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Fin 335 CH 2

# Fin 335 CH 2 - CHAPTER 2 TIME VALUE OF MONEY(Difficulty...

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(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) PART I – New and Revised Carryover Problems and Questions Multiple Choice: Problems FV of a lump sum Answer: a EASY 1 . What would the future value of \$100 be after 5 years at 10% compound interest? a. \$161.05 b. \$134.54 c. \$127.84 d. \$151.29 e. \$143.65 FV of a lump sum Answer: c EASY 2 . Suppose you have \$2,000 and plan to purchase a 3-year certificate of deposit (CD) that pays 4% interest, compounded annually. How much will you have when the CD matures? a. \$2,324.89 b. \$2,591.45 c. \$2,249.73 d. \$2,011.87 e. \$2,854.13 FV of a lump sum Answer: e EASY 3 . A company’s 2005 sales were \$100 million. If sales grow at 8% per year, how large will they be 10 years later, in 2015, in millions? a. \$190.49 b. \$225.54 c. \$188.32 d. \$201.15 e. \$215.89 FV of a lump sum Answer: b EASY 4 . How much would \$1, growing at 5% per year, be worth after 100 years? a. \$141.05 b. \$131.50 c. \$164.52 d. \$144.50 e. \$155.94 Chapter 2: Time Value of Money Page 17 CHAPTER 2 TIME VALUE OF MONEY

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PV of a lump sum Answer: d EASY 5 . Suppose a U.S. government bond promises to pay \$2,249.73 three years from now. If the going interest rate on 3-year government bonds is 6%, how much is the bond worth today? a. \$2,011.87 b. \$2,591.45 c. \$2,324.89 d. \$1,888.92 e. \$2,854.13 PV of a lump sum Answer: a EASY 6 . How much would \$10,000 due in 100 years be worth today if the discount rate were 10%? a. \$0.73 b. \$1.21 c. \$2.49 d. \$4.83 e. \$6.30 PV of a lump sum Answer: c EASY 7 . Suppose a U.S. government bond will pay \$1,000 three years from now. If the going interest rate on 3-year government bonds is 4%, how much is the bond worth today? a. \$943.46 b. \$991.43 c. \$889.00 d. \$907.91 e. \$968.40 Interest rate on a simple lump sum investment Answer: e EASY 8 . The U.S. Treasury offers to sell you a bond for \$613.81. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for \$1,000. What interest rate would you earn if you bought this bond at the offer price? a. 5.91% b. 6.71% c. 7.10% d. 5.59% e. 5.00% Page 18 Chapter 2: Time Value of Money
Simple growth rate Answer: b EASY 9 . Sims Inc. earned \$1.00 per share in 2000. Five years later, in 2005, it earned \$2.00. What was the growth rate in Sims' earnings per share (EPS) over the 5-year period? a. 10.82% b. 14.87% c. 13.61% d. 14.28% e. 12.17% Number of periods Answer: e EASY 10 . How long would it take \$100 to double if it were invested in a bank that pays 5% per year? a. 15.27 years b. 10.49 years c. 11.34 years d. 13.91 years e. 14.21 years Number of periods Answer: a EASY 11 . Addico Corp's 2005 earnings per share were \$2, and its growth rate during the prior 5 years was 11.0% per year. If that growth rate were maintained, how long would it take for Addico’s EPS to double? a. 6.64 years b. 6.81 years c. 6.99 years d. 7.13 years e. 7.28 years FV of an ordinary annuity Answer: c EASY 12 . You want to buy a condo 5 years from now, and you plan to save \$3,000 per year, beginning one year from today. You will deposit the money in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now? a. \$14,764.40 b. \$13,431.83 c. \$16,911.28 d. \$17,843.15 e. \$15,119.76 Chapter 2: Time Value of Money Page 19

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FV of an ordinary annuity Answer: e EASY 13 . You want to go to grad school 3 years from now, and you can save \$5,000 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these
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Fin 335 CH 2 - CHAPTER 2 TIME VALUE OF MONEY(Difficulty...

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