1. Why do we say that money has time value?
A. It takes time to make money
B. Time is money
C. Money to be received or paid at one time is not of the same value as money to be received or paid at another time
D. A dollar to be paid today is worth less than a dollar paid in one week
2. It is important for managers to be familiar with time value of money concepts because:
A. You need them to measure the value of future cash flows
B. It is illegal to manage a firm without them
C. Time value of money concepts affect how much managers are paid
D. They must be considered when making managerial decisions
3. You give your nephew $ 100 on his first birthday. Your nephew’s mother knew about the time value of money, so she invested the gift in a 20 year 7% CD. If your nephew cashes in the CD at maturity how much will he receive?
A. $ 107
B. $ 358
C. $ 387
D. $2,140
4. You deposit $ 2,000 in a savings account that pays 10% interest, compounded annually. How much would 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
5. You can earn 8% 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
6. From a financial point of view, which is the best choice: to receive $ 10,000 now or a note that promises $ 15,000 five years from now? Five year interest rates are 8%
A. $ 10,000 now
B. $ 15,000 five years from now
7. Examining your finances, you decide that you can afford to invest $ 1,200 each year toward your retirement fund, If you invest the money at the end of each year at 9% interest and you retire in 20 years, how much will be in your fund at that time?.
A. $ 6,725
B. $ 10,954
C. $ 24,000
D. $ 61,392
8. You are in charge of a new Missouri State Lottery. The lottery rules say that winners are to be paid $ 10 million in the form of 10 annual payments of 1 million each. Assuming that the interest rate is 10% and the payments are to be made at the end of each of the next 10 years, how much money does your lottery organization have to deposit in an account today in order to make the required payments to a lottery winner?
A. $ 10,000,000
B. $ 3,855,433
C. $ 6,144,567
D. $ 9,090,909
9. In November 2007 you bought 100 shares of Microsoft stock for $ 35.375 a share. In November 2009, you sold your stock for $ 92.5625 a share. What was your average annual rate of return on your Microsoft Investment? (disregard dividends and commissions)
A. 262%
B. 62%
C. 585%
D. 1.6%
10. You may have heard of zero coupon bonds (zero coupon bonds pay their owners $ 1,000 at maturity and involve no other cash flows other than the purchase price). If you bought a zero coupon bond for $ 300, held the bond for 10 years, and then cashed it in for $ 1,000 at the end of the 10th year, what average annual rate of return would you realize in your investment?
A. 30%
B. 233%
C. 113%
D. 1.28%
E. 12.79%