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Financial Management 2017 - Quiz and Case Study Guides -Foundations of Finance, 9e (Keown/Martin/Petty) - Quiz - Chapter 5

Financial Management 2016 - 2017

FINANCIAL MANAGEMENT 2017 - QUIZ AND CASE STUDY GUIDES

Foundations of Finance, 9e (Keown/Martin/Petty)

Chapter 5   The Time Value of Money

 

 

Foundations of Finance, 9e (Keown/Martin/Petty)

Chapter 5   The Time Value of Money

 

Learning Objective 5.1

 

1) The time value of money is the opportunity cost of passing up the earning potential of a dollar today.

Answer:  TRUE

Diff: 1      Page Ref: 152, 153

Keywords:  Time Value of Money, Opportunity Cost

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

2) A rational investor would prefer to receive $1,200 today rather than $100 per month for 12 months.

Answer:  TRUE

Diff: 1      Page Ref: 152, 153

Keywords:  Time Value of Money

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

3) A timeline identifies the timing and amount of a stream of cash flows, along with the interest rate it earns.

Answer:  TRUE

Diff: 1      Page Ref: 154

Keywords:  Timelines

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

4) Timelines are used for simple time value of money problems, but cannot be used for more complex problems.

Answer:  FALSE

Diff: 1      Page Ref: 154

Keywords:  Timelines

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

5) If you only earned interest on your initial investment, and not on previously earned interest, it would be called simple interest.

Answer:  TRUE

Diff: 1      Page Ref: 156

Keywords:  Simple Interest

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

6) An investment earning simple interest is preferred over an investment earning compound interest because the simplicity adds value.

Answer:  FALSE

Diff: 1      Page Ref: 156

Keywords:  Simple Interest, Compound Interest

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

 

7) When using a financial calculator, cash outflows generally have to be entered as negative numbers, because a financial calculator sees money "leaving your hands."

Answer:  TRUE

Diff: 1      Page Ref: 154

Keywords:  Financial Calculator

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

8) $10,000 invested at 10% per year for 5 years earns interest equal to $6,105.10; therefore, $10,000 invested at 10% per year for 10 years will earn interest equal to $12,210.20 (2 times $6,105.10).

Answer:  FALSE

Diff: 1      Page Ref: 155

Keywords:  Interest, Time Periods, Compounding

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

9) When solving time value of money problems on a financial calculator, you must select the "end mode" when you enter the final year's cash flow.

Answer:  FALSE

Diff: 1      Page Ref: 159

Keywords:  Ordinary Annuity, Financial Calculator

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

10) When solving a problem involving an annuity due, you must select the "beg" or beginning mode on your financial calculator.

Answer:  TRUE

Diff: 1      Page Ref: 159

Keywords:  Annuity Due, Financial Calculator

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

11) When solving time value of money problems using Excel, the type = 0 variable means payments are made at the end of each period, and the type = 1 variable means payments are made at the beginning of each period.

Answer:  TRUE

Diff: 1      Page Ref: 160

Keywords:  Annuity, Excel

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

12) Inputs using an Excel spreadsheet are almost identical to those on a financial calculator, except the interest rate is entered either as a decimal (.05) or a whole number followed by a % sign (5%) rather than simply a whole number (5) as you would enter using a financial calculator.

Answer:  TRUE

Diff: 1      Page Ref: 160

Keywords:  Excel, Financial Calculator

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

13) Tim has $100 in a bank account paying 2% interest per year. At the end of 5 years, Tim's bank account balance will be $110 if interest is not compounded, but will be greater than $110 if interest is compounded.

Answer:  TRUE

Diff: 1      Page Ref: 155

Keywords:  Time Value of Money, Compound Interest

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

14) At an annual interest rate of 9%, an initial sum of money will double approximately every 8 years.

Answer:  TRUE

Diff: 2      Page Ref: 155

Keywords:  Time Value of Money

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

15) A car manufacturer offers either $2,000 cash back or zero percent financing for 5 years. A rational consumer will always take the cash back because money received today is worth more than money received in the future.

Answer:  FALSE

Diff: 2      Page Ref: 155

Keywords:  Time Value of Money, Present Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

16) The present value of a single future sum of money is inversely related to both the number of years until payment is received and the discount rate.

Answer:  TRUE

Diff: 1      Page Ref: 164

Keywords:  Present Value, Single Sum, Discount Rate

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

17) The same underlying formula is used for computing both the future value and present value.

Answer:  TRUE

Diff: 1      Page Ref: 164

Keywords:  Present Value, Future Value

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

18) Artificially low interest rates helped create the housing bubble because low interest rates (r value) create higher values (higher PVs).

Answer:  TRUE

Diff: 1      Page Ref: 164

Keywords:  Interest Rates, Present Value, Time Value of Money

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

19) Tim invested $1,000 in a mutual fund paying 8% per year. John invested $500 in the same fund. If both Tim and John keep their money invested for the same period of time, Tim will end up with twice as much money as John.

Answer:  TRUE

Diff: 1      Page Ref: 155

Keywords:  Future Value, Lump Sum

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

20) Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year.

  1. A) The change will have no impact on the value of the company because its cash flow over time will be the same.
  2. B) The change will decrease the value of the company because investors don't like changes in accounting methods.
  3. C) The change will decrease the value of the company because lower tax payments this year result from lower reported income.
  4. D) The change will increase the value of the company because the value of the cash savings this year exceeds the cost of the cash payments next year.

Answer:  D

Diff: 2      Page Ref: 164

Keywords:  Time Value of Money, Depreciation

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

21) The present value of a single future sum

  1. A) increases as the number of discount periods increases.
  2. B) is generally larger than the future sum.
  3. C) depends upon the number of discount periods.
  4. D) increases as the discount rate increases.

Answer:  C

Diff: 1      Page Ref: 164

Keywords:  Present Value

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

 

22) U.S. Savings Bonds are sold at a discount. The face value of the bond represents its value on its future maturity date. Therefore,

  1. A) the current price of a $50 face value bond that matures in 10 years will be greater than the current price of a $50 face value bond that matures in 5 years.
  2. B) the current price of a $50 face value bond that matures in 10 years will be less than the current price of a $50 face value bond that matures in 5 years.
  3. C) the current prices of all $50 face value bonds will be the same, regardless of their maturity dates because they will all be worth $50 in the future.
  4. D) the current price of a $50 face value bond will be higher if interest rates increase.

Answer:  B

Diff: 2      Page Ref: 164

Keywords:  Time Value of Money, Present Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

23) The present value of $1,000 to be received in 5 years is ________ if the discount rate is 12.78%.

  1. A) $368
  2. B) $494
  3. C) $548
  4. D) $687

Answer:  C

Diff: 1      Page Ref: 164

Keywords:  Present Value, Discount Rate

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

24) You decide you want your child to be a millionaire. You have a son today and you deposit $10,000 in an investment account that earns 7% per year. The money in the account will be distributed to your son whenever the total reaches $1,500,000. How old will your son be when he gets the money (rounded to the nearest year)?

  1. A) 82 years
  2. B) 74 years
  3. C) 60 years
  4. D) 49 years

Answer:  B

Diff: 2      Page Ref: 155

Keywords:  Future Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

 

25) At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14 years?

