# Chapter 2 - CHAPTER 2 TIME VALUE OF MONEY(Difficulty Levels Easy Easy/Medium Medium Medium/H

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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

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## This note was uploaded on 05/05/2010 for the course FIN 221 taught by Professor Dyer during the Fall '09 term at University of Illinois, Urbana Champaign.

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Chapter 2 - CHAPTER 2 TIME VALUE OF MONEY(Difficulty Levels Easy Easy/Medium Medium Medium/H

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