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# Finance: Time value of money questions.

1. You receive a windfall of \$10,000. Your debt from student loans is \$17,720. If you invest the entire amount today at 10% interest, how long will it take to accumulate enough to cover your debt for student loans?
8 years
7 years
6 years
not enough information to determine

2.
The three factors required for calculating any future or present value amount include, the amount of the payments, the interest rate, and the time periods when payments are made.

True
False

3.
What amount must be invested at 10% to amount to \$1,000 at the end of 15 periods?

\$315
\$667
\$334
\$239

4.
The Sporting Goods Depot borrowed \$106,000 via 3-year, 8% note payable. The note is to be repaid in three equal year-end installments. How much interest expense will the firm incur for the first year of the note?

\$5,798
\$6,982
\$8,480
\$9,340

5.
The Gold Ore Mining Company is contemplating purchase of new equipment. The machinery is expected to generate increased sales of \$50,000 per year over its 5 year life. Excluding the cost of the machinery, additional operating costs are expected to be \$15,000 per year. If the firm requires a minimum 12% return on its investment, what is the maximum price the company can pay for this equipment?

\$180,239
\$175,000
\$126,167
\$ 54,072

6. If \$69,840 is invested today at 7% per year, how many years will it take to be worth \$120,000?
7 years
8 years
9 years
10 years

7.
The interest earned in one period on interest that was earned in an earlier period is known as simple interest

True
False

8.
George has five years to save for his freshman year tuition of \$15,000, how much money must George deposit into a 6% savings account every year?

\$3,000
\$2,661
\$2,150
\$2,205

9.
Your daughter received a tax refund and immediately and wished to put the money into a savings account at the local bank. She asked you how much she would accumulate if she invested the entire amount in the bank for exactly two years. What information would you need in order to correctly answer her question?

Amount How often bank
Interest Rate placed in savings compounds interest

yes yes no
yes no no
yes no yes
yes yes yes

10. Mailer Company invested \$15,000 for three years at a rate of 6.5%. By how much did the investment grow during the third year?
\$3,119
\$1,106
\$1,048
\$975

11.
An annuity is a series of

equal amounts paid or received over a specified number of unequal time periods
unequal amounts paid or received over a specified number of equal time periods
equal amounts paid or received over an unspecified number of equal time periods
equal amounts paid or received over a specified number of equal time periods

12. Which of the following will INCREASE future value relative to present value?
higher interest rate
shorter period
more safety
less risk

13.
Tiger Tail, Inc. borrowed \$150,000 from a bank at 10% and promised to repay the loan in 3 equal year-end payments. How much total interest expense will the company incur over the three year period?

\$30,952
\$37,302
\$45,000
\$112,696

14. If you invested \$1,000 in a savings account today, how much would you have one year from now if the bank pays 7% interest?
\$1,700
\$1,070
\$1,007
\$1,000

15. Bollinger Enterprises borrowed \$10,000 for 2 years at a 12% annual rate. If payments of \$471 are made monthly, what is the interest expense for the second month?

\$100
\$96
\$93
\$89

16. The amount earned that represents the difference between the future value and present value of a single investment is called
its cost
an annuity
an apportionment
interest

17. The ______ value of an amount is the value of that amount on a particular date prior to the time the amount is paid or received.
present
current
future
investment

18.
How much must be invested today at 9% per period to amount to \$175,000 in 15 periods?

\$15,750
\$11,667
\$48,045
\$16,445

19.
Manny is buying a vacation home. Manny makes a down payment of \$45,000 and borrows the remainder of the cost to complete the purchase. Manny's mortgage requires him to pay \$12,500 per period for 20 periods at an interest rate of 12%. What is the approximate present value of the amount borrowed?

\$250,000
\$205,000
\$120,575
\$93,368

20.
The Turbo Speedboat Company has just acquired new manufacturing equipment. No down payment was made, but four year-end payments of \$2,400 will be required to pay for the machine. If 8% is the appropriate rate, at what amount should Turbo Speedboat Company record the new equipment on its books?

\$7,056
\$7,949
\$10,814
\$13,060

#### Solution Summary

The question set deals with time value of money concept and other finance issues.

\$2.19