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# Chapter 2 - CHAPTER 2 TIME VALUE OF MONEY(Difficulty Levels...

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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? FV of a lump sum 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? FV of a lump sum 4 . How much would \$1, growing at 5% per year, be worth after 100 years? 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%? PV of a lump sum 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? Interest rate on a simple lump sum investment 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? 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? Number of periods 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

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