| Question 1 | 2.5 / 2.5 points |
You have saved $47,000 for college and wish to use $15,000 per year. If you use the money as an ordinary annuity and earn 6.15% on your investment, how many years will your annuity last? Use a calculator to determine your answer.
Question options:
|
| 4.27 years | ||
|
| 3.13 years | ||
|
| 3.59 years | ||
|
| 3.36 years | ||
| Question 2 | 2.5 / 2.5 points | ||
An annuity is a series of:
Question options:
|
| variable cash payments at regular intervals across time. | ||
|
| equal cash payments at regular intervals across time. | ||
|
| variable cash payments at different intervals across time. | ||
|
| equal cash payments at different intervals across time. | ||
| Question 3 | 2.5 / 2.5 points | ||
If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay the total amount of principal and interest due of $215,892.50 at the end of 10 years, what type of loan did you have?
Question options:
|
| Amortized loan | ||
|
| Interest-only loan | ||
|
| Discount loan | ||
|
| Compound loan | ||
| Question 4 | 2.5 / 2.5 points | ||
The main variables of the TVM equation are:
Question options:
|
| present value, future value, time, interest rate, and payment. | ||
|
| present value, future value, perpetuity, interest rate, and payment. | ||
|
| present value, future value, time, annuity, and interest rate. | ||
|
| present value, future value, perpetuity, interest rate, and principal. | ||
| Question 5 | 2.5 / 2.5 points | ||
You just won the Publisher's Clearing House Sweepstakes and the right to 20 after-tax ordinary annuity cash flows of $163,291.18. Assuming a discount rate of 7.50%, what is the present value of your lottery winnings? Use a calculator to determine your answer.
Question options:
|
| $3,265,823.60 | ||
|
| $1,789,520.81 | ||
|
| $1,664,670.52 | ||
|
| There is not enough information to answer this question. | ||
| Question 6 | 2.5 / 2.5 points | ||
You have just won the Reader's Digest lottery of $5,000 per year for 20 years, with the first payment today followed by 19 more start-of-the-year cash flows. At an interest rate of 5%, what is the present value of your winnings?
Question options:
|
| $100,000 | ||
|
| $65,426.60 | ||
|
| $62,311.05 | ||
|
| $47,641.18 | ||
| Question 7 | 2.5 / 2.5 points | ||
What is the future value in Year 12 of an ordinary annuity cash flow of $6,000 per year at an interest rate of 4% per year?
Question options:
|
| $90,154.83 | ||
|
| $93,761.02 | ||
|
| $28,675.97 | ||
|
| $32,117.08 | ||
| Question 8 | 2.5 / 2.5 points | ||
What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%, and the cash flows of $50 last for 20 years?
Question options:
|
| Less than $1,000 | ||
|
| Exactly $1,000 | ||
|
| More than $1,000 | ||
|
| This question cannot be answered because we have an interest rate of 0%. | ||
| Question 9 | 2.5 / 2.5 points | ||
Which is greater, the present value of a $1,000 five-year ordinary annuity discounted at 10%, or the present value of a $1,000 five-year annuity due discounted at 10%?
Question options:
|
| The ordinary annuity is worth more with a present value of $3,790.79. | ||
|
| The annuity due is worth more with a present value of $4,169.87. | ||
|
| The ordinary annuity is worth more with a present value of $4,169.87. | ||
|
| The annuity due is worth more with a present value of $4,586.85. | ||
| Question 10 | 2.5 / 2.5 points | ||
What is the future value in Year 25 of an ordinary annuity cash flow of $2,000 per year at an interest rate of 10% per year?
Question options:
|
| $66,505.81 | ||
|
| $55,000.00 | ||
|
| $196,694.12 | ||
|
| $216,363.53 | ||
| Question 11 | 2.5 / 2.5 points | ||
Given the following cash flows, what is the future value at Year 6 when compounded at an interest rate of 8%?
| Year | 0 | 2 | 4 | 6 |
| Cash Flow | $5,000 | $7,000 | $9,000 | $11,000 |
Question options:
|
| $38,955.39 | ||
|
| $56,687.43 | ||
|
| $42,074.42 | ||
|
| $32,000 | ||
| Question 12 | 2.5 / 2.5 points | ||
If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay with 10 equal annual end-of-the-year payments of $14,902.95, then you have just repaid what type of loan?
Question options:
|
| Amortized loan | ||
|
| Interest-only loan | ||
|
| Discount loan | ||
|
| Compound loan | ||
| Question 13 | 2.5 / 2.5 points | ||
Randy W. recently won the Western States Lottery of $6,500,000. The lottery pays either a total of twenty $325,000 payments per year with the first payment today (i.e., an annuity due), or $3,500,000 today. At what interest rate would Randy be financially indifferent between these two payout choices?
