3) High discount rates favor
A) neither long-term nor short-term investments.
B) both long-term and short-term investments.
C) long-term investments.
D) short-term investments.
Question Status: New question
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
4) An increase in ________ will decrease present value.
A) the discount rate per period
B) the original amount invested
C) the number of periods
D) both A and C
Question Status: Revised
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
5) 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
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
20
6) What is the present value of $12,500 to be received 10 years from today? Assume a
discount rate of 8% compounded annually and round to the nearest $10.
A) $5,790
B) $11,574
C) $9,210
D) $17,010
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
7) Three years from now, Barbara Waters will purchase a laptop computer that will cost
$2,250. Assume that Barbara can earn 6.25% (compounded monthly) on her money. How
much should she set aside today for the purchase? Round of to the nearest $1.
A) $1,250
B) $900
C) $1,866
D) $3,775
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
8) If you want to have $875 in 32 months, how much money must you put in a savings
account today? Assume that the savings account pays 16% and it is compounded monthly
(round to the nearest $10).
A) $630
B) $570
C) $650
D) $660
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
21
9) Which of the following is the formula for present value?
A) FVn = P(1 + i)n
B) FVn = (1 + i)/P
C) FVn = P/(1 + i)n
D) FVn = P(1 + i)-n
Question Status: Previous edition
Objective: 5.2 Understand compounding and calculate the future value of cash lows using
mathematical formulas, a inancial calculator, and an EXCEL spreadsheet.
Keywords: future value
Principles: Principle 1: Money Has a Time Value
10) All else constant, the present value of an investment will increase if
A) the investment is discounted at a higher interest rate.
B) the investment is discounted for fewer years.
C) the investment is discounted at a lower interest rate.
D) both B and C.
Question Status: New question
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
11) To ind the present value of $1000 discounted for 20 years at 8%, when using a
inancial calculator, the correct entry is
A) N=20, i=.08,PMT = 0, FV=1000 solve for PV
B) N=20, i=8,PMT = 0, FV=1000 solve for PMT
C) N=20, i=.08,PMT = 0, PV=1000 solve for FV
D) N=20, i=8,PMT = 0, FV=1000 solve for PV
Question Status: New question
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
22
12) 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 of to the nearest year.
A) Approximately two years
B) Approximately four years
C) Approximately six years
D) Approximately eight years
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
13) Using a inancial calculator, which of the following would be a correct way to ind how
long it would take for a sum to triple at a rate of 3%?
A) i=5, PV=-1, PMT = 0, FV=3, solve for N
B) i=5, PV=1, PMT = 0, FV=3, solve for N
C) i=.05, PV=-1, PMT = 0, FV=3, solve for N
D) Financial calculators cannot be used to solve this problem.
Question Status: New question
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
14) Stephen’s grandmother deposited $100 in an investment account for him when he was
born, 25 years ago. The account is now worth $1,500. What was the average rate of return
on the account?
A) 6.00%
B) 16.67%
C) 15.00%
D) 11.44%
Question Status: New question
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
23
15) Stephen’s grandmother deposited $100 in an investment account for him when he was
born, 25 years ago. The account is now worth $1,500. What was the average rate of return
on the account? Which of the following is a correct way to solve this problem using
EXCEL?
A) =PV(25,i,-100,1500)
B) =rate(25,0,100,1500)
C) =rate(25,0,-100,1500)
D) =rate(0,-100,1500,25)
Question Status: New question
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
16) The present value of $400 to be received at the end of 10 years, if the discount rate is
5%, is
A) $400.00.
B) $248.40.
C) $313.60.
D) $245.60.
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
17) The present value of $1,000 to be received at the end of ive years, if the discount rate
is 10%, is
A) $621.
B) $784.
C) $614.
D) $500.
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
24
18) What is the present value of an investment that pays $400 at the end of three years and
$700 at the end of 10 years if the discount rate is 5%?
A) $1,100.00
B) $675.30
C) $775.40
D) $424.60
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
19) The present value of a single sum
A) increases as the discount rate decreases.
B) decreases as the discount rate decreases.
C) increases as the number of discount periods increases.
D) increases as the discount rate increases.
E) none of the above.
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
20) As the discount rate increases, the present value of future cash lows increases.
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
21) As the compound interest rate increases, the present value of future cash lows
decreases.
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
25
22) The present value of a future sum of money increases as the number of years before the
payment is received increases.
Question Status: Previous edition
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
23) When calculating either discount rates or the number of periods using a inancial
calculator, the PV and FV must have opposite signs.
Question Status: New question
Objective: 5.3 Understand discounting and calculate the present value of cash lows using
mathematical formulas, a inancial calculator, and an Excel spreadsheet.
Keywords: present value
Principles: Principle 1: Money Has a Time Value
5.4 Making Interest Rates Comparable
1) Which of the following provides the greatest annual interest?
A) 10% compounded annually
B) 9.5% compounded monthly
C) 9% compounded quarterly
D) 8.5% compounded daily
Question Status: Previous edition
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
2) The efective annual rate increases when the ________ increases.
A) number of compounding periods in a year
B) number of years invested
C) quoted rate
D) both A and C
E) all of the above
Question Status: Previous edition
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
3) What is the annual compounded interest rate of an investment with a stated interest rate
of 6% compounded quarterly for seven years (round to the nearest .1%)?
A) 51.7%
B) 6.7%
C) 10.9%
D) 6.1%
Question Status: Previous edition
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
4) You are considering two investments. Investment A yields 10% compounded quarterly.
Investment B yields r% compounded semiannually. Both investments have equal annual
yields. Find r.
A) 19.875%
B) 10%
C) 10.38%
D) 10.125%
Question Status: Previous edition
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
5) The annual percentage rate (APR) is calculated as which of the following?
A) Interest rate per period x compounding periods per year
B) (1+quoted annual rate/compounding periods per year)compounding periods per year-1
C) Interest rate per period / compounding periods per year
D) 1+quoted annual rate/compounding periods per year)1/compounding periods per year-1
Question Status: Previous edition
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
6) For any number of compounding periods per year greater than 1, EAR will always be
greater than the APR.
Question Status: New question
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
7) As the number of compounding periods per year increase, the annual percentage rate of
interest increases.
Question Status: Revised
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
8) A monthly credit card interest rate of 1.5% is equal to and efective annual rate of
19.56%
27
Question Status: New question
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
9) The annual percentage rate on two diferent investments will equal the efective annual
rate on the two investments only if interest on both investments is compounded annually.
Question Status: Revised
Objective: 5.4 Understand how interest rates are quoted and know how to make them comparable.
Keywords: efective annual rate
Principles: Principle 1: Money Has a Time Value
28