Time Value of Money and Positive Rate
b 1. Your grandmother invested one lump sum 17 years ago at 4.25 percent interest. Today, she gave you the proceeds of that investment which totaled $5,539.92. How much did your grandmother originally invest? a. $2,700.00 b. $2,730.30 c. $2,750.00 d. $2,768.40 e. $2,774.90
d 2. Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment? a. 8.50 percent b. 9.33 percent c. 9.50 percent d. 9.87 percent e. 9.99 percent
a 3. An annuity stream of cash flow payments is a set of: a. level cash flows occurring each time period for a fixed length of time. b. level cash flows occurring each time period forever. c. increasing cash flows occurring each time period for a fixed length of time. d. increasing cash flows occurring each time period forever. e. arbitrary cash flows occurring each time period for no more than 10 years.
c 4. An annuity stream where the payments occur forever is called a(n): a. annuity due. b. indemnity. c. perpetuity. d. amortized cash flow stream. e. amortization table.
c 5. The interest rate expressed as if it were compounded once per year is called the _____ rate. a. stated interest b. compound interest c. effective annual d. periodic interest e. daily interest
b 6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate. a. effective annual b. annual percentage c. periodic interest d. compound interest e. daily interest
b 7. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? a. Both options are
d 2. Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment? a. 8.50 percent b. 9.33 percent c. 9.50 percent d. 9.87 percent e. 9.99 percent
a 3. An annuity stream of cash flow payments is a set of: a. level cash flows occurring each time period for a fixed length of time. b. level cash flows occurring each time period forever. c. increasing cash flows occurring each time period for a fixed length of time. d. increasing cash flows occurring each time period forever. e. arbitrary cash flows occurring each time period for no more than 10 years.
c 4. An annuity stream where the payments occur forever is called a(n): a. annuity due. b. indemnity. c. perpetuity. d. amortized cash flow stream. e. amortization table.
c 5. The interest rate expressed as if it were compounded once per year is called the _____ rate. a. stated interest b. compound interest c. effective annual d. periodic interest e. daily interest
b 6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate. a. effective annual b. annual percentage c. periodic interest d. compound interest e. daily interest
b 7. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? a. Both options are