  1. A) 6 percent
  2. B) 5 percent
  3. C) 7 percent
  4. D) 8 percent

Answer:  A

Diff: 1      Page Ref: 155

Keywords:  Future Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

26) Assuming two investments have equal lives, a high discount rate tends to favor

  1. A) the investment with large cash flow early.
  2. B) the investment with large cash flow late.
  3. C) the investment with even cash flow.
  4. D) neither investment since they have equal lives.

Answer:  A

Diff: 1      Page Ref: 164

Keywords:  Time Value of Money, Discount Rate

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

27) What is the present value of $11,463 to be received 7 years from today? Assume a discount rate of 3.5% compounded annually and round to the nearest $1.

  1. A) $5,790
  2. B) $6,508
  3. C) $7,210
  4. D) $9,010

Answer:  D

Diff: 2      Page Ref: 164

Keywords:  Present Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

28) How much money must be put into a bank account yielding 6.42% (compounded annually) in order to have $1,671 at the end of 11 years (round to nearest $1)?

  1. A) $921
  2. B) $886
  3. C) $843
  4. D) $798

Answer:  C

Diff: 2      Page Ref: 164

Keywords:  Present Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

 

29) Biff deposited $9,000 in a bank account, and 10 years later he closes out the account, which is worth $18,000. What annual rate of interest has he earned over the 10 years?

  1. A) 6.45%
  2. B) 7.18%
  3. C) 9.10%
  4. D) 10.0%

Answer:  B

Diff: 2      Page Ref: 155

Keywords:  Interest Rates, Time Value of Money

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

30) How much money do I need to place into a bank account that pays a 1.08% rate in order to have $500 at the end of 7 years?

  1. A) $332.54
  2. B) $751.81
  3. C) $463.78
  4. D) $629.51

Answer:  C

Diff: 2      Page Ref: 164

Keywords:  Present Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

31) You plan to go to Asia to visit friends in three years. The trip is expected to cost a total of $10,000 at that time. Your parents have deposited $5,000 for you in a Certificate of Deposit paying 6% interest annually, maturing three years from now. Uncle Lee has agreed to pay for all remaining expenses. If you are going to put Uncle Lee's gift in an investment earning 10% over the next three years, how much must he deposit today, so you can visit your friends three years from today?

  1. A) $3,757
  2. B) $3,039
  3. C) $5,801
  4. D) $3,345

Answer:  B

Diff: 3      Page Ref: 164

Keywords:  Future Value, Present Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

 

32) A zero coupon bond pays no annual coupon interest payments. When it matures at the end of 7.5 years it pays out $1,000. If investors wish to earn 2.35% per year on this bond investment, what is the current price of the bond? (Round to the nearest dollar.)

  1. A) $533
  2. B) $561
  3. C) $875
  4. D) $840

Answer:  D

Diff: 2      Page Ref: 164

Keywords:  Present Value, Zero Coupon Bond

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

33) Which of the following conclusions would be true if you earn a higher rate of return on your investments?

  1. A) The greater the present value would be for any lump sum you would receive in the future.
  2. B) The lower the present value would be for any lump sum you would receive in the future.
  3. C) Your rate of return would not have any effect on the present value of any sum to be received in the future.
  4. D) The greater the present value would be for any annuity you would receive in the future.

Answer:  B

Diff: 1      Page Ref: 164

Keywords:  Time Value of Money, Present Value, Discount Rate

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

34) You have a savings bond that will be worth $750 when it matures in 3 years, but you need cash today. If the current going rate of interest is 5%, what is your bond worth if you sell it today (rounded to the nearest dollar)?

  1. A) $675
  2. B) $648
  3. C) $625
  4. D) $612

Answer:  B

Diff: 2      Page Ref: 164

Keywords:  Present Value, Bond

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

 

35) A bond maturing in 10 years pays $80 each year (including year 10) and $1,000 upon maturity. Assuming 10 percent to be the appropriate discount rate, the present value of the bond is

  1. A) $877.11.
  2. B) $1,000.00.
  3. C) $416.39.
  4. D) $1,785.67.

Answer:  A

Diff: 1      Page Ref: 164

Keywords:  Present Value, Annuity, Single Sum, Bond

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

36) Your parents are complaining about the price of items today compared to what they cost years ago. If an automobile that cost $12,000 in 1980 costs $40,000 in 2010, calculate the annual growth rate in the automobile's price.

Answer:  4.26%, based on PV = $12,000; FV = $42,000; N = 30; I = (42000/12000)(1/30) - 1 = 4.26%;

Diff: 2      Page Ref: 164

Keywords:  Annual Growth Rate, Present Value, Future Value

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

37) You borrow $30,000 and agree to pay it off with one lump sum payment of $40,000 in 6 years. What annual rate of interest will you be charged?

Answer:  4.91%

Diff: 2      Page Ref: 164

Keywords:  Time Value of Money, Annual Rate of Interest

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

38) You just invested $50,000 into an account that earns 7 percent compounded annually. At the end of each year you can withdraw $4,971. How many years can you continue to make the withdrawals?

Answer:  18 years

Diff: 2      Page Ref: 164

Keywords:  Time Value of Money, Number of Periods

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

39) Bill wants to buy a new boat in 7 years. He expects the new boat will cost $28,000. Bill has $18,000 in an investment account today. What rate of return must Bill earn on his investments to be able to buy the boat on time?

Answer:  6.515% (FV = $28,000, PV = $18,000, N = 7, solve for i)

Diff: 1      Page Ref: 164

Keywords:  Future Value, Present Value, Interest Rate, Time Value of Money

Learning Obj.:  L.O. 5.1

AACSB:  Analytical Thinking

 

 

40) How does compound interest differ from simple interest?

Answer:  Compound interest occurs when interest paid on the investment during the first period is added to the principal; then, during the second period, interest is earned on this new sum. The situation in which interest is earned on interest that was earned in the past is referred to as compound interest. If you only earned interest on your initial investment, it would be referred to as simple interest.

Diff: 1      Page Ref: 155, 156

Keywords:  Simple Interest, Compound Interest

Learning Obj.:  L.O. 5.1

AACSB:  Reflective Thinking

 

Learning Objective 5.2

 

1) If the future value of annuity A is greater than the future value of annuity B, then the present value of annuity A must also be greater than the present value of annuity B.

Answer:  TRUE

Diff: 1      Page Ref: 170

Keywords:  Time Value of Money, Annuity Due, Ordinary Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

2) The future value of an annuity will increase if the interest rate goes up, but the present value of the same annuity will decrease as the interest rate goes up.

Answer:  TRUE

Diff: 1      Page Ref: 169

Keywords:  Time Value of Money, Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

3) If the future value of an annuity is known, then the present value of the annuity can be found using the present value of a lump sum formula, even if the amount of each annuity payment is unknown.

Answer:  TRUE

Diff: 1      Page Ref: 169

Keywords:  Time Value of Money, Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

4) If the interest rate is positive, then the future value of an annuity due will be greater than the future value of an ordinary annuity.

