Multiple Choice questions on Time Value of Money
Not what you're looking for?
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%?
a. $909.09
b. $900.00
c. $907.00
d. $950.00
____ 2. Find the present value of $100 to be received at the end of two years if the discount rate is 12% compounded monthly.
a. $66.50
b. $78.76
c. $68.80
d. $91.80
e. $79.75
____ 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
a. $58,580
b. $104,135
c. $68,105
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.
a. $160.00
b. $112.70
c. $118.80
d. $125.40
e. $126.97
____ 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.
a. $301,499
b. $307,541
c. $310,545
d. $319,766
____ 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?
a. $22
b. $500
c. $200
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.
a. $5,569
b. $7,720
c. $5,108
d. $7,677
____ 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%.
a. $807
b. $817
c. $887
d. $975
e. $1,331
____ 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 $)
a. $915
b. $869
c. $734
d. $698
Purchase this Solution
Solution Summary
Answers to 10 Multiple Choice questions on Time Value of Money.
Solution Preview
Note: the abbreviations have the following meanings
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
FVIF= Future Value Interest Factor
FVIFA= Future Value Interest Factor for an Annuity
They can be read from tables or calculated using the following equations
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
PVIF( n, r%)= =1/(1+r%)^n
FVIF( n, r%)= =(1+r%)^n
FVIFA( n, r%)= =[(1+r%)^n -1]/r%
^ stands for raised to the power of
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
c. 1 How much must be invested today to have $1,000 in two years if the interest rate is 5%?
a. $909.09
b. $900.00
c. $907.00
d. $950.00
Answer c. $907.00
Frequency= A Annual
No of years= 2
No of Periods= 2
Discount rate annually= 5.00% annual
Discount rate per period= 5.0000% Annual
n= 2
r= 5.00%
PVIF (2 periods, 5.% rate ) = 0.907029
Future value= 1,000
Therefore, present value= 907.03 =1000x0.907029
b. 2 Find the present value of $100 to be received at the end of two years if the discount rate is 12% compounded monthly.
a. $66.50
b. $78.76
c. $68.80
d. $91.80
e. $79.75
Answer: b. $78.76
Frequency= m Monthly
No of years= 2
No of Periods= 24
Discount rate annually= 12.00% annual
Discount rate per period= 1.0000% Monthly
n= 24
r= 1.00%
PVIF (24 periods, 1.% rate ) = 0.787566
Future value= 100
Therefore, present value= 78.76 =100x0.787566
c.
____ 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
a. $58,580
b. $104,135
c. $68,105
d. none of the above
Answer: c. $68,105
(the closest value)
First find the PV of cash flows for ...
Purchase this Solution
Free BrainMass Quizzes
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.