Deck 8: Time Value of Money Part I: Future and Present Value of Lump Sums

Question 1

You have to make a balloon payment on your house five years from now of $15,000.If money can earn an average of 6 percent a year for the five year period,what factor will you use to determine what to deposit now?

A)0)7462
B)0)7473
C)1)3382
D)1)3401

Answer 1

0)7473

Question 2

In a Bridge Loan the lender

A)Calculates interest on a daily basis.
B)Calculates loans the entire value of the property to the borrower.
C)Requires a 20 percent down payment on the value of the property.
D)Knows the exact payment prior to making the loan.

Answer 2

Calculates interest on a daily basis.

Question 3

The rate that the bank is offering is 2 percent compounded monthly.This is an actual rate of interest of _ percent.

A)2)00
B)2)02
C)2)04
D)2)50

Answer 3

2)02

Question 4

A college education costs approximately $75,000 at an Ivy league school.If inflation averages 8% per year,how much more would the education cost in 15 years?

A)$162,912.68
B)$237,912.68
C)$312,912.68
D)$2,036,408

Question 5

If you purchase 100 shares of stock in ABC for $50 per share in January,2003 and sell the stock at the end of 2006 for $90.What is your Internal Rate of Return on this investment?

A)15.83%
B)21.64%
C)82.22%
D)86%

Question 6

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that a four year college now costs at least $30,000 per year,including tuition,books,room,and board.The cost of sending a child to college has increased by 7 percent per year,and you believe this will be true for the next twelve years.What will a four year college education cost when your child is eighteen?

A)$180,087.64
B)$241,463.56
C)$265,281.76
D)$270,263.00

Question 7

How long it will take for $500 to amount to $850 at 10% simple interest.It will take

A)5 years.
B)3)5 years.
C)7 years.
D)10 years.
E)None of the above.

Question 8

If inflation averages 6 percent per year,what is the loss of purchasing power for a dollar ten years from now?

A)74 cents
B)47 cents
C)44 cents
D)31 cents

Question 9

N)Trest bought a $10,000 Treasury bill at a 2.38% discount for 13 weeks(91 days).How much does N pay for the bond?

A)$10,000
B)$9,940.66
C)$6,640.66
D)$9,770.08

Question 10

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that a four year college now costs at least $30,000 per year,including tuition,books,room,and board.The cost of sending a child to college has increased by 8 percent per year,and you believe this will be true for the next twelve years.How much will the annual tuition be when your child is eighteen?

A)$119,881
B)$75,545
C)$74,279
D)$67,566

Question 11

Which of the following is true for Fixed Principal Commercial Loans?
I.The interest rate may be fixed or variable.
II.The principal payment remains the same for the duration of the loan.
III.The bank calculates the payment due each month with a variable interest loan.
IV.The bank calculates an amortization schedule with a variable interest loan.
V.The banks provides the borrower with an amortization schedule with a fixed interest fixed principal loan.

A)I,II,IV & V
B)I,II,III & IV
C)I,II,III & V
D)I,III,IV & V
E)All of the above are true.

Question 12

You have to make a balloon payment on your house five years from now of $15,000.If money can earn an average of 6 percent a year for the five year period,how much will you have to place in the account today to have the $15,000 in five years?

A)$11,193.00
B)$11,208.87
C)$20,073.00
D)$20,101.50

Question 13

If you purchase an automobile for $20,000 in 2006 and inflation is 4 percent,how much would a similar automobile sell for four years from then?

A)$16,438
B)$16,454
C)$24,310
D)$24,334

Question 14

If you deposit $1,000 in an account that compounds quarterly at 8 percent interest,the interest earned on your account at the end of 5 years will be

A)$104.10.
B)$485.90.
C)$469.30.
D)$661.00.

Question 15

JT purchases 1,000 shares of stock at $2.48 per share in January 2006.He sells the 1,000 shares in January,2010 for $5.50 per share.What is his internal rate of return?

A)22.03%
B)2)03%
C)3)22%
D)2)33%

Question 16

What proceeds would you receive if you borrow $5,000 for 270 days discounted at 12%?

A)$433.84
B)$4,550
C)$4,556.16
D)$5,455

Question 17

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that a four year college now costs at least $30,000 per year,including tuition,books,room,and board.The cost of sending a child to college has increased by 7 percent per year,and you believe this will be true for the next twelve years.How much will the annual tuition be when your child is eighteen?