Answer:  TRUE

Diff: 1      Page Ref: 169

Keywords:  Time Value of Money, Annuity, Annuity Due

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

5) If the interest rate is positive, then the present value of an annuity due will be less than the present value of an ordinary annuity.

Answer:  FALSE

Diff: 2      Page Ref: 170

Keywords:  Time Value of Money, Annuity, Annuity Due, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

6) Joe borrowed $10,000 at 10% per year and promised to pay it back in equal annual installments at the end of each of the next 5 years. Joe's payment will be $2,100 [($10,000/5) + ($10,000 × 10%)].

Answer:  FALSE

Diff: 2      Page Ref: 173

Keywords:  Time Value of Money, Amortization Schedule

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

7) John has to pay $1,000 per month for his mortgage for another 5 years, but he is considering paying the mortgage off in one lump sum. John cannot calculate the present value of the payments using the annuity formulas because his payments are monthly and not once per year.

Answer:  FALSE

Diff: 1      Page Ref: 170

Keywords:  Present Value, Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

8) The present value of a deferred annuity (e.g., an annuity that starts 10 years from today) can be calculated in two steps: (1) calculate the future value of the annuity, and (2) calculate the present value of the amount determined in step (1).

Answer:  TRUE

Diff: 1      Page Ref: 170

Keywords:  Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

9) The present value of an annuity increases as the discount rate increases.

Answer:  FALSE

Diff: 1      Page Ref: 170

Keywords:  Present Value, Annuity, Discount Rate

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

10) To evaluate or compare investment proposals, we must adjust the value of all cash flows to a common date.

Answer:  TRUE

Diff: 1      Page Ref: 170

Keywords:  Time Value of Money

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

11) An example of an annuity is the interest received from bonds.

Answer:  TRUE

Diff: 1      Page Ref: 168

Keywords:  Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

12) Bill saves $3,000 per year in his IRA starting at age 25 and continuing to age 65, when he retires. The amount Bill has in his IRA at age 65 can be characterized as the future value of an annuity.

Answer:  TRUE

Diff: 1      Page Ref: 168

Keywords:  Future Value of an Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

13) When repaying an amortized loan, the interest payments increase over time due to the compounding process.

Answer:  FALSE

Diff: 1      Page Ref: 173

Keywords:  Loan Amortization, Interest Payments

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

14) The value of a bond investment, which provides fixed interest payments, will increase when discounted at an 8% rate rather than at an 11% rate.

Answer:  TRUE

Diff: 1      Page Ref: 169

Keywords:  Discount Rate, Present Value, Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

15) The future value of a 10-year ordinary annuity is twice as much as the future value of an otherwise identical 5-year annuity.

Answer:  FALSE

Diff: 1      Page Ref: 169

Keywords:  Future Value, Annuity, Time Periods

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

16) The future value of an annuity due is greater than the future value of an otherwise identical ordinary annuity.

Answer:  TRUE

Diff: 1      Page Ref: 169

Keywords:  Future Value, Annuity Due, Ordinary Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

17) If the interest rate is positive, a six-year ordinary annuity of $500 per year must have a present value over $3,000.

Answer:  FALSE

Diff: 1      Page Ref: 170

Keywords:  Ordinary Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

18) A compound annuity involves depositing or investing a single sum of money and allowing it to compound for a certain number of years.

Answer:  FALSE

Diff: 1      Page Ref: 169

Keywords:  Compound Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

19) Two sisters each open IRAs in 2011 and plan to invest $3,000 per year for the next 30 years. Mary makes her first deposit on January 1, 2011, and will make all future deposits on the first day of the year. Jane makes her first deposit on December 31, 2011, and will continue to make her annual deposits on the last day of each year. At the end of 30 years, the difference in the value of the IRAs (rounded to the nearest dollar), assuming an interest rate of 7% per year, will be

  1. A) $19,837.
  2. B) $12,456.
  3. C) $6,300.
  4. D) $210.

Answer:  A

Diff: 2      Page Ref: 172

Keywords:  Time Value of Money, Future Value, Annuity, Annuity Due

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

20) You have the choice of two equally risk annuities, each paying $5,000 per year for 8 years. One is an annuity due and the other is an ordinary annuity. If you are going to be receiving the annuity payments, which annuity would you choose to maximize your wealth?

  1. A) the annuity due
  2. B) the ordinary annuity
  3. C) Since we don't know the interest rate, we can't find the value of the annuities and hence we cannot tell which one is better.
  4. D) either one because they have the same present value

Answer:  A

Diff: 2      Page Ref: 172

Keywords:  Annuity Due, Ordinary Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

21) D'Anthony borrowed $50,000 today that he must repay in 15 annual end-of-year installments of $5,000. What annual interest rate is D'Anthony paying on his loan?

  1. A) 2.222%
  2. B) 3.333%
  3. C) 5.556%
  4. D) 33.33%

Answer:  C

Diff: 2      Page Ref: 173

Keywords:  Loan Amortization, Interest Rate, Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

22) Assume you are to receive a 10-year annuity with annual payments of $1000. The first payment will be received at the end of Year 1, and the last payment will be received at the end of Year 10. You will invest each payment in an account that pays 9 percent compounded annually. Although the annuity payments stop at the end of year 10, you will not withdraw any money from the account until 25 years from today, and the account will continue to earn 9% for the entire 25-year period. What will be the value in your account at the end of Year 25 (rounded to the nearest dollar)?

  1. A) $48,359
  2. B) $35,967
  3. C) $48,000
  4. D) $55,340

Answer:  D

Diff: 2      Page Ref: 169

Keywords:  Future Value, Annuity, Single Sum

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

23) You deposit $5,000 per year at the end of each of the next 25 years into an account that pays 8% compounded annually. How much could you withdraw at the end of each of the 20 years following your last deposit if all withdrawals are the same dollar amount? (The twenty-fifth and last deposit is made at the beginning of the 20-year period. The first withdrawal is made at the end of the first year in the 20-year period.)

  1. A) $18,276
  2. B) $27,832
  3. C) $37,230
  4. D) $43,289

Answer:  C

Diff: 3      Page Ref: 169

Keywords:  Annuity, Future Value, Present Value, Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

24) You charged $1,000 on your credit card for Christmas presents. Your credit card company charges you 26% annual interest, compounded monthly. If you make the minimum payments of $25 per month, how long will it take (to the nearest month) to pay off your balance?

  1. A) 94 months
  2. B) 79 months
  3. C) 54 months
  4. D) 40 months

Answer:  A

Diff: 2      Page Ref: 173

Keywords:  Annuity, Loan Amortization, Time Value of Money

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

25) You decide to borrow $250,000 to build a new home. The bank charges an interest rate of 8% compounded monthly. If you pay back the loan over 30 years, what will your monthly payments be (rounded to the nearest dollar)?

  1. A) $1,123
  2. B) $1,237
  3. C) $1,687
  4. D) $1,834

Answer:  D

Diff: 2      Page Ref: 173

Keywords:  Loan Amortization, Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

26) Your grandparents deposit $2,000 each year on your birthday, starting the day you are born, in an account that pays 7% interest compounded annually. How much will you have in the account on your 21st birthday, just after your grandparents make their deposit?