Question options:
|
| 5.37% | ||
|
| 7.36% | ||
|
| 7.76% | ||
|
| 8.00% | ||
| Question 14 | 2.5 / 2.5 points | ||
What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?
Question options:
|
| Amortized loan | ||
|
| Interest-only loan | ||
|
| Discount loan | ||
|
| Compound loan | ||
| Question 15 | 0 / 2.5 points | ||
If you borrow $50,000 at an annual interest rate of 12% for six years, what is the annual payment (prior to maturity) on an interest-only type of loan?
Question options:
|
| $0 | ||
|
| $6,000 | ||
|
| $8,333.33 | ||
|
| $12,161.29 | ||
| Question 16 | 2.5 / 2.5 points | ||
If for the next 40 years you place $3,000 in equal year-end deposits into an account earning 8% per year, how much money will be in the account at the end of that time period?
Question options:
|
| $120,000.00 | ||
|
| $777,169.56 | ||
|
| $839,343.12 | ||
|
| $2,606,942.58 | ||
| Question 17 | 2.5 / 2.5 points | ||
If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay the interest of $8,000 at the end of each year prior to maturity and the final payment of $108,000 at the end of 10 years, then you have just repaid what type of loan?
Question options:
|
| Amortized loan | ||
|
| Interest-only loan | ||
|
| Discount loan | ||
|
| Compound loan | ||
| Question 18 | 0 / 2.5 points | ||
Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. How large is the payment at the end of Year 10 if the crane is financed at a rate of 8.50% as a discount loan?
Question options:
|
| $228,611.56 | ||
|
| $127,500 | ||
|
| $3,391,475.16 | ||
|
| There is not enough information to answer this question. | ||
| Question 19 | 2.5 / 2.5 points | ||
Present value calculations do which of the following?
Question options:
|
| Compound all future cash flows into the future | ||
|
| Compound all future cash flows back to the present | ||
|
| Discount all future cash flows back to the present | ||
|
| Discount all future cash flows into the future | ||
| Question 20 | 2.5 / 2.5 points | ||
A/An __________ is a series of cash flows at regular intervals across time.
Question options:
|
| annuity |
|
| annuity due |
|
| perpetuity due |
|
| None of the above |
| Online Exam 5 | |
| Question 21 | 2.5 / 2.5 points |
Assume that Don is 45 years old and has 20 years for saving until he retires. He expects an APR of 8.5% on his investments. How much does he need to save if he puts money away annually in equal end-of-the-year amounts to achieve a future value of $1 million in 20 years' time?
Question options:
|
| $20,570.00 | ||
|
| $20,670.97 | ||
|
| $20,770.90 | ||
|
| $20,800.00 | ||
| Question 22 | 2.5 / 2.5 points | ||
The phrase "price to rent money" is sometimes used to refer to:
Question options:
|
| historical prices. | ||
|
| compound rates. | ||
|
| discount rates. | ||
|
| interest rates. | ||
| Question 23 | 2.5 / 2.5 points | ||
Suppose you invest $1,000 today, compounded quarterly, with the annual interest rate of 5%. What is your investment worth in one year?
Question options:
|
| $1,025.00 | ||
|
| $1,500.95 | ||
|
| $1,025.27 | ||
|
| $1,050.95 | ||
| Question 24 | 2.5 / 2.5 points | ||
James is a rational investor wishing to maximize his return over a 20-year period. The current yield curve is inverted with one-year rates at 5% and 20-year rates at 3.5%. James will invest in the lower-rate 20-year bonds if:
Question options:
|
| he thinks rates will fall in the future and locking in long-term rates today may provide the highest long-run average return. | ||
|
| he thinks rates will rise in the future and locking in long-term rates today may provide the lowest long-run average return. | ||
|
| he thinks rates will remain flat at 5% in the future and locking in long-term rates today will prevent him from appearing greedy to those without this investment opportunity. | ||
|
| James has no idea what to do and should just skip this question. | ||
| Question 25 | 2.5 / 2.5 points | ||
Suppose you deposit money in a certificate of deposit (CD) at a bank. Which of the following statements is true?
Question options:
|
| The bank is borrowing money from you without a promise to repay that money with interest. | ||
|
| The bank is lending money to you with a promise to repay that money with interest. | ||
|
| The bank is technically renting money from you with a promise to repay that money with interest. | ||
|
| The bank is lending money to you, but not borrowing money from you. | ||
| Question 26 | 2.5 / 2.5 points | ||
Assume you just bought a new home and now have a mortgage on the home. The amount of the principal is $150,000, the loan is at 5% APR, and the monthly payments are spread out over 30 years. What is the loan payment? Use a calculator to determine your answer.
