697 percent
- 7.28 percent
- 12.63 percent
People refinance their home mortgages
Multiple Choice
- when rates fall.
- when rates rise.
- when rates fall and rise.
- whenever they need to, independent of rates.
When you get your credit card bill, it will offer a minimum payment, which
Multiple Choice
- usually only pays the accrued interest and a small amount of principal.
- usually only pays the principal and a small amount of accrued interest.
- usually only pays the principal and no accrued interest.
- usually only pays the accrued interest and no principal.
Loan amortization schedules show
Multiple Choice
- the principal balance paid per period only.
- the interest paid per period only.
- both the principal balance and interest paid per period.
- the present value of the payments due.