Time Value of Money Quiz PDF

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TVM quiz questions and answers - Spring 2021...

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13/13 1. You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years? a. $31,060 2. What is the FV of $20,000 compounded at 12% annually for 20 years? a. 192,925.86 3. What is the FV of $10,000 compounded at 6% annually for 20 years? a. 32,071.35 4. What is the FV of $10,000 compounded at 12% annually for 10 years? a. 31,058.48 5. If you plotted the future value of $1,000 growing at any interest rate greater than 0 with dollars on the vertical axis and time on the horizontal axis, the resulting curve would a. Slope upward at an increasing rate 6. When using a financial calculator, which of the following is the correct way to find the future value of $200 deposited today in an account for four years paying annual interest of 3%? a. N=4, i=3, PV = -200, Solve for FV 7. An increase in " --------- " will decrease present value. a. The interest rate per period & The number of periods 8. Given some amount to be received several years in the future, if the interest rate increases, the present value of the future amount will a. Be lower 9. Which of the following statements is (are) true with respect to the time value of money? a. Money received today is worth more than the same amount of money received in the future. 10. At an effective annual interest rate of 20%, how many years will it take a given amount to triple in value? a. 6 ( PV = -1. FV =3) 11. Based on the following data, calculate the annual inflation rate (in percentage) during the period, 22 years long, from 1995 to 2017. What cost $100 in 1995 would cost $163.75 in 2017. a. 2.27% 12. At an inflation rate of 9 percent, the purchasing power of $1 would be cut in half in 8.04 years. How long to the nearest year would it take the purchasing power of $1 to be cut in half if the inflation rate were only 4%? a. 18 years

13/13 13. It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1,000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the beginning of the 41st year? Assume that the account pays 12% interest compounded annually, and round to the nearest $1,000. a. 767,000 14. You deposited $2,000 in a bank account paying 6% on January 1, 2004, and then you made $2,000 deposits on January 1 in 2005 and 2006. Which of the following expressions will calculate your bank balance just after the last payment was deposited? a. PMT -2000 b. I/Y 6% c. PV 0 d. N 3 15. If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw at the end of each year and have nothing remaining at the end of five years? a. 5009.129 16. Your company has received a $50,000 loan from an industrial finance company. The annual payments are made at the end of each year, $6,202.70. If the company is paying 9% interest per year, how many loan payments must the company make? a. 15 17. Ordinary annuities assume that cash flows occur a. At the end of the period

18. Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina's plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%. Round off to the nearest $1. a. 1497.34 19. What is the present value of an annuity of $12 received at the end of each year for seven years? Assume a discount rate of 11%. The first payment will be received one year from today (round to the nearest $1). a. $56.54 ~ 57 20. What is the present value of an annuity of $100 received at the end of each year for seven years? The first payment will be received one year from today (round to nearest $10). The discount rate is 13%. To solve this problem with a financial calculator, the correct choice is a. N = 7 b. FV = 0 c. PMT = 100 d. I/y = 13% 21. You buy a race horse, which has a winning streak for four years, bringing in $500,000 per year at the end of each year, and then it dies of a heart attack. If you paid $1,518,675 for the horse four years ago, what was your annual return over this four-year period?

13/13 a. 12% 22. If a loan of $10,000 is paid back in equal annual end-of-year payments of $2,570.69 during the next five years, what is the annual interest rate on the loan? a. 9%...