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# As the compounding rate becomes lower and lower, the future

As the compounding rate becomes lower and lower, the future value of inflows approaches: (Points: 5)
0.
the present value of the inflows.
infinity.

2. If you invest \$8,000 at 12% interest, how much will you have in 7 years? (Points: 5)
\$18,016
\$3,616
\$17,688
\$80,712

3. The concept of time value of money is important to financial decision making because: (Points: 5)
it emphasizes earning a return on invested capital.
it recognizes that earning a return makes \$1 worth more today than \$1 received in the future.
it can be applied to future cash flows in order to compare different streams of income.
all of the above

4. As the discount rate becomes higher and higher, the present value of inflows approaches: (Points: 5)
0.
minus infinity.
plus infinity.

5. An annuity may be defined as: (Points: 5)
a payment at a fixed interest rate.
a series of payments of unequal amount.
a series of yearly payments.
a series of consecutive payments of equal amounts.

6. You are to receive \$12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today? (Points: 5)
Present value of an annuity of \$1
Future value of an annuity
Present value of \$1
Future value of \$1

7. As the interest rate increases, the present value of an amount to be received at the end of a fixed period: (Points: 5)
increases.
decreases.
remains the same.
not enough information to tell

8. As the time period until receipt increases, the present value of an amount at a fixed interest rate: (Points: 5)
decreases.
remains the same.
increases.
not enough information to tell

9. If you were to put \$1,000 in the bank at 6% interest each year for the next ten years, which table would you use to find the ending balance in your account? (Points: 5)
Present value of \$1
Future value of \$1
Present value of an annuity of \$1
Future value of an annuity of \$1

10. The IF for the future value of an annuity is 4.5 at 10% for 4 years. If we wish to accumulate \$8,000 by the end of 4 years, how much should the annual payments be? (Points: 5)
\$2,500
\$2,000
\$1,778
none of the above

11. Mr. Blochirt is creating a college investment fund for his daughter. He will put in \$850 per year for the next 15 years and expects to earn an 8% annual rate of return. How much money will his daughter have when she starts college? (Points: 5)
\$11,250
\$12,263
\$24,003
\$23,079

12. Mr. Nailor invests \$5,000 in a certificate of deposit at his local bank. He receives annual interest of 8% for 7 years. How much interest will his investment earn during this time period? (Points: 5)
\$2,915
\$3,570
\$6,254
\$8,570

13. XXXXX XXXXX will receive \$1 million in 50 years. The discount rate is 14. As an alternative, she can receive \$2,000 today. Which should she choose? (Points: 5)
the \$1 million dollars in 50 years
\$2,000 today
She should be indifferent.

14. Dr. J. wants to buy a Dell computer which will cost \$2,788 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside? (Points: 5)
\$627.93
\$697.00
\$823.15
\$531.81

15. Mr. Fish wants to build a house in 10 years. He estimates that the total cost will be \$170,000. If he can put aside \$10,000 at the end of each year, what rate of return must he earn in order to have the amount needed? (Points: 5)
Between 11% and 12%
Between 8% and 9%
17%
none of the above

16. The shorter the length of time between a present value and its corresponding future value: (Points: 5)
the lower the present value, relative to the future value.
the higher the present value, relative to the future value.
the higher the interest rate used in the present-valuation.
none of the above

17. A dollar today is worth more than a dollar to be received in the future because: (Points: 5)
the dollar can be invested today and earn interest.
of the risk of nonpayment in the future.
inflation will reduce purchasing power of a future dollar.
none of the above

18. The higher the rate used in determining the future value of a \$1 annuity: (Points: 5)
the smaller the future value at the end of the period.
the greater the future value at the end of a period.
the greater the present value at the beginning of a period.
None of the above – the interest has no effect on the future value of an annuity.

19. Mr. Darden is selling his house for \$165,000. He bought it for \$55,000 nine years ago. What is the annual return on his investment? (Points: 5)
3%
Between 14% and 16%
13%
none of the above

20. Increasing the number of periods will increase all of the following EXCEPT: (Points: 5)
the present value of an annuity.
the present value of \$1.
the future value of \$1.
the future value of an annuity.