  1. A) $101,802
  2. B) $98,016
  3. C) $86,058
  4. D) $79,640

Answer:  B

Diff: 3      Page Ref: 172

Keywords:  Annuity, Future Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

27) You can buy a $50 savings bond today for $25 and redeem the bond in 10 years for its full face value of $50. You could also put your money in a money-market account that pays 7% interest per year. Which option is better, assuming they are of equal risk?

  1. A) The money-market account is better because it pays more interest.
  2. B) The money-market account is better because it requires a smaller investment.
  3. C) The savings bond is better because it earns a higher interest rate.
  4. D) The money market and savings bond both earn 7% interest, so they are equal in value.

Answer:  C

Diff: 2      Page Ref: 169

Keywords:  Time Value of Money, Interest Rates

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

28) A 65 year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year for as long as he lives. Which of the following statements is MOST correct?

  1. A) Because of the time value of money, the man will always be better off taking the $500,000 up front.
  2. B) The higher the interest rate, the more likely the man will prefer the $500,000 lump sum.
  3. C) If the man expects to live more than 10 years, then he will prefer the annuity.
  4. D) If the man is certain the company will not default on its future payments, he should select the $50,000 per year.

Answer:  B

Diff: 2      Page Ref: 169

Keywords:  Ordinary Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Reflective Thinking

 

29) A financial advisor tells you that you can make your child a millionaire if you just start saving early. You decide to put an equal amount each year into an investment account that earns 7.5% interest per year, starting on the day your child is born. How much would you need to invest each year (rounded to the nearest dollar) to accumulate a million for your child by the time he is 35 years old? (Your last deposit will be made on his 34th birthday.)

  1. A) $6,525
  2. B) $7,910
  3. C) $12,500
  4. D) $20,347

Answer:  A

Diff: 2      Page Ref: 172

Keywords:  Annuity, Payments

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

30) You are 21 years old today. Your grandparents set up a trust fund that will pay you $25,000 per year for 20 years, starting on your 65th birthday to supplement your retirement. If the trust can earn 7.5% per year, how much will your grandparents need to put in the trust fund today (rounded to the nearest ten dollars)?

  1. A) $11,370
  2. B) $22,310
  3. C) $5,250
  4. D) $17,450

Answer:  A

Diff: 2      Page Ref: 172

Keywords:  Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

31) You estimate you'll need $200,000 per year for 25 years starting on your 65th birthday to live on during your retirement. Today is your 50th birthday and you want to make equal deposits into an account paying 9% interest per year, the first deposit today and the last deposit on your 64th birthday. How much must each deposit be (rounded to the nearest $10)?

  1. A) $99,920
  2. B) $85,840
  3. C) $66,909
  4. D) $49,380

Answer:  C

Diff: 3      Page Ref: 172

Keywords:  Annuity, Present Value, Future Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

32) It is your 6th birthday today. You have a trust fund with $50,000 that is earning 8% per year. You expect to withdraw $30,000 per year for 7 years starting on your 22nd birthday for graduate school. How much money will be left in the trust fund after your last withdrawal (rounded to the nearest $10)?

  1. A) $125,660
  2. B) $35,780
  3. C) $4,140
  4. D) You will not have enough money to pay for graduate school.

Answer:  C

Diff: 2      Page Ref: 172

Keywords:  Annuity, Future Value, Single Sum

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

33) You own an annuity due contract that will pay you $3,000 per year for 12 years. You need money to pay back a loan in 5 years, and you are afraid if you get the annuity payments annually you will spend the money and not be able to pay back your loan. You decide to sell your annuity for a lump sum of cash to be paid to you five years from today. If the interest rate is 8%, what is the equivalent value of your 12-year annuity if paid in one lump sum five years from today?

  1. A) $22,008
  2. B) $18,000
  3. C) $35,876
  4. D) $38,880

Answer:  C

Diff: 2      Page Ref: 169

Keywords:  Ordinary Annuity, Future Value, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

34) Your daughter is born today and you want her to be a millionaire by the time she is 35 years old. You open an investment account that promises to pay 12% per year. How much money must you deposit each year, starting on her 1st birthday and ending on her 35th birthday, so your daughter will have $1,000,000 by her 35th birthday?

  1. A) $2,317
  2. B) $3,455
  3. C) $5,777
  4. D) $9,450

Answer:  A

Diff: 1      Page Ref: 169

Keywords:  Annuity, Payments

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

35) You borrow $25,000 to be repaid in 12 monthly installments of $2,292.00. The annual interest rate is closest to

  1. A) 1.5 percent.
  2. B) 12 percent.
  3. C) 18 percent.
  4. D) 24 percent.

Answer:  C

Diff: 1      Page Ref: 173

Keywords:  Loan Amortization, Interest Rate

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

36) You sell valuable artifacts from your household estate for $200,000 and want to use the money to supplement your retirement. You receive the money on your 60th birthday, the day you retire. You want to withdraw equal amounts at the end of each of the next 25 years. What constant amount can you withdraw each year and have nothing remaining at the end of 20 years if you are earning 7% interest per year?

  1. A) $17,162
  2. B) $28,318
  3. C) $37,574
  4. D) $49,113

Answer:  A

Diff: 1      Page Ref: 168

Keywords:  Annuity, Payments

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

37) You inherit $300,000 from your parents and want to use the money to supplement your retirement. You receive the money on your 65th birthday, the day you retire. You want to withdraw equal amounts at the end of each of the next 20 years. What constant amount can you withdraw each month and have nothing remaining at the end of 20 years if you are earning 7% interest compounded monthly?

  1. A) $1,200
  2. B) $1,829
  3. C) $2,326
  4. D) $2,943

Answer:  C

Diff: 1      Page Ref: 168

Keywords:  Annuity, Payments

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

38) Auto Loans R Them loans you $24,000 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 9 percent. What is the monthly payment?

  1. A) $500.92
  2. B) $543.79
  3. C) $563.82
  4. D) $597.24

Answer:  D

Diff: 1      Page Ref: 173

Keywords:  Loan Amortization, Payment, Monthly Compounding

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

39) Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make?

  1. A) 15
  2. B) 13
  3. C) 12
  4. D) 19

Answer:  A

Diff: 2      Page Ref: 173

Keywords:  Loan Amortization, Loan Payments

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

40) What is the present value of an annuity of $4,000 received at the beginning of each year for the next eight years? The first payment will be received today, and the discount rate is 9% (round to nearest $1).

  1. A) $36,288
  2. B) $35,712
  3. C) $25,699
  4. D) $24,132

Answer:  D

Diff: 2      Page Ref: 172

Keywords:  Present Value, Annuity Due

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

41) What is the present value of an annuity of $120 received at the end of each year for 11 years? Assume a discount rate of 7%. The first payment will be received one year from today (round to nearest $1).

  1. A) $250
  2. B) $400
  3. C) $570
  4. D) $900

Answer:  D

Diff: 2      Page Ref: 172

Keywords:  Present Value, Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

42) A deferred annuity will pay you $500 at the end of each year for 10 years, however the first payment will not be made until three years from today (payments will be made at the end of years 3 through 12). What amount will you have to deposit today to fund this deferred annuity? Use an 8% discount rate and round your answer to the nearest $100.