A)$67,565.75
B)$66,320.44
C)$60,365.89
D)$45,000.00

Question 18

Joe M.purchases a house for $370,000.He sells the home 7 years later for $600,000.What is his Internal Rate Of Return?(IRR)?

A)15.7%
B)7)15%
C)7)50%
D)5)70%

Question 19

Which of the following is true for Fixed Principal Commercial Loans?

A)The bank calculates the total interest due even on variable interest loans.
B)The borrower does not have to make a down payment.
C)The borrower will probable be required to make a 20 percent down payment.
D)The bank provides an amortization schedule with a variable interest loan.

Question 20

The interest that is earned or charged on the principal amount and added to the principal to get the maturity value is

A)accrued interest.
B)compound interest.
C)stated interest.
D)simple interest.

Question 21

A college education costs approximately $75,000 at an Ivy league school.If inflation averages 8% per year.How much will the eduction cost in 15 years?

A)$162,912.68
B)$237,912.68
C)$312,912.68
D)$2,036,408

Question 22

If you paid $7.00 to go to a movie in 2006,what will the price of this movie be in the year 2011 if inflation averages 6 percent?

A)$5.12
B)$5.23
C)$9.37
D)$9.73

Question 23

You have to make a balloon payment on your house five years from now of $15,000.If money can earn a average of 6 percent a year for the five year period,how much interest will you earn on your deposit in five years?

A)$3,791.13
B)$3,807.00
C)$5,073.00
D)$5,101.50

Question 24

A college education costs approximately $75,000 at an Ivy league school.If inflation averages 5% per year,what will be the cost of the college education in 15 years?

A)$1,745,697.74
B)$155,919.61
C)$125,754.75
D)$36,076.28

Question 25

Juanita.purchases a house for $410,000.He sells the home 8 years later for $1,200,000.What is her Internal Rate Of Return(IRR)?

A)14.37%
B)37.40%
C)3)74%
D)34%

Question 26

N.Trest bought a $10,000 Treasury bill at a 1.32% discount for 13 weeks(91 days).How much does N pay for the bond?

A)$10,000
B)$9,967.09
C)$9,870.54
D)$9,685.90

Question 27

If you paid $5.00 to go to a movie in 2001 and you paid $7.00 to go to a movie in 2007,the increase is price is probably due to

A)inflation.
B)greed on the part of movie makers.
C)deflation.
D)compound interest.

Question 28

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that a four year college now costs at least $30,000 per year,including tuition,books,room,and board.The cost of sending a child to college has increased by 7 percent per year,and you believe this will be true for the next twelve years.How much will the annual tuition be when your child is eighteen?

A)2)2522
B)2)2107
C)2)0122
D)1)5007

Question 29

A college education costs approximately$75,000 at an Ivy league school,inflation averages 5%,what factor will you use to determine the cost of an education in 15 years?

A)2)0789
B)2)7890
C)2)9500
D)0)4810

Question 30

With a Fixed Principal Commercial Loan where the amount borrowed is $120,000 for 5 years at 8 percent.The first monthly payment will be:

A)$2,000
B)$2,800
C)$9,600
D)$11,600

Question 31

With a Fixed Principal Commercial Loan where the amount borrowed is $120,000 for 5 years at 8 percent.The second monthly payment will be:

A)$2,000
B)$2,800
C)$2,786.67
D)None of the above.

Question 32

You have an absolutely brilliant child who is six years old and will be attending a private college in twelve years.You know that a four year college now costs at least $30,000 per year,including tuition,books,room,and board.The cost of sending a child to college has increased by 7 percent per year,and you believe this will be true for the next twelve years.How much more tuition will you have to pay per year when your child is eighteen?

A)$15,000.00
B)$30,365.89
C)$36,320.44
D)$37,565.75

Question 33

If your money doubled in 8 years,then your annual rate of interest is approximately

A)7)2%.
B)8%.
C)9%.
D)10%.

Question 34

How much will you pay for a $10,000 Treasury bill at 5.45% discount for 13 weeks?

A)$135.88
B)$9,863.75
C)$9,865.12
D)$10,135.88

Question 35

When you go to a financial institution to obtain a loan,the rate of interest normally quoted will be the

A)effective rate.
B)quoted rate.
C)stated rate.
D)both A and C above.
E)both B and C above.

Question 36

A noted free agent running back just signed a 4 year $30 million dollar contract with a new team.He will get a 7 million dollar signing bonus and a 4.5 million dollar roster bonus.Additionally,he will get 3.25 million for year 1,5.25 million for year 2,5 million for year 3 and 5 million for year 4.Salary is paid at the end of the 1 year.Find the present value of his contract if money can earn 6%.

