Dicken – TVM Review Page 1 of 4 1) Which of the following problems could not be addressed by using compounding or discounting (TVM) techniques? A) Finding an amount to be invested today to provide a given level of income during retirement B) Determining how long it should take the population of China to double C) Finding the growth rate in a firm's dividend payments D) Deciding whether a bank paying interest compounded annually is giving you a better deal than a rate that compounds daily E) All of the above use TVM 2) Most people prefer to receive money today rather than ten years from now because A) U.S. prices have been falling recently and a dollar received today will buy more than one received in the future. B) Future investment returns are expected to be less variable than current ones. C) Receiving cash today enables one to take advantage of current investment opportunities. D) People are unsure about their future employment prospects and wish to provide themselves with a source of future income. E) Most people are afraid they will spend future cash payments foolishly. Simple TVM 3)What is the future value of $124.49 after earning simple interest for five years at an annual rate of 10%? A) $162.25 B) $186.74 C) $200.49 D) $136.94 E) $175.00 4) $1,200 is deposited today into an account paying 6% interest compounded semiannually. How much interest will have been earned after 25 years? A) $3,950.24 B) $1,312.53 C) $20,904.19 D) $5,260.69 E) $4,060.69 5) A bank pays a quoted annual (nominal) interest rate of 8%. However, it pays interest (compounded) daily using a 365-day year. What is the effective annual rate of return? A) 7.86% B) 7.54% C) 8.57% D) 8.33% E) 9.21%Dicken – TVM Review Page 2 of 4 6) Bank A offers a 2-year certificate of deposit (CD) that pays 10 percent compounded annually. Bank B offers a 2-year CD that is compounded semi-annually. The CDs have identical risk. What is the stated, or nominal, rate that Bank B would have to offer to make you indifferent between the two investments? A) 9.67% B) 9.76% C) 9.83% D) 9.87% E) 9.93% 7) Kayla hopes to purchase a new car in five years. If she deposits $10,000 today in an account that pays 7% compounded quarterly, how much will she be able to spend on the new car in five years? A) $14,025.52 B) $10,700.00 C) $14,147.78 D) $13,500.00 E) $15,000.00 8) The table shows a series of deposits at different dates into a savings account. If the account pays 10.5% interest (compounded annually), what is their future value at year 6? Year Cash Flow 1 $35,000 2 $7,000 3 $13,000 4 $15,000 5 $5,000 A) $109,477.35 B) $99,074.53 C) $75,000.00 D) $107,569.55 E) $97,790.50Dicken – TVM Review Page 3 of 4 9) Suzanne has identified a project with the following cash flows. What is the present value of the cash flows at time 0 if the interest rate is 9%? Year Cash Flow 1 $2,000 2 $650 3 $375 4 $1,200 A) $3,521.63 B) $3,230.86 C) $3,838.58 D) $4,225.00 E) $3,488.90 10) What is the future value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15% interest rate? A) $670.44 B) $842.91 C) $1,169.56 D) $1,522.64 E) $1,348.48 11) Assume you are to receive a 20-year annuity with annual payments of $50. The first payment will be received at the end of Year 1, and the last payment will be received at the end of Year 20. You will invest each payment in an account that pays 10%. What will be the value in your account at the end of Year 30? A) $6,354.81 B) $7,427.83 C) $7,922.33 D) $8,591.00 E) $6,752.46Dicken – TVM Review Page 4 of 4 12) Sarah found her dream lakefront home, valued at $250,000. She plans to buy a home just like it when she retires in 15 years. Sarah can earn 11% per year on her investments. The price of the house will increase 3% per year for the next 15 years. How much must she invest at the end of each of the next 15 years to finance the purchase? A) $11,320.67 B) $7,266.31 C) $8,952.82 D) $10,198.81 E) $12,565.95 13) The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of next 10 years is: (Round to the nearest whole dollar) A) $28,974 B) $31,291 C) $14,494 D) $13,420 14) You are saving for your child's university education. It is her 1st birthday today. She will start university just after her 19th birthday. You are going to save $2,000 per year each year starting today and ending on her 18th birthday. If you expect to earn a rate of 5% in the savings account, then how much will you have saved by her 19th birthday? A) $56,264.77 B) $59,078.01 C) $61,078.01 D) $64,131,91 E) $54,264.77 15) Assume that you will receive $2,000 a year in Years 1 through 5, $3,000 a year in Years 6 through 8, and $4,000 in Year 9, with all cash flows to be received at the end of the year. If you require a 14 percent rate of return, what is the present value of these cash flows? (Round to the nearest whole dollar) A) $9,851 B) $13,250 C) $11,714 D) $15,129 E)