  1. A) $2,200
  2. B) $2,400
  3. C) $2,900
  4. D) $3,400

Answer:  C

Diff: 2      Page Ref: 172

Keywords:  Deferred Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

43) Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment the day he retires. Using an interest rate of 8%, how much must Charlie invest today in order to have his retirement annuity (rounded to nearest $10)?

  1. A) $167,130
  2. B) $200,450
  3. C) $256,890
  4. D) $315,240

Answer:  A

Diff: 3      Page Ref: 172

Keywords:  Present Value, Annuity Due, Deferred Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

44) It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the end of the 40th year? Assume that the account pays 12% interest compounded annually and round to nearest $1000.

  1. A) $93,000
  2. B) $766,000
  3. C) $767,000
  4. D) $850,000

Answer:  C

Diff: 2      Page Ref: 169

Keywords:  Annuity, Future Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

45) If you put $10 in a savings account at the beginning of each month for 15 years, how much money will be in the account at the end of the 10th year? Assume that the account earns 12% compounded monthly and round to the nearest $1.

  1. A) $1,200
  2. B) $2,323
  3. C) $5,046
  4. D) $3,485

Answer:  C

Diff: 2      Page Ref: 172

Keywords:  Future Value, Annuity Due

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

46) If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years, how much will be in the account at the end of the 20th year? Assume that the account earns 10% and round to the nearest $100.

  1. A) $8,300
  2. B) $9,100
  3. C) $8,900
  4. D) $9,700

Answer:  B

Diff: 2      Page Ref: 169

Keywords:  Future Value, Annuity, Single Sum

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

47) How much money must you pay into an account at the end of each of 20 years in order to have $100,000 at the end of the 20th year? Assume that the account pays 6% per year, and round to the nearest $1.

  1. A) $1,840
  2. B) $2,028
  3. C) $2,195
  4. D) $2,718

Answer:  D

Diff: 2      Page Ref: 172

Keywords:  Annuity Due, Future Value, Annual Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

48) How much money must you pay into an account at the beginning of each of 20 years in order to have $10,000 at the end of the 20th year? Assume that the account pays 12% per year, and round to the nearest $1.

  1. A) $1,195
  2. B) $111
  3. C) $124
  4. D) $139

Answer:  C

Diff: 2      Page Ref: 172

Keywords:  Annuity Due, Future Value, Annual Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

49) You are going to pay $800 into an account at the beginning of each of 20 years. The account will then be left to compound for an additional 20 years until the end of year 40, when it will turn into a perpetuity. You will receive the first payment from the perpetuity at the end of the 41st year. If the account pays 14%, how much will you receive from the perpetuity each year (rounded to nearest $1,000)?

  1. A) $140,000
  2. B) $150,000
  3. C) $160,000
  4. D) $170,000

Answer:  C

Diff: 3      Page Ref: 172

Keywords:  Annuity Due, Future Value, Perpetuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

50) You are going to pay $100 into an account at the beginning of each of the next 40 years. At the beginning of the 41st year you buy a 30 year annuity whose first payment comes at the end of the 41st year (the accounts earn 12%). How much will you receive at the end of the 41st year (i.e., the first annuity payment). Round to nearest $100.

  1. A) $93,000
  2. B) $7,800
  3. C) $11,400
  4. D) $10,700

Answer:  D

Diff: 3      Page Ref: 172

Keywords:  Annuity Due, Ordinary Annuity, Future Value, Present Value, Annual Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

51) A retirement plan guarantees to pay you or your estate a fixed amount for 25 years. At the time of retirement you will have $100,000 to your credit in the plan. The plan anticipates earning 7% interest annually over the period you receive benefits. How much will your annual benefits be assuming the first payment occurs one year from your retirement date?

  1. A) $6,182
  2. B) $7,272
  3. C) $8,101
  4. D) $8,581

Answer:  D

Diff: 2      Page Ref: 170

Keywords:  Annuity, Annual Payment, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

52) You have been accepted to study international economy at the European Central Bank (ECB) in Frankfurt. You will need $10,500 every 6 months (beginning today) for the next three years to cover tuition and living expenses. Mom and Dad have agreed to pay for your education, and want to make one deposit today in a bank account earning 6% interest, compounded semiannually. How much must they deposit now so that you can withdraw $10,500 at the beginning of each semester over the next 3 years?

  1. A) $54,187
  2. B) $55,797
  3. C) $58,587
  4. D) $56,639

Answer:  C

Diff: 3      Page Ref: 172

Keywords:  Annuity Due, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

53) You are thinking of buying a craft emporium. It is expected to generate cash flows of $30,000 per year in years 1 through 5, and $40,000 per year in years 6 through 10. If the appropriate discount rate is 8%, what amount are you willing to pay for the emporium?

  1. A) $135,288
  2. B) $167,943
  3. C) $215,048
  4. D) $228,476

Answer:  D

Diff: 3      Page Ref: 172

Keywords:  Present Value, Annuity Due, Deferred Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

54) You have contracted to buy a house for $250,000, paying $30,000 down and taking out a fully amortizing loan for the balance, at a 5.7% annual rate for 30 years. What will your monthly payment be if they make equal monthly installments over the next 30 years (to the nearest dollar)?

  1. A) $1,035
  2. B) $1,123
  3. C) $1,189
  4. D) $1,277

Answer:  D

Diff: 2      Page Ref: 173

Keywords:  Loan Amortization, Monthly Payments

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

55) You bought a racehorse that has had a winning streak for six years, bringing in $250,000 at the end of each year before dying of a heart attack. If you paid $1,155,720 for the horse 4 years ago, what was your annual return over this 4-year period?

  1. A) 8%
  2. B) 33%
  3. C) 18%
  4. D) 12%

Answer:  A

Diff: 2      Page Ref: 169

Keywords:  Annuity, Future Value, Rate of Return

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

56) Jimmy just bought a new Ford SUV for his business. The price of the vehicle was $40,000. Jimmy made a $5,000 down payment and took out an amortized loan for the rest. The car dealership made the loan at 8% interest compounded monthly for five years. He is to pay back the principal and interest in equal monthly installments beginning one month from now. Determine the amount of Jimmy's monthly payment.

  1. A) $634.56
  2. B) $709.67
  3. C) $745.87
  4. D) $809.33

Answer:  B

Diff: 2      Page Ref: 173

Keywords:  Loan Amortization, Monthly Payment, Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

57) You just graduated and landed your first job in your new career. You remember that your favorite finance professor told you to begin the painless job of saving for retirement as soon as possible, so you decided to put away $2,000 at the end of each year in a Roth IRA. Your expected annual rate of return on the IRA is 7.5%. How much will you accumulate at retirement after 40 years of investing? (Note: this may assume that you are even retiring early.)

  1. A) $94,426
  2. B) $247,921
  3. C) $1,088,632
  4. D) $454,513

Answer:  D

Diff: 2      Page Ref: 169

Keywords:  Annuity, Future Value, IRA

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

58) Congratulations! You are the proud winner of the multi-state Sour Ball Lottery. You are to receive $2,000,000 at the end of each year for the next 20 years. While the Lottery Commission refers to this as a $40,000,000 jackpot, if you choose the "cash option" they will give you much less than that; you can receive a lump sum payment today equal to the present value of the ordinary annuity instead of the 20 annual payments. If the discount rate that the Lottery Commission uses to determine the lump sum payoff is 7%, what is your payoff if you select the cash option?

