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TVM Test bank

# TVM Test bank - TEST BANK TIME VALUE OF MONEY(Difficulty E...

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TEST BANK: TIME VALUE OF MONEY (Difficulty: E = Easy, M = Medium, and T = Tough) Multiple Choice: Problems Easy: FV of a single payment Answer: d Diff: E 1 . You deposit \$2,000 in a savings account that pays 10 percent interest, compounded annually. How much will your account be worth in 15 years? a. \$2,030.21 b. \$5,000.00 c. \$8,091.12 d. \$8,354.50 e. \$9,020.10 FV of a single payment Answer: c Diff: E 2 . You deposit \$1,000 in a savings account that pays 9 percent interest, compounded annually. How much will your account be worth in 6 years? a. \$1,054.00 b. \$1,199.00 c. \$1,677.10 d. \$1,689.48 e. \$7,523.33 PV of a single payment Answer: b Diff: E 3 . You can earn 8 percent interest, compounded annually. How much must you deposit today to withdraw \$10,000 in 6 years? a. \$5,402.69 b. \$6,301.70 c. \$6,756.76 d. \$8,432.10 e. \$9,259.26 PV of a single payment Answer: e Diff: E 4 . You can earn 15 percent interest, compounded annually. How much must you deposit today to withdraw \$4,000 in 10 years? a. \$525.11 b. \$842.51 c. \$869.57 d. \$957.57 e. \$988.74 Growth rate Answer: d Diff: E 5 . In 1958 the average tuition for one year at an Ivy League school was Chapter 2 - Page 1

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FV of an annuity Answer: e Diff: E 10 . What is the future value of a 5-year ordinary annuity with annual payments of \$200, evaluated at a 15 percent interest rate? a. \$ 670.44 b. \$ 842.91 c. \$1,169.56 d. \$1,522.64 e. \$1,348.48 PV of an annuity Answer: a Diff: E 11 . What is the present value of a 5-year ordinary annuity with annual payments of \$200, evaluated at a 15 percent interest rate? a. \$ 670.43 b. \$ 842.91 c. \$1,169.56 d. \$1,348.48 e. \$1,522.64 PV of a perpetuity Answer: c Diff: E 12 . You have the opportunity to buy a perpetuity which pays \$1,000 annually. Your required rate of return on this investment is 15 percent. You should be essentially indifferent to buying or not buying the investment if it were offered at a price of a. \$5,000.00 b. \$6,000.00 c. \$6,666.67 d. \$7,500.00 e. \$8,728.50 Required annuity payments Answer: b Diff: E 13 . If a 5-year ordinary annuity has a present value of \$1,000, and if the interest rate is 10 percent, what is the amount of each annuity payment?

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