Question 1

A loan amortization schedule shows the breakdown of each payment between interest and principal, as well as the remaining balance after each payment.

Accepted Answer

A) True 
 B)False

Question 2

Jill Clinton puts $1,000 in a savings passbook that pays 4% compounded quarterly.How much will she have in her account after five years?

Accepted Answer

A)  $1,200.50
B)  $1,220.20
C)  $1,174.80
D)  $1,217.50E) A) and B)
F) A) and C)

Question 3

Which of the following characteristics is not descriptive of an amortization schedule?

Accepted Answer

A)  each payment is the same.
B)  The same dollar amount of interest is paid with each payment.
C)  payment on principal increases with each total payment.
D)  balance owed is reduced by each payment.E) None of the above
F) A) and B)

Question 4

Simple interest is interest earned on the investment's principal and subsequently-earned interest.

Accepted Answer

A) True 
 B)False

Question 5

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the:

Accepted Answer

A)  annual percentage rate
B)  compound rate of interest
C)  stated rate of interest
D)  effective annual rateE) A) and B)
F) C) and D) A

Question 6

Dan Quayle plans to fund his individual retirement account (IRA)  with the maximum contribution of $2,000 at the end of each year for the next 10 years.If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Accepted Answer

A)  $12,290
B)  $20,000.
C)  $31,874.
D)  $51,880.E) All of the above
F) None of the above

Question 7

An investment will mature in 20 years.Its maturity value is $1,000.If the discount rate is 7%, what is the present value of the investment?

Accepted Answer

A)  $178
B)  $258
C)  $276
D)  $362E) B) and C)
F) A) and C)

Question 8

A potential investment pays $10 per year indefinitely.The appropriate discount rate for the potential investor is 10%.The present value of this cash flow is calculated by:

Accepted Answer

A)  multiplying $10 by the appropriate present value factor
B)  dividing $10 by 10
C)  multiplying $10 by the present value factor of an annuity
D)  dividing $10 by .10E) None of the above
F) B) and C)

Question 9

For positive interest rates, the present value interest factor is

Accepted Answer

A)  between 2.0 and 0.0.
B)  always negative.
C)  always less than 1.0.
D)  a discount rate.E) A) and B)
F) B) and D)

Question 10

The effective annual rate (EAR) is the true opportunity cost measure of the interest rate.

Accepted Answer

A) True 
 B)False

Question 11

An annuity is a series of equal payments that occur over a number of time periods.

Accepted Answer

A) True 
 B)False

Question 12

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years.To determine what such alump sum has the same value as the contract is worth today, you would need to use:

Accepted Answer

A)  present value factors
B)  future value factors
C)  present value factors of an annuity
D)  future value factors of an annuityE) C) and D)
F) All of the above

Question 13

Bruce Lee wishes to accumulate $1 million by making equal annual end-of-year deposits over the next 20 years.If Bruce he can earn 10 percent on his investments, how much must he deposit at the end of each year?

Accepted Answer

A)  $14,900
B)  $50,000
C)  $117,453
D)  $17,460E) A) and C)
F) A) and B)

Question 14

Discounting is an arithmetic process whereby a future value sum decreases at a compounding interest rate over time to reach a present value.

Accepted Answer

A) True 
 B)False  True

Question 15

Bill Clinton plans to fund his individual retirement account (IRA)  with the maximum contribution of $2,000 at the end of each year for the next 20 years.If Bill he can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

Accepted Answer

A)  $19,292.
B)  $14,938.
C)  $40,000.
D)  $144,104.E) All of the above
F) A) and D) D

Question 16

When the annual interest rate stays the same, more frequent interest compounding helps savers earn more interest over the course of the year.

Accepted Answer

A) True 
 B)False

Question 17

If I earn 3% on my deposit of $500, it will take 9 years before I have $550.

Accepted Answer

A) True 
 B)False

Question 18

A fixed-rate mortgage is an example of an annuity.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is false?

Accepted Answer

A)  the present value of a future sum decreases as either the discount rate or the number of discounting periods per year increases.
B)  if the present value of a sum is equal to its future value, the interest rate must be zero.
C)  if the discount (or interest)  rate is positive, the future value of an expected series of payments will always exceed the present value of the same series.
D)  For a given APR, the present value of a future sum decreases as the number of discounting periods per year decreases.each of the above statements is true.E) A) and D)
F) None of the above

Question 20

The annual rate of return is often referred to as the

Accepted Answer

A)  discount rate.
B)  usury rate.
C)  government rate.
D)  all of the above.E) B) and D)
F) A) and D)

Exam 9: Time Value of Money

A loan amortization schedule shows the breakdown of each payment between interest and principal, as well as the remaining balance after each payment.

Correct AnswerverifiedShow Answer

Jill Clinton puts $1,000 in a savings passbook that pays 4% compounded quarterly.How much will she have in her account after five years?

Correct AnswerverifiedShow Answer

Which of the following characteristics is not descriptive of an amortization schedule?

Correct AnswerverifiedShow Answer

Simple interest is interest earned on the investment's principal and subsequently-earned interest.

Correct AnswerverifiedShow Answer

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the:

Correct AnswerverifiedA

Dan Quayle plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years.If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Correct AnswerverifiedShow Answer

An investment will mature in 20 years.Its maturity value is $1,000.If the discount rate is 7%, what is the present value of the investment?

Correct AnswerverifiedShow Answer

A potential investment pays $10 per year indefinitely.The appropriate discount rate for the potential investor is 10%.The present value of this cash flow is calculated by:

Correct AnswerverifiedShow Answer

For positive interest rates, the present value interest factor is

Correct AnswerverifiedShow Answer

The effective annual rate (EAR) is the true opportunity cost measure of the interest rate.

Correct AnswerverifiedShow Answer

An annuity is a series of equal payments that occur over a number of time periods.

Correct AnswerverifiedShow Answer

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years.To determine what such alump sum has the same value as the contract is worth today, you would need to use:

Correct AnswerverifiedShow Answer

Bruce Lee wishes to accumulate $1 million by making equal annual end-of-year deposits over the next 20 years.If Bruce he can earn 10 percent on his investments, how much must he deposit at the end of each year?

Correct AnswerverifiedShow Answer

Discounting is an arithmetic process whereby a future value sum decreases at a compounding interest rate over time to reach a present value.

Correct AnswerverifiedTrue

Bill Clinton plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years.If Bill he can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

Correct AnswerverifiedD

When the annual interest rate stays the same, more frequent interest compounding helps savers earn more interest over the course of the year.

Correct AnswerverifiedShow Answer

If I earn 3% on my deposit of $500, it will take 9 years before I have $550.

Correct AnswerverifiedShow Answer

A fixed-rate mortgage is an example of an annuity.

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

The annual rate of return is often referred to as the

Correct AnswerverifiedShow Answer

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A

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True

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D

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