Question about Multiple choice questions on Time Value of Money
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. How much must be invested today to have $1,000 in two years if the interest rate is 5%?
____ 2. Find the present value of $100 to be received at the end of two years if the discount rate is 12% compounded monthly.
____ 3. What is the most you should pay to receive the following cash flows if you require a return of 12 percent?
Year 1 $5,000
Year 2 $8,000
Year 3 $12,000
Year 4-10 $15,000
d. none of the above
____ 4. Find the future value in two years of $100 that is deposited in an account, which pays 12%, compounded monthly.
____ 5. You have borrowed $180,000 to buy a new home. You plan to make monthly payments over a 25-year period. The bank has offered you a 10% interest rate compounded monthly. Calculate the total amount of interest you will pay the bank over the life of the loan.
____ 6. You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly If you pay an extra $200 per month on the motor home, how many years will it take to pay off the loan?
a. 10.3 years
b. 11. 5 years
c. 12.8 years
d. 13.3 years
____ 7. A perpetuity has a cash flow of $20 and a discount rate of 10%. What is the value of the perpetuity?
d. none of the above
____ 8. Keith Stone has a 10-year-old daughter, Kate, who will be entering college in 8 years. Keith estimates college costs to be $16,000, $17,000, $18,000 and $19,000 payable at the beginning of each of Kate's four years in college. How much must Keith save each year (assume end of year payments) for each of the next 8 years to have enough savings to pay for Kate's education when she starts college? Assume Keith can earn 9% on his savings.
____ 9. Calculate the amount to be received at the end of year 1 that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.
____ 10. You are considering an investment that will pay you $100 in Year 1, $500 in Year 2, $0 in Year 3 and $600 in Year 4. If you require a 12% return, what is the most you should pay for this investment today? (Round to nearest $)
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