A)$15,897,083.78
B)$27,397,083.78
C)$23,911,000.35
D)$30,000,000

Question 37

Using the rule of 72,how long will it take $100,000 to equal $200,000 if you can earn 14% annually?

A)1)38 years
B)5)1429 years
C)4)1529 years
D)2)78 years

Question 38

If you want an effective rate of 6 percent,what is an acceptable quoted rate if interest is compounded quarterly?

A)5)50
B)5)65
C)5)87
D)6)12

Question 39

You buy 1,000 shares of stock at $5.00 per share in January of 2004.You sell the stock at $7.50 per share in January of 2007.What is your IRR?

A)1)1447%
B)14.47%
C)18.00%
D)87.36%

Question 40

JT purchases 1,000 shares of stock at $14.78 per share in January 2006.He sells the 1,000 shares in January,2010 for $15.50 per share.What is his internal rate of return?

A)11.2%
B)2)11%
C)1)2%
D)1)12%

Question 41

Using the rule of 72,how long will it take $1,000 to double if you earn 6% interest per year?

A)12 years
B)6 years
C)7)2 years
D)10 years
E)Cannot calculate with information provided.

Question 42

Joe M.purchases a house for $365,000.He sells the home 5 years later for $440,000.What is his Internal Rate Of Return?(IRR)?

A)8)31%
B)3)81%
C)3)18%
D)1)31%

Question 43

The interest that is earned or charged on both the principal amount and on the accrued interest that has been previously earned or charged is

A)compound interest.
B)simple interest.
C)stated interest.
D)accrued interest.

Question 44

The amount of interest that is deducted from the amount you wish to borrow in order to get proceeds is

A)accrued interest.
B)bank discount.
C)stated interest.
D)simple interest.

Question 45

If you deposit $1,000 in an account that compounds quarterly at 8 percent interest,the amount of your account at the end of 5 years will be

A)$1,104.10.
B)$1,485.90.
C)$1,469.30.
D)$4,661.00.

Question 46

JT purchases 1,000 shares of stock at $29 per share in January 2006.He sells the 1,000 shares in January,2012 for $32 per share.What is his internal rate of return?

A)6)15%
B)5)61%
C)5)19%
D)1)65%

Question 47

The approximate time that it takes a deposit to double at a certain interest rate is calculated by dividing the annual interest rate into the number

A)36.
B)48.
C)72.
D)100.

Question 48

Joe M.purchases a house for $410,000.He sells the home 8 years later for $629,000.What is his Internal Rate Of Return?(IRR)?

A)5)15%
B)1)50%
C)15%
D)5)50%

Question 49

You have to make a balloon payment on your house five years from now of $15,000.If money can earn a average of 6 percent a year for the five year period,how much will you have to place in the account today to have the $15,000 in five years? To solve this problem you would use the formula for the

A)future value of an ordinary annuity.
B)present value of a lump sum.
C)present value of an ordinary annuity.
D)future value of a lump sum.

Question 50

N.Trest bought a $10,000 Treasury bill at a 18% discount for 13 weeks(91 days).How much does N pay for the bond?

A)$10,000
B)$9551.23
C)$8,732.73
D)$8,548.95

Question 51

If you purchase an automobile for $20,000 in 2004 and inflation is 4 percent,how much would a similar automobile sell for four years from then? To solve this problem you would use the formula for the

A)bank discount.
B)internal rate of return.
C)present value of a lump sum.
D)future value of a lump sum.

Question 52

If inflation averages 6 percent per year,what is the value of a dollar ten years from now?

A)53 cents
B)56 cents
C)79 cents
D)$1.79

Question 53

JT purchases 1,000 shares of stock at $23.50 per share in January 2006.He sells the 1,000 shares in January,2110 for $35.50 per share.What is his internal rate of return?

A)10.86%
B)16.08%
C)8)06%
D)6)08%

Question 54

How long in years will it take for a mutual fund investment of $25,000 to reach $250,000 if the fund pays 12% per year?

A)20.3178 years
B)2)03178 years
C)10.65 years
D)The time cannot be determined with information provided.

Question 55

When seeking a Bridge Loan the borrower

A)Owns one piece of property and wishes to purchase another.
B)Borrows only the down payment on a second piece of property.
C)Borrows the down payment and closing costs on a second piece of property.
D)A & B above
E)A & C above