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Exam 5: Time Value of Money-The Basics

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Question 31

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California Investors recently advertised the following claim: Invest your money with us at 21%,compounded annually,and we guarantee to double your money sooner than you imagine.Ignoring taxes,how long would it take to double your money at a nominal rate of 21%,compounded annually? Round off to the nearest year.

A) Approximately two years
B) Approximately four years
C) Approximately six years
D) Approximately eight years

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Question 32

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What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1) .

A) $893
B) $3,106
C) $429
D) $833

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Question 33

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As the number of compounding periods per year increase,the nominal rate of interest increases.

If we invest money for 10 years at 8% interest,compounded semi-annually,we are really investing money for 20 six-month periods,during which we receive 4% interest each period.

If you want to have $1,200 in 27 months,how much money must you put in a savings account today? Assume that the savings account pays 14% and it is compounded monthly (round to the nearest $10) .

Discounting is the opposite of:

If you put $600 in a savings account that yields an 8% rate of interest compounded weekly,what will the investment be worth in 37 weeks (round to the nearest dollar) ?

If you are a borrower,which of the choices would lower your APR?

The present value of a single future sum:

At 8%,compounded annually,how long will it take $750 to double?

What is the present value of the following uneven stream of cash flows? Assume a 6% discount rate and end-of-period payments.Round to the nearest whole dollar.

You are considering two investments: A and B.Both investments provide a cash flow of $100 per year for n years.However,investment A receives the cash flow at the beginning of each year,while investment B receives the cash at the end of each year.If the present value of cash flows from investment A is P,and the discount rate is c,what is the present value of the cash flows from investment B?

The nominal interest rate on two different investments will equal the annual percentage yield on the two investments only if interest on both investments is compounded annually.

If you invest $450 today and it increases to $6,185 at the end of 20 years,what rate of return have you earned?

Financial managers use the time value of money to:

How many years will it take for an initial investment of $200 to grow to $544 if it is invested today at 8% compounded annually?

Assuming two investments have equal lives,a high discount rate tends to favor:

The present value of a future sum of money increases as the number of years before the payment is received increases.

The present value of a single sum:

The annual percentage yield is equal to the nominal rate of interest.