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help - Chapter 3Present Value MULTIPLE CHOICE 1 Which of...

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Chapter 3—Present Value MULTIPLE CHOICE 1. Which of the following cannot be calculated? a. Present value of an annuity. b. Future value of an annuity. c. Present value of a perpetuity. d. Future value of a perpetuity. ANS: D DIF: E REF: 3.4 Present Value of Cash Flow Streams 2. You have the choice between two investments that have the same maturity and the same nominal re- turn. Investment A pays simple interest, investment B pays compounded interest. Which one should you pick? 3. For a positive r, 4. Which of the following statements is true? 5. The Springfield Crusaders just signed their quarterback to a 10 year $50 million contract. Is this con- tract really worth $50 million? (assume r >0) a. Yes, because the payments over time add up to $50 million.
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b. No, it is worth more because he can invest the money. c. No, it would only be worth $50 million if it were all paid out today. d. Yes, because his agent told him so. ANS: C DIF: M REF: 3.4 Present Value of Cash Flow Streams 6. Last national bank offers a CD paying 7% interest (compounded annually). If you invest $1,000 how much will you have at the end of year 5. DIF: E REF: 3.1 Future Value of a Lump Sum 7. You want to buy a house in 4 years and expect to need $25,000 for a down payment. If you have $15,000 to invest, how much interest do you have to earn (compounded annually) to reach your goal? DIF: E REF: 3.1 Future Value of a Lump Sum 8. You want to buy your dream car, but you are $5,000 short. If you could invest your entire savings of $2,350 at an annual interest of 12%, how long would you have to wait until you have accumulated enough money to buy the car? DIF: E REF: 3.1 Future Value of a Lump Sum
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