Exam 28: Time Value of Money

A) 39.60
B) 44.00
C) 48.40
D) 53.24
E) 58.57

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A) 6.85%
B) 7.21%
C) 7.59%
D) 7.99%
E) 8.41%

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A) $1,819
B) $1,915
C) $2,016
D) $2,117
E) $2,223

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A) $4,271.67
B) $4,496.49
C) $4,733.15
D) $4,969.81
E) $5,218.30

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A) 5.14
B) 5.71
C) 6.35
D) 7.05
E) 7.84

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A) $284,595
B) $299,574
C) $314,553
D) $330,281
E) $346,795

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A) If CF₀ is positive and all the other CFs are negative, then you can still solve for I.
B) If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
C) If you have a series of cash flows, and CF₀ is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
D) To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs. It is impossible to find the value of I without a computer or financial calculator.
E) If you solve for I and get a negative number, then you must have made a mistake.

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A) $1,994.49
B) $2,099.46
C) $2,209.96
D) $2,326.27
E) $2,442.59

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A) $7,531
B) $7,927
C) $8,323
D) $8,740
E) $9,177

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A) 3.44%
B) 3.79%
C) 4.17%
D) 4.58%
E) 5.04%

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A) $5,987
B) $6,286
C) $6,600
D) $6,930
E) $7,277

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A) 7.12%
B) 7.49%
C) 7.87%
D) 8.26%
E) 8.67%

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A) 15.17%
B) 15.97%
C) 16.77%
D) 17.61%
E) 18.49%

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A) 12.37
B) 13.74
C) 15.27
D) 16.97
E) 18.85

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A) Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.
B) The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
C) A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
D) A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate.
E) If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%.

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A) An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.
B) The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity.
C) If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%.
D) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.
E) The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

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A) Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
B) A time line is not meaningful unless all cash flows occur annually.
C) Time lines are useful for visualizing complex problems prior to doing actual calculations.
D) Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
E) Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.

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