Question options:
|
| $798.95 | ||
|
| $805.23 | ||
|
| $850.32 | ||
|
| $903.47 | ||
| Question 27 | 2.5 / 2.5 points | ||
The two major components of the interest rate that cause rates to vary across different investment opportunities or loans are:
Question options:
|
| the default premium and the bankruptcy premium. | ||
|
| the liquidity premium and the maturity premium. | ||
|
| the default premium and the maturity premium. | ||
|
| the inflation premium and the maturity premium. | ||
| Question 28 | 2.5 / 2.5 points | ||
You put down 20% on a home with a purchase price of $300,000. The down payment is thus $60,000, leaving a balance owed of $240,000. The bank will loan you the remaining balance at 4.28% APR. You will make annual payments with a 20-year payment schedule. What is the annual annuity payment under this schedule?
Question options:
|
| $18,100.23 | ||
|
| $22,625.29 | ||
|
| $12,000.00 | ||
|
| $33,785.23 | ||
| Question 29 | 2.5 / 2.5 points | ||
Nominal interest rates are the sum of two major components. These components are:
Question options:
|
| the real interest rate and expected inflation. | ||
|
| the risk-free rate and expected inflation. | ||
|
| the real interest rate and default premium. | ||
|
| the real interest rate and the T-bill rate. | ||
| Question 30 | 2.5 / 2.5 points | ||
When interest rates are stated or given for loan repayments, it is assumed that they are __________ unless specifically stated otherwise.
Question options:
|
| daily rates | ||
|
| annual percentage rates | ||
|
| effective annual rates | ||
|
| APYs | ||
| Question 31 | 2.5 / 2.5 points | ||
The __________ compensates the investor for the additional risk that the loan will not be repaid in full.
Question options:
|
| default premium | ||
|
| inflation premium | ||
|
| real rate | ||
|
| interest rate | ||
| Question 32 | 2.5 / 2.5 points | ||
If you take out a loan from a bank, you will be charged:
Question options:
|
| for principal but not interest. | ||
|
| for interest but not principal. | ||
|
| for both principal and interest. | ||
|
| for interest only. | ||
| Question 33 | 2.5 / 2.5 points | ||
Which of the following statements is true if you increase your monthly payment above the required loan payment?
Question options:
|
| The extra portion of the payment does not go to the principal. | ||
|
| You can significantly increase the number of payments needed to pay off the loan. | ||
|
| The extra portion of the payment increases the principal. | ||
|
| You can significantly reduce the number of payments needed to pay off the loan. | ||
| Question 34 | 2.5 / 2.5 points | ||
We can write the true relationship between the nominal interest rate and the real rate and expected inflation as which of the following?
Question options:
|
| (1 + r) = (1 + r) × (1 + h*) | ||
|
| r = (1 + r*) × (1 + h) - 1 | ||
|
| r* = (1 + r) × (1 + h) -1 | ||
|
| r = (1 + r*) × (1 + h) + 1 | ||
| Question 35 | 2.5 / 2.5 points | ||
Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank. Your reward for postponing consumption implies that at the end of the year:
Question options:
|
| you will be able to consume fewer goods. | ||
|
| you will be able to buy the same amount of goods or services. | ||
|
| you will be able to buy fewer goods or services. | ||
|
| you will be able to buy more goods or services. | ||
| Question 36 | 2.5 / 2.5 points | ||
The typical payments on a consumer loan are made at:
Question options:
|
| the end of each day. | ||
|
| the end of each week. | ||
|
| the end of each month. | ||
|
| the beginning of each month. | ||
| Question 37 | 2.5 / 2.5 points | ||
What is the EAR if the APR is 10.52% and compounding is daily?
Question options:
|
| Slightly above 10.09% | ||
|
| Slightly below 11.09% | ||
|
| Slightly above 11.09% | ||
|
| Over 11.25% | ||
| Question 38 | 2.5 / 2.5 points | ||
Suppose you invest $2,000 today, compounded monthly, with an annual interest rate of 7.5%. What is your investment worth in one year?
Question options:
|
| $2,150 | ||
|
| $2,152.81 | ||
|
| $2,155.27 | ||
|
| $2,154.77 | ||
| Question 39 | 2.5 / 2.5 points | ||
Suppose you postpone consumption so that by investing at 8% you will have an extra $800 to spend in one year. Suppose that inflation is 4% during this time. What is the approximate real increase in your purchasing power?
Question options:
|
| $800 | ||
|
| $600 | ||
|
| $400 | ||
|
| $200 | ||
| Question 40 | 2.5 / 2.5 points | ||
Which of the following statements is true?
Question options:
|
| On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the EAR rate. |
|
| On many calculators the TVM key for interest is Y/I; this is Interest per Year, or the APR rate. |
|
| On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the APR rate. |
|
| On many calculators the TVM key for a period is I/Y.
|
