Question 1 (True/False Worth 5 points)

The future value technique uses discounting to find the future value of each cash flow at the end of the project’s life.

True

False

Question 2 (True/False Worth 5 points)

In the text, the perpetual British government war bonds were referred to as consols.

True

False

Question 3 (True/False Worth 5 points)

Trey Hughes opened a pizza place last year. He expects to increase his revenue from last year by 7 percent every year for the next 10 years. This is an example of a growing annuity.

True

False

Question 4 (True/False Worth 5 points)

The sooner in the future you receive a dollar, the less it is worth today.

True

False

Question 5 (Multiple Choice Worth 5 points)

Jackson Electricals has borrowed $27,850 from its bank at an annual rate of 8.5 percent. It plans to repay the loan in eight equal installments. Beginning at the end of next year. What is its annual loan payment? (Round to the nearest dollar.)

$4,708

$5,134

$4,939

$4,748

Question 6 (Multiple Choice Worth 5 points)

Marcicela Sanchez needs to have $25,000 in five years. If she can earn 8 percent on any investment, what is the amount that she will have to invest every year for the next five years: (Round to the nearest dollar.)

$5,000

$4,261

$4,640

$4,445

Question 7 (Multiple Choice Worth 5 points)

Jack Robbins is saving for a new car. He needs to have $21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to the nearest dollar.)

$22,680

$26,454

$16,671

$19,444

Question 8 (True/False Worth 5 points)

The present value of a perpetuity is the promised constant cash payment divided by the interest rate (i).

True

False

Question 9 (True/False Worth 5 points)

The less frequently the interest payments are compounded, the larger the future value of $1 for a given time period.

True

False

Question 10 (Multiple Choice Worth 5 points)

Lorraine Jackson won a lottery. She will have a choice of receiving $25,000 at the end of each year for the next 30 years, or a lump sum today. If she can earn a return of 10 percent on any investment she makes, what is the minimum amount she should be willing to accept today as a lump-sum payment? (Round to the nearest hundred dollars.)

$750,000

$334,600

$212,400

$235,700

Question 11 (Multiple Choice Worth 5 points)

You plan to save $1,250 at the end of each of the next three years to pay for a vacation. If you can invest it at 7 percent, how much will you have at the end of three years? (Round to the nearest dollar.)

$3,750

$3,918

$4,019

$4,589

Question 12 (True/False Worth 5 points)

The Rule of 72 allows one to calculate the return earned on an investment over six years.

True

False

Question 13 (Multiple Choice Worth 5 points)

The process of converting future cash flows to its present value is

time value of money

discounting

compounding

none of the above

Question 14 (Multiple Choice Worth 5 points)

Joachim Noah is investing $5,000 in an account paying 6.75 percent annually for three years. What is the interest-on-interest if interest is compounded?

$1,012.50

$1,082.38

$82.38

$69.88

Question 15 (Multiple Choice Worth 5 points)

Your friend Jackson is asking to borrow today with a promise to repay $6,665 in four years. If you could earn 7.45 percent annually on any investment you make today, how much will you be willing to lend Jackson today? (Round to the nearest dollar.)

$5,000

$4,035

$4,500

$5,150

Question 16 (True/False Worth 5 points)

In computing the present and future value of multiple cash flows, each cash flow is discounted or compounded at the same rate.

True

False

Question 17 (Multiple Choice Worth 5 points)

Ray Seo has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment?

9.3%

8.7%

11.1%

10.4%

Question 18 (True/False Worth 5 points)

The rent paid for an apartment is an example of an ordinary annuity.

True

False

Question 19 (True/False Worth 5 points)

The lower the discount rate, the lower the present value of a future cash flow.

True

False

Question 20 (Multiple Choice Worth 5 points)

Roger Stamp wants to save $1,450 at the end of each of the next four years to use as a down payment for a car. If he can invest it at 6 percent, how much will he have at the end of four years/ (Round to the nearest dollar.)

$6,343

$5,918

$6,019

$6,589

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