  1. A) $26,945,332
  2. B) $39,707,503
  3. C) $42,977,401
  4. D) $21,188,028

Answer:  D

Diff: 2      Page Ref: 170

Keywords:  Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

59) You are ready to retire. A glance at your 401(k) statement indicates that you have $750,000. If the funds remain in an account earning 9.0%, how much could you withdraw at the beginning of each year for the next 25 years?

  1. A) $55,620
  2. B) $70,050
  3. C) $35,830
  4. D) $2,500

Answer:  B

Diff: 2      Page Ref: 172

Keywords:  Annuity Due, Annual Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

60) How much would you be willing to pay (rounded to the nearest dollar) for a 20-year annuity due if the payments are $4,500 per year and you want to earn a rate of return equal to 5.5% per year?

  1. A) $84,500
  2. B) $63,445
  3. C) $56,734
  4. D) $53,777

Answer:  C

Diff: 2      Page Ref: 172

Keywords:  Annuity Due, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

61) How much would you be willing to pay (rounded to the nearest dollar) for a 20-year ordinary annuity if the payments are $4,500 per year and you want to earn a rate of return equal to 5.5% per year?

  1. A) $84,500
  2. B) $63,445
  3. C) $56,734
  4. D) $53,777

Answer:  D

Diff: 2      Page Ref: 170

Keywords:  Ordinary Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

62) Manny and Irene will be retiring in fifteen years and would like to buy a Mexican villa. The villa costs $500,000 today, and housing prices in Mexico are expected to increase by 6% per year. Manny and Irene want to make fifteen equal annual payments into an account, starting today, so there will be enough money to purchase the villa in fifteen years. If the account earns 10% per year, what is the amount of each deposit?

  1. A) $79,885
  2. B) $72,623
  3. C) $34,286
  4. D) $32,947

Answer:  C

Diff: 2      Page Ref: 172

Keywords:  Future Value, Annuity Payments, Annuity Due

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

63) Your daughter is born today and you want her to be a millionaire by the time she is 40 years old. open an investment account that promises to pay 11.5% per year. How much money must you deposit today so your daughter will have $1,000,000 by her 35th birthday?

  1. A) $28,575
  2. B) $22,150
  3. C) $20,100
  4. D) $18,940

Answer:  B

Diff: 1      Page Ref: 170

Keywords:  Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

64) Your son is born today and you want to make him a millionaire by the time he is 50 years old. You deposit $10,700 in an investment account and want to know what annual interest rate must you earn in order to have the account value equal to $1,000,000 on your son's 50th birthday.

  1. A) 17.8%
  2. B) 12.4%
  3. C) 9.5%
  4. D) 6.2%

Answer:  C

Diff: 1      Page Ref: 170

Keywords:  Compound Interest, Time Value of Money

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

65) A bond matures in 20 years, at which time it pays the owner $1,000. It also pays $70 at the end of each of the next 20 years. If similar bonds are currently yielding 7%, what is the market value of the bond?

  1. A) over $1,000
  2. B) under $1,000
  3. C) exactly $1,000
  4. D) cannot be determined from the information given

Answer:  C

Diff: 2      Page Ref: 170

Keywords:  Present Value, Bond

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

66) Your son will be attending an expensive university in 12 years. You deposit $5,000 per year for 12 years, beginning today. How much money will be in the college fund 12 years from now if the fund earns 8% per year?

Answer:  $102,476.48

Diff: 1      Page Ref: 168

Keywords:  Future Value, Annuity Due

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

67) If you wish to accumulate $200,000 in the child's college fund after 18 years, and can invest at a 7.5% annual rate, how much must you invest at the end of each year if the first deposit is made at the end of the first year?

Answer:  $5,605.79

Diff: 1      Page Ref: 169

Keywords:  Annuity, Annual Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

68) Betty borrows $60,000 at 12 percent compounded annually. The loan is to be repaid in five equal annual end-of-year installments. How much must each loan payment be?

Answer:  $16,644.58, based on PVA = $60,000; N = 5; I = 12%; PMT = $16,644.58

Diff: 2      Page Ref: 173

Keywords:  Present Value, Annuity, Loan Amortization

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

69) You are currently 25 years of age. You have developed a lifetime budget that includes $50,000 at age 40 for a college fund for your kids and $25,000 per year for 20 years to supplement your retirement, the first payment on your 60th birthday and the last payment on your 79th birthday. You open an investment account on your 25th birthday that promises to pay 9% interest compounded annually. You want to deposit equal annual amounts into the account every year on your birthday, starting today (your 25th birthday) and continuing until you are 40 years old (i.e., the last deposit is made on your 40th birthday). How much will each deposit have to be if you want to meet your financial goals?

Answer:  $2,859.86, based on the present value of the retirement annuity at age 59 is $228,213.64; this amount discounted back to age 40 = $44,385.20; this amount is added to the $50,000 needed at age 40, for a total need at age 40 of $94,385.20; this amount is the future value of a 16 year annuity with an interest rate of 9% per year, yielding an annual payment of $2,859.86.

Diff: 3      Page Ref: 170

Keywords:  Time Value of Money, Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

70) Bob invested $2,000 in an investment fund on his 21st birthday. The fund pays 7% interest compounded semiannually. Bob is celebrating his 50th birthday today. Bob decides he wants to retire on his 60th birthday and he wants to withdraw $75,000 per year, the first withdrawal on his 60th birthday and the last withdrawal on his 90th birthday. Bob expects to receive $100,000 from his employer on his 55th birthday in recognition of his long service to the company. Assume Bob has not taken any money out of his investment fund since he initially funded it on his 21st birthday, and that he will deposit the $100,000 from his employer into the investment fund on his 55th birthday. The investment fund will be used to pay for Bob's retirement.

If Bob makes no additional deposits into his investment fund, how much will be available for retirement at age 60?

Since the amount in (a) is insufficient to meet his retirement goals, Bob decides to deposit equal annual amounts into the investment fund beginning on his 51st birthday and ending on his 59th birthday, so that he can meet his retirement goals. How much will each deposit be?

Answer:  $170,327 based on the future value of the $2,000 invested for 39 years being $29,267 at age 60 and the future value of the $100,000 from the employer invested for 5 years of $141,060.

 

$63,893.50 based on the present value of an annuity due for 31 years, or $994,339 needed for retirement at age 60; this amount is the future value of a 9-year annuity due, yielding an annual payment of $63,893.50.

Diff: 2      Page Ref: 172

Keywords:  Annuity Due, Annuity, Time Value of Money, Future Value, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

71) Bill starts a retirement fund at age 21 and plans on depositing equal annual amounts on each birthday, starting at age 21, and ending at age 60. He wants to have $2 million at age 60. John starts his fund on his 30th birthday. He wants to deposit equal annual amounts on each birthday starting on his 30th birthday and ending on his 60th birthday. John wants to have $2 million at age 60. If the investment funds earn 10% per year, calculate the amounts the Bill and John respectively will have to save each year (rounded to the nearest dollar) to meet their goals. Comment on the difference.

