Fin_pq2 - University of Houston-Victoria FIN 6352 Financial...

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FIN 6352 Financial Management FMQuiz02 Dr. Xavier Garza Gómez University of Houston-Victoria FIN 6352 Financial Management Review Quiz for Chapter 2 - Time Value of Money True-False 1. One of the potential benefits of investing early for retirement is that an investor can re- ceive greater benefits from the compounding of interest. a. True b. False 2. All other factors held constant, the present value of a given annual annuity decreases as the number of discounting periods per year increases. a. True b. False 3. The present value of a future sum decreases as either the discount rate or the number of discount periods per year increases. a. True b. False Multiple Choice: Concepts 4. The future value of a lump sum at the end of five years is $1,000. The nominal interest rate is 10 percent and interest is compounded semiannually. Which of the following statements is most correct? a. The present value of the $1,000 is greater if interest is compounded monthly rather than semiannually. b. The effective annual rate is greater than 10 percent. c. The periodic interest rate is 5 percent. d. Both statements b and c are correct. e. All of the statements above are correct. 5. Which of the following statements is most correct? a. The present value of an annuity due will exceed the present value of an ordinary an- nuity (assuming all else equal). b. The future value of an annuity due will exceed the future value of an ordinary annuity (assuming all else equal). c. The nominal interest rate will always be greater than or equal to the effective annual interest rate.
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FIN 6352 Financial Management FMQuiz02 Dr. Xavier Garza Gómez d. Statements a and b are correct. e. All of the statements above are correct. 6. Which of the following statements is most correct? a. If annual compounding is used, the effective annual rate equals the nominal rate.
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This note was uploaded on 10/26/2008 for the course MKTG 6352 taught by Professor Garza during the Spring '08 term at Texas A&M.

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Fin_pq2 - University of Houston-Victoria FIN 6352 Financial...

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