Chap 4 quizzes
You owe $10,000 on a credit card with an interest rate of 15%, which is compounded monthly. If you make payments of $1,000 per month, how many months will it take you to pay off your debt? (Enter the answer to 2 decimal places)
10.75 i=15 pv=10000 pmt=-1000 ppy=12 end fv=0
What is the future value of $100 invested at 10% simple interest for 1 year?
110
You will contribute $10,000 to an account at the end of this year, with these contributions increasing by 1.5% per year and being made each year indefinitely. What is the PV of this if the discount rate is 3%? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
666,666.67 pv=cf/r-g 10000/(.03-.015)=666,666.67
rule of 72 formula
72/i=years to double
The single period TVM lump sum formula can be used to solve for PV, FV, or r. Which is the correct formula?
FV = PV(1+r)
What tools can be used to solve time value of money problems? Manually by a mathematical formula Financial calculator Word document Tables of TVM factors Guess Excel spreadsheet
Manually by mathematical formula financial calculator tables of TVM factors Excel
Which of the following is NOT true about the time value of money concept?
The general approach is to take money received in the future as a benchmark and compare that to how much the same amount of money is worth now. actually: We generally take the value of money now as a benchmark and compare that to how much the same amount of money is worth if it were to be received at some point in the future.
There is a linear relationship between future values and the number of compounding periods for any present value and non-zero interest rate.
false, exponential
Other things being equal, the more frequent the compounding period, the: lower the future value higher the future value higher the present value
higher the future value
The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate. By approximately how much would the value change if these were annuities due? Group of answer choices
incr. by 61 614(1.10)=675.4 675.4-614=61.4
You want to create a fund that can pay for a scholarship of $2,000 per year indefinitely. You expect that you can earn 5% interest for this account per year. Under these conditions, how much must you initially deposit in the account?
perpetuity problem pmt/r 2000/.05=40,000
You deposit $500 into an investment account each year for 10 years and earn 8% interest per year. How much will you end up with after the 10 years? Group of answer choices
(500/0.08)*(1.08^10-1)
Maverick Jane places $800 in a savings account paying 6% interest compounded annually. How much money will be in the account at the end of five year? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
1070.58
What is the future value of $100 invested at 10% compounded annually for 3 years? Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23
133.10
You start with $1,000 and end up with $5,000 after 10 years. What was the interest rate? (Enter the answer in percentage format to two decimal places without the % sign -> 9.33 and not 9.33% or .09)
17.46%
How many years will it take to double your $10,000 investment if you can earn a 4% annual return? (round it to 2 numbers after the decimal point)
17.67
Suppose you have an opportunity to invest $2,000 today at an 8% annual percentage rate (APR) with quarterly compounding. What is the value of your investment after 1 year? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
2164.86 fv=pv(1+r)^n 2000(1.02)^4 where r=apr/quarterly so 4 and n equals periods, sp 4 periods
You just borrowed $50,000 to buy a car. You will pay back this loan with monthly payments of $1,610 for 4 years. What is the APR (annual percentage rate) on this loan? (Enter the answer in percentage format to two decimal places without the % sign -> 9.32 and not 9.32% or .0932" )
23.37 pv=50000 pmt=-1610 n=4*12 fv=0 ppy=12 end
What is the future value of $100 invested at 10% compounded annually for 10 years? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
259.37
You deposit $2,000 into an investment account each year for 12 years and earn 5% interest per year. How much will you end up with after the 12 years?
31,834.25 annuity ord. equation mark PMT negative
You plan to deposit $13,000 in a bank account at the end of the year. Next year you will deposit $10,000, then $10,000 in the third year, and $4000 in the fourth year. What is the PV if the discount rate is 5%? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
33380.43 npv(5,0,{13k,10k,10k,4k})
What is the present value of an investment that will give you $100 after 10 years with a rate of 10% compounded annually? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
38.55
You end up with $20,000 after investing for 20 years at 8% annually. What was the PV? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
4290.96
You deposit $500 into an investment account each year for 10 years and earn 8% interest per year. How much will you end up with after the 10 years? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
7243.28 make pmt neg pv is 0 bc u didnt start w anything
An ordinary (deferred) annuity is an annuity for which the cash flow occurs at the beginning of each period.
FALSE, at the END of each period
T/F: The advantage to savers and investors of receiving compound interest rather than simple interest is that future values are larger because interest is earned on accumulated interest payments. Also, the difference in future values becomes smaller as time goes by.
False, the difference between FV becomes LARGER as time goes by
How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume a 10% interest rate and cash flows at end of period. (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
PVPerpetuity = $1,000/.10 = $10,000 PVAnnuity = $1,000[1/.10 - 1/.10(1.10)20] PVAnnuity = $8,513.56 Difference = $10,000 - 8,513.56 = $1,486.44
T/F: If you feel that the value of $107 in one year is just as good as $100 now. the $100 is the Present Value (PV) (Links to an external site.) of the $107 to be received in one year.
True
T/F: You should never compare cash flows occurring at different times without first discounting them to a common date.
True
You start out with $10,000 in an account. How much must you contribute at the beginning of each year in order to end up with $100,000 after 20 years if you earn 3% per year? Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23")
annuity due equation 2960.60
You start out with $5,000 in an account. How much must you contribute at the beginning of each year in order to end up with $40,000 after 12 years if you earn 5% per year?
annuity due prob. make pv neg. 1856.09
You start out with $5,000 in an account. You then deposit $2,000 into the account each year for 12 years and earn 5% interest per year. How much will you end up with after the 12 years?
annuity ord. equation 40,813.54 mark PV and PMT negative since youre putting money away
You start out with $5,000 in an account. How much must you contribute each year in order to end up with $40,000 after 12 years if you earn 5% per year?
annuity ord. equation, 1948.89 mark PMT negative to make FV positive
You receive $10,000 now for an investment that will return cash flows of $2,000 per year for five years and then $3,000 per year for another 5 years. What is the present value if the discount rate is 5%? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)
since youre receiving money, CF0 will be pos. npv(5,10,000,{2000,3000},{5,5}) =28835.73
t/f: Future values are positively related to interest rates and time - the bigger the interest rate and the more compounding periods, the greater the future value will be.
true