Answer:  Bill will need to make deposits of $4,519 per year, while John will need to make deposits of $10,992 per year. These amounts are based on the future value of the annuity in each case of $2,000,000, N = 40 for Bill and N = 31 for John, with I = 10%. The difference illustrates the importance of compounding and the need to begin saving early. John's annual deposits are more than twice Bill's deposits, even though the number of years is only 9 fewer, or less than 25% less.

Diff: 2      Page Ref: 172

Keywords:  Annuity Due, Annuity, Time Value of Money, Future Value, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

72) An investment promises to pay you the following amounts at the end of each of the next 10 years: (1) $1,000, (2) $2,000, (3) $3,000, (4) $4,000, (5) - (10) $5,000 per year. If you want to earn a return of 8% per year, how much will you be willing to pay for the investment today?

Answer:  $24,951.99

Diff: 2      Page Ref: 172

Keywords:  Deferred Annuity, Present Value, Uneven Cash Flows

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

73) You borrow $25,000 to buy a car, and agree to make 48 monthly payments of $607.39 to repay the loan. What annual rate of interest, which is being compounded monthly, are you being charged?

Answer:  7.75%

Diff: 2      Page Ref: 173

Keywords:  Annual Rate of Interest, Annuity, Loan Amortization

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

74) You wish to accumulate $10,000 by depositing $481.46 per month into a savings account that earns 4.75% compounded monthly. How many monthly deposits must you make?

Answer:  20

Diff: 2      Page Ref: 169

Keywords:  Annuity, Future Value, Number of Periods, Monthly Compounding

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

75) Today is your 30th birthday and you must choose between two retirement options. The first option will provide you with 10 equal annual payments of $100,000 beginning on your 65th birthday. The second option will provide you with one payment of $1,000,000 on your 70th birthday. If the interest rate is 6 percent per year and you are assured of living to at least 80 years of age, which option is better?

Answer:  You must find the value of each option at the same point in time. The present value of the retirement annuity at age 65 is $780,169. The present value of the $1,000,000 at age 65 is $747,258. Therefore, the 10-year annuity is the better option. Comparable values at age 70 are $1,044,042 for the annuity and $1,000,000 for the lump sum. At age 74, the value of the annuity is $1,318,080 and the value of the lump sum is $1,262,477. Note that the ranking of the options does not change regardless of the date used.

Diff: 2      Page Ref: 170

Keywords:  Annuity, Present Value

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

76) A bond will pay $5,000 at maturity in 9 years. It also makes semiannual interest payments of $400 until maturity. If the discount rate is 7% compounded semiannually, what should be the market price of the bond?

Answer:  $7,967.68

Diff: 2      Page Ref: 170

Keywords:  Present Value, Annuity, semiannual Compounding, Bond

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

77) Frank Zanca is considering three different investments that his broker has offered to him. The different cash flows are as follows:

 

End of Year

 

A

 

B

 

C

1

 

300

 

 

 

400

2

 

300

 

 

 

 

3

 

300

 

 

 

 

4

 

300

 

300

 

600

5

 

 

 

300

 

 

6

 

 

 

300

 

 

7

 

 

 

300

 

 

8

 

 

 

300

 

600

 

Because Frank only has enough savings for one investment, his broker has proposed the third alternative to be, according to his expertise, "the best in town." However, Frank questions his broker and wants to calculate the present value of each investment. Assuming a 15% discount rate, what is Frank's best alternative?

Answer: 

  1. $856.49
  2. $661.23
  3. $887.02 So, investment C is best.

Diff: 2      Page Ref: 170

Keywords:  Present Value, Annuity, Deferred Annuity, Uneven Cash Flow

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

78) Leigh Delight Candy, Inc. is choosing between two bonds in which to invest their cash. One is being offered from Hershey's and will mature in 10 years and pay $30 each quarter. The other alternative is a Mars' bond that will mature in 20 years and pay $30 each quarter. What would be the present value of each bond if the discount rate is 10% compounded quarterly, and each bond pays $1,000 at maturity?

Answer:  Hershey's: $1,125.51

Mars': $1,172.26

Diff: 2      Page Ref: 170

Keywords:  Annuity, Quarterly Compounding, Present Value, Bond

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

 

79) In order to send your first child to Law School when the time comes, you want to accumulate $40,000 at the end of 18 years. Assuming that your savings account will pay 6% compounded annually, how much would you have to deposit if:

  1. you want to deposit an equal amount at the end of each year?
  2. you want to deposit one large lump sum today?

Answer: 

  1. $1,294.26
  2. $14,013.75

Diff: 1      Page Ref: 170

Keywords:  Annuity, Present Value, Single Sum

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

80) Cindy wants $2.5 million for her retirement at age 65. Cindy is 25 years old today and plans to deposit equal amounts each year starting on her 26th birthday and ending on her 65th birthday. If her investments earn 6% per year, how much must each deposit be?

Answer:  $16,153.84 (FVA = $2.5 million, N = 40, I = 6%, solve for PMT)

Diff: 1      Page Ref: 169

Keywords:  Time Value of Money, Payment, Future Value of an Annuity

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

81) A retirement home in Florida costs $200,000 today. Housing prices in Florida are increasing at a rate of 4% per year. Joe wants to buy the home in 8 years when he retires. Joe has $25,000 right now in a savings account paying 8% interest per year. Joe wants to make eight equal annual deposits into the savings account starting today. How much must each deposit be so Joe will have enough money in his savings account to buy the retirement home when he retires?

Answer:  $19,798.86; The future value of the home in 8 years is $273,713.80 (PV = $200,000, I = 4%, N = 8, solve for FV); The future value of the savings account in 8 years is $46,273.26 (PV = $25,000, I = 8%, N = 8, solve for FV); The difference of $227,440.54 is the additional amount Joe needs in 8 years. Since Joe is making equal annual deposits starting today, the $227,440.54 is the future value of an annuity due. The payment amount is $19,798.86 (FVA due = $227,440.54; N = 8, I = 8%, mode = BEG, solve for PMT).;

Diff: 3      Page Ref: 172

Keywords:  Time Value of Money, Annuity, Annuity Due, Payment

Learning Obj.:  L.O. 5.2

AACSB:  Analytical Thinking

 

Learning Objective 5.3

 

1) A return of 12% compounded annually is the same as a return of 1% per month.

Answer:  FALSE

Diff: 2      Page Ref: 175

Keywords:  Time Value of Money, Compounding Periods

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

 

2) The price of a computer today is $400 and inflation is 5% per year. Therefore, in two years the price of the computer is expected to be $440.

Answer:  FALSE

Diff: 1      Page Ref: 178

Keywords:  Time Value of Money, Compounding, Inflation

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

3) If we invest money for 10 years at 8 percent interest, compounded semiannually, we are really investing money for 20 six-month periods, and receiving 4 percent interest each period.

Answer:  TRUE

Diff: 1      Page Ref: 178

Keywords:  Compounding Periods, Time Value of Money

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

4) For a given stated interest rate, an investor would receive a greater future value with daily compounding as opposed to monthly compounding.

