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Unformatted text preview: FNAN 301 Test bank problems – time value of money part 1 1. How much will you have in a. 16 years if you invest $500 today at an annual rate of 5.6%? b. 18 years if you invest $500 today at an annual rate of 5.6%? c. 18 years if you invest $500 today at an annual rate of 6.6%? d. 18 years if you invest $400 today at an annual rate of 6.6%? e. 18 years if you invest $400 today at an annual rate of 4.6%? 2. Investment A has a return of RA per year and investment B has a return of RB per year. If RA > RB > 0 and you invest $1,000 today, will you have more money in T years if you invest in investment A or if you invest in investment B or will both investments be worth the same? 3. Investments A and B have the same return of X per year. Investment A will pay investors a lump sum in TA years and investment B will pay investors a lump sum in TB years. If TA > TB > 0, X > 0, and you invest $1,000 today, will you get more money when investment A pays its lump sum in TA years or when investment B pays its lump sum in TB years? Note that all investments with a return of X have the same return. 4. For each of the 4 investments described in the table, the investor would pay $500 today to purchase the investment. Each investment would have the annual return noted in the table and each investment would make a single, lump sum payment to the investor in the number of years from today noted in the table. If RA > RB and TQ > TZ, then which assertion is true? All annual returns and numbers of years from today when the single, lump sum payment is made are greater than zero. Note that all investments that make a single, lump sum payment in T years from today make that payment at the same time and that all investments with a return of R have the same return. Investment Annual return Number of years from today when the single, lump sum payment is made A RA T B RB T Q R TQ Z R TZ (Spring 2011, quiz 1, question 1) A. Investment A will make a larger single, lump sum payment in T years than investment B, and investment Q will make a larger single, lump sum payment in TQ years than investment Z will make in TZ years B. Investment A will make a larger single, lump sum payment in T years than investment B, and investment Z will make a larger single, lump sum payment in TZ years than investment Q will make in TQ years C. Investment B will make a larger single, lump sum payment in T years than investment A, and investment Q will make a larger single, lump sum payment in TQ years than investment Z will make in TZ years D. Investment B will make a larger single, lump sum payment in T years than investment A, and investment Z will make a larger single, lump sum payment in TZ years than investment Q will make in TQ years E. None of the above assertions is true 1 FNAN 301 Test bank problems – time value of money part 1 5. For each of the 4 investments described in the table, the investor would pay $500 today to purchase the investment. Each investment would have the annual return noted in the table and each investment would...
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 Fall '11
 PILLOFF
 Time Value Of Money, Net Present Value

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