FIN3403 FINANCIAL MANAGEMENT

How much will your monthly payment be if you purchase a home for $221,000 and you finance $200,000 for 30 years at 4.8%? $884.21 $1,049.33 $776.68 $1,264.52

$1,049.33 I=4.8%/12=.4% N= 30X12=360 PV=200,000 I=.4 N=360 FV=0 CPT PMT= 1049.33

How much will an investor accumulate by the end of two years if she deposits $1,000 in an account earning 8% annual simple interest? $1,080.00 $1,160.00 $1,000.00 $1,166.40

$1,160.00 Simple interest refers to earning interest only on the original principal so this investor will earn $80 in interest ($1,000 x .08 = $80) for each year the $1,000 remains on deposit. In this case the $1,000 remains invested for two years so the investor will have the original $1,000 + $80 interest from year 1 + $80 interest from year two for a total of $1,160.

What it the present value of $2,000 that you expect to receive in 3 years assuming you could invest the money today and earn a 5% annual return? $2,205.00 $1,904.76 $1,727.68 $2,100.00

$1,727.68

Elizabeth wants to have $500,000 saved for retirement in 20 years. Assuming she can earn an 8% annual return on her investments how much will she need to save at the end of each of the next 20 years to accomplish her goal? $10,926.10 $5,875.20 $11,985.31 $25,000.00

$10,926.10

What is the present value of an ordinary annuity of $500 a year for 6 years assuming an interest rate of 9%? $2,242.96 $2,752.29 $3,000.00 $3,270.00

$2,242.96

How much will you accumulate in an account where you deposit $800 a year at the end of the next 4 years if you can earn 3% annually? $900.41 $3,200.00 $3,346.90 $3,447.31

$3,346.90

How much will you accumulate in an account where you deposit $1,100 a year at the beginning of the next 3 years if you can earn 5% annually? $3,467.75 $3,465.00 $3,300.00 $3,641.14

$3,641.14 1100[(1+.05)^3 -1 /.05] X (1+.05) = $3641.14

What is the value three years from now of $3,200 deposited today that will earn an annual return of 7%? $2,990.65 $2,612.25 $4,194.55 $3,920.14

$3,920.14

Jim is considering buying a car that costs $20,000 that can be financed for 5 years at 6% interest with no down payment. How much will Jim's payment be per month? $221.78 $552.31 $400.00 $386.65

$386.65 N= 5 X 12= 60 I= 6% / 12= .50 PV= 20,000 FV= 0 Compute PMT= $386.65

What is the present value of $800 to be received at the end of year one, $3,000 at the end of year two, and $1,500 at the end of year three assuming a discount rate of 3%? $5,781.45 $5,300.00 $4,977.20 $5,145.63

$4,977.20 (800/(1.03)^1)+(3000/(1.03)^2+(1500/(1.03)^3)= 776.70 + 2,827.79 + 1,372.71 = $4,977.20

What is the present value of an annuity due of $2,000 a year for 3 years assuming an interest rate of 7%? $5,616.03 $6,420.00 $6,000.00 $5,607.47

$5,616.03 2000[(1)-((1/(1+.007)^3))/.07](1+.007)= 5616.03

How much will Zeke have at the end of 7 years if he can earn 6% compounded quarterly on his initial $5,000 investment? $4,911.26 $8,125.21 $9,006.15 $7,586.11

$7,586.11 N= 7 X 4= 28 I= 6% / 4= 1.5 PV= -5,000 Pmt=0 Compute FV= $7,586.11

At the end of year three, what is the future value of $1,000 to be received at the end of year one, $2,000 to be received at the end of year two, and $4,500 to be received at the end of year three assuming an interest rate of 6%? $7,743.60 $7,500.00 $7,950.00 $6,531.40

$7,743.60

What is the value of a bond that never matures that will generate an annual coupon payment of $100 assuming your required return is 12%? $1,000.00 $555.18 $833.33 $1,200.00

$833.33

An investmest with a nominal annual rate of interest of 5% and semi-annual compounding will yield an effective annual rate of ______. 5.25% 10% 2.5% 5.06%

5.06%

If you can invest $1,000 today and it will grow to be worth $1,350 over the next 6 years, what is the compound annual return you will earn on this investment? 5.1289% 4.7894% 7.2500% 6.0000%

5.1289% PV = -$1,000 since you are depositing the money. FV = $1,350 N = 6 PMT = 0 Solve for I/Y = 5.1289% annual return.

What is the effective annual rate (EAR) of interest for an account that has an annual percentage rate (APR) of 8% that is compounded quarterly? 8.551% 8.243% 8.000% 7.752%

8.243%

How many years will it take you to accumulate $30,000 for a down payment on a house if you deposit $12,000 today and you expect to earn a 10% annual return on your investment? 15.0 years 9.6 years 5.8 years 8.0 years

9.6 years

One technique often used in time value of money problems that provides a linear representation of cash flows is: A scatterplot A timeline A timing diagram A graph

A timeline

When the payment of an annuity occurs at the beginning of the period instead of at the end of the period it is known as: A beginning annuity An ordinary annuity A compound annuity An annuity due

An annuity due

Discounting cash flows refers to: Receiving a reduction in the price of a good or service as an incentive to purchase Reducing the value of financial information that comes from a questionable source Calculating the future value of some cash flow that you received today Calculating the present value of cash flows to be received at some point in the future

Calculating the present value of cash flows to be received at some point in the future

An annuity refers to a series of: Unequal cash flows occurring at equal intervals for a finite period Equal cash flows occurring at equal intervals for a finite period Equal cash flows occurring at equal intervals for an infinite period Unequal cash flows occurring at equal intervals for an infinite period

Equal cash flows occurring at equal intervals for a finite period

The concept that a dollar received today is worth more than a dollar received at some point in the future is known as: The miracle of compound interest A dollar saved is a dollar earned The time value of money Financial accounting

The time value of money

The present value is equivalent to: The value of a cash flow today The value of a cash flow in the future The future value compounded by some interest rate Some amount you expect to invest next year

The value of a cash flow today

Compound interest is: the sum of the total payments of the life of a loan. interest paid on the investment's original deposit. interest paid on the investment's original deposit and accumulated interest. interest paid on accumulated interest.

interest paid on the investment's original deposit and accumulated interest.