A home improvement firm has quoted a price of $9,800 to fix up John's backyard. Five years ago, John put $7,500 into a home improvement account that has earned an average of 5.25% per year. Does John have enough money in his account to pay for the backyard fix-up? A. Yes; John now has exactly $9,800 in his home improvement account. B. No; John has only $9,687 in his home improvement account. C. Yes; John now has $10,519 in his home improvement account. D. There is not enough information to answer this question The school district needs to pass a bond levy for funding to remodel existing schools and to build new schools. Expenditures for the new and remodeled buildings will begin 18 months after passage of the bond. If the school district receives all funding immediately after the passage of the bond and can invest the funds at a rate of 3.75% per year, how large must the bond be for the district to have $45,000,000 at the start of construction? A. $45,000,000 B. $47,554,834 C. $42,556,397 D. $42,582,422 Which of the following will result in a future value greater than $100? A. PV = $50, r = an annual interest rate of 10%, and n = 8 years. B. PV = $75, r = an annual interest rate of 12%, and n = 3 years. C. PV = $90, r = an annual interest rate of 14%, and n = 1 year. D. All of the future values are greater than $100 Which of the following is the correct formula for calculating the future value? A. FV = B. FV = PV × (1 + r)n C. PV = FV × (1 + r)n D Johnson has an annuity due that pays $600 per year for 15 years. What is the present value of the cash flows if they are discounted at an annual rate of 7.50%? A. $5,296.27 B. $5,693.49 C. $9,000.00 D. $9,675.00 An investment promises a payoff of $195 two and one-half years from today. At a discount rate of 7.5% per year, what is the present value of this investment? A. $162.03 B. $162.75 C. $169.47 D. There is not enough information to answer this question Which of the following actions will INCREASE the present value of an investment? A. decrease the interest rate B. decrease the future value C. increase the amount of time D. All of the above will increase the present value A never-ending stream of equal periodic, end-of-the-period cash flows is called a/an__________. A. annuity B. annuity due C. perpetuity D. amortization You have purchased a Treasury bond that will pay $10,000 to your newborn child in 15 years. If this bond is discounted at a rate of 3.875% per year, what is today's price (present value. for this bond? A. $8,417 B. $8,500 C. $5,654 D. $10,000 Your grandparents leave on their dream vacation to Antarctica in two years. The cruise vacation will cost them $25,000. If they have already saved $23,500 and are investing it at a rate of 2.75% per year, will they have saved enough money for their trip? A. No, because they forgot to factor in long underwear expenses. B. Yes, to have enough money they would have already needed to save $23,375. C. Yes, to have enough money they would have already needed to save $23,680. D. No, to have enough money they would have already needed to save $23,680 A $100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year. A. $100 B. $120 C. $121 D. $122 The one-time payment of money at a future date is often called a__________. A. lump-sum payment B. present value C. principal amount D. perpetuity payment Your trust fund will pay you $100,000 in six years when you turn 25. A shady financial institution has encouraged you to sign away the rights to your trust fund in exchange for cash today. Would you prefer that the financial institution use a discount rate of 8% or 10% to determine the value of your lump sum payment? Why? A. Use 8% because the lump sum payment of $62,741 is greater than the 10% discounted value of $55,839. B. Use 10% because the lump sum payment of $62,741 is greater than the 10% discounted value of $55,839. C. Use 8% because the lump sum payment of $63,017 is greater than the 10% discounted value of $56,447. D. Use 10% because the lump sum payment of $63,017 is greater than the 10% discounted value of $56,447 Which is greater, the present value of a five-year ordinary annuity of $300 discounted at 10%, or the present value of a five-year ordinary annuity of $300 discounted at 0% that has its first cash flow six years from today? A. The first annuity because the cash flows occur sooner. B. The second annuity because the cash flows are discounted at a lower interest rate. C. The two annuities are of equal value. D. The answer to this question cannot be determined A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an__________. A. ordinary annuity B. annuity due C. perpetuity D. amortization You have the opportunity to purchase mineral rights to a property in North Dakota with expected annual cash flows of $10,000 per year for eight years. If you discount these cash flows at a rate of 12% per year, what are these cash flows worth today if the cash flows occur at the end of each period? A. $55,637.57 B. $49,676.40 C. $80,000.00 D. $122,996.93 Which of the following actions will DECREASE the present value of an investment? A. decrease the interest rate B. decrease the future value C. decrease the amount of time D. All of the above will decrease the present value Which of the following formulas is correct for finding the present value of an investment? A. FV = B. PV = FV × (1 + r)n C. PV = FVn × (1 + r) D. PV FV × To determine the present value of a future amount, one should _________ the future cash flows. A. annuitize B. compound C. discount D. multiply Your aunt places $13,000 into an account earning an interest rate of 7% per year. After five years the account will be valued at $18,233.17. Which of the following statements is correct? A. The present value is $13,000, the time period is seven years, the present value is $18,233.17, and the interest rate is 5%. B. The future value is $13,000, the time period is five years, the principal is $18,233.17, and the interest rate is 7%. C. The principal is $13,000, the time period is five years, the future value is $18,233.17, and the interest rate is 7%. D. The principal is $13,000, the time period is seven years, the future value is $18,233.17, and the interest rate is 5%  |
