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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 3year 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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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 3year 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 3year 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 5year 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.
 Fall '09
 DYER

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