Answer:  TRUE

Diff: 1      Page Ref: 178

Keywords:  Future Value, Compounding Periods

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

5) A certificate of deposit that pays 9.8% compounded monthly is better than a similar certificate of deposit that pays 10% compounded only once per year.

Answer:  TRUE

Diff: 1      Page Ref: 175

Keywords:  APY, Effective Annual Rate

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

6) It is never appropriate to compare nominal rates unless they include the same number of compounding periods per year.

Answer:  TRUE

Diff: 1      Page Ref: 175

Keywords:  Nominal Interest Rates, Compounding, Effective Annual Rate

Learning Obj.:  L.O. 5.3

AACSB:  Reflective Thinking

 

 

7) Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.)

  1. A) a bank CD that pays 7.00 percent interest compounded daily
  2. B) a bank CD that pays 7.10 percent compounded monthly
  3. C) a bank CD that pays 7.30 percent annually
  4. D) a bank CD that pays 7.25 percent compounded semiannually

Answer:  D

Diff: 2      Page Ref: 175

Keywords:  Effective Annual Rate, Interest Rate

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

8) One bank offers you 4% interest compounded semiannually. What would the equivalent rate be if interest were compounded quarterly?

  1. A) 3.98%
  2. B) 3.96%
  3. C) 3.92%
  4. D) 1.00%

Answer:  A

Diff: 3      Page Ref: 175

Keywords:  Semiannual Compounding, Quarterly Compounding, Effective Annual Rate

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

9) A financial analyst tells you that investing in stocks will allow you to double your money in 7 years. What annual rate of return is the analyst assuming you can earn?

  1. A) 8.76%
  2. B) 9.87%
  3. C) 10.01%
  4. D) 10.41%

Answer:  D

Diff: 2      Page Ref: 178

Keywords:  Rate of Return, Compound Interest

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

10) You believe in the power of compounding and decide to save $1 per day by avoiding the purchase of a soda. You deposit the $1 at the end of each day in a bank account that pays 8% interest compounded daily. You are going to take a trip in 20 years with the money you have accumulated. How much money will you have in 20 years, assuming 365 days per year?

  1. A) $7,500
  2. B) $12,438
  3. C) $18,032
  4. D) $22,456

Answer:  C

Diff: 3      Page Ref: 178

Keywords:  Annuity, Future Value, Compounding Periods

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

11) Today is your 20th birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded semiannually. How much will be in the account on your 50th birthday?

  1. A) $159,795
  2. B) $162,183
  3. C) $163,823
  4. D) $170,351

Answer:  D

Diff: 2      Page Ref: 178

Keywords:  Future Value, Semiannual Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

12) Today is your 21st birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded quarterly. How much will be in the account on your 50th birthday?

  1. A) $159,795
  2. B) $162,183
  3. C) $163,832
  4. D) $164,631

Answer:  B

Diff: 2      Page Ref: 178

Keywords:  Future Value, Monthly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

13) Today is your 21st birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded monthly. How much will be in the account on your 50th birthday?

  1. A) $159,795
  2. B) $162,183
  3. C) $163,823
  4. D) $164,631

Answer:  C

Diff: 2      Page Ref: 178

Keywords:  Future Value, Monthly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

14) Today is your 21st birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded daily. How much will be in the account on your 50th birthday?

  1. A) $159,795
  2. B) $162,183
  3. C) $163,823
  4. D) $164,631

Answer:  D

Diff: 2      Page Ref: 178

Keywords:  Future Value, Monthly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

15) At 6 percent compounded monthly, how long will it take to triple your money?

  1. A) 221 months
  2. B) 175 months
  3. C) 102 months
  4. D) 48 months

Answer:  A

Diff: 1      Page Ref: 178

Keywords:  Future Value, Monthly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

16) If you invest $750 every six months at 8 percent compounded semiannually, how much would you accumulate at the end of 10 years?

  1. A) $10,065
  2. B) $10,193
  3. C) $22,334
  4. D) $21,731

Answer:  C

Diff: 1      Page Ref: 178

Keywords:  Annuity, Semiannual Compounding, Future Value

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

17) You are currently earning 12% compounded semiannually. Your investment company is switching all accounts to daily compounding. What rate will give you the same effective annual rate of return as you are receiving now?

  1. A) 10.83%
  2. B) 10.97%
  3. C) 11.66%
  4. D) 11.89%

Answer:  C

Diff: 3      Page Ref: 175

Keywords:  Compounding Periods, Effective Annual Rate

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

18) What is the future value of $500 invested at 8.94% compounded quarterly for 12.5 years (rounded to nearest $1)?

  1. A) $670
  2. B) $1,510
  3. C) $1,617
  4. D) $46,739

Answer:  B

Diff: 2      Page Ref: 178

Keywords:  Future Value, Quarterly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

19) If you put $2,000 in a savings account that yields 8% compounded semiannually, how much money will you have in the account in 20 years (rounded to nearest $10)?

  1. A) $6,789
  2. B) $8,342
  3. C) $9,602
  4. D) $9,972

Answer:  C

Diff: 2      Page Ref: 178

Keywords:  Future Value, Semiannual Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

20) If you put $10,000 in an investment that returns 11 percent compounded monthly what would you have after 10 years (rounded to nearest $1)?

  1. A) $29,892
  2. B) $27,559
  3. C) $25,486
  4. D) $22,489

Answer:  A

Diff: 2      Page Ref: 178

Keywords:  Future Value, Monthly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

21) If you want to have $5,000 in 10 years, how much money must you put in a savings account today? (Assume that the savings account pays 4% and it is compounded daily; round to the nearest $1).

  1. A) $3,352
  2. B) $3,370
  3. C) $4,102
  4. D) $4,207

Answer:  A

Diff: 2      Page Ref: 178

Keywords:  Present Value, Daily Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

22) You want $20,000 in 5 years to take your spouse on a second honeymoon. Your investment account earns 7% compounded semiannually. How much money must you put in the investment account today? (Round to the nearest $1.)

  1. A) $14,178
  2. B) $12,367
  3. C) $15,985
  4. D) $13,349

Answer:  A

Diff: 2      Page Ref: 178

Keywords:  Present Value, Semiannual Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

23) If you want to have $3,575 in 29 months, how much money must you put in a savings account today? Assume that the savings account pays 12% and it is compounded monthly; round to nearest $1.

  1. A) $3,147
  2. B) $3,008
  3. C) $2,679
  4. D) $2,438

Answer:  C

Diff: 2      Page Ref: 178

Keywords:  Present Value, Monthly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

24) If you want to have $12,500 in 57 months, how much money must you put in a savings account today? Assume that the savings account pays 4.5% and it is compounded quarterly; round to nearest $1.

  1. A) $8,459
  2. B) $10,106
  3. C) $10,387
  4. D) $11,129

Answer:  B

Diff: 2      Page Ref: 178

Keywords:  Present Value, Quarterly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

25) If Cindy deposits $12,000 into a bank account that pays 6% interest compounded semiannually, what will the account balance be in seven years?

  1. A) 18,151
  2. B) 14,356
  3. C) 16,987
  4. D) 15,555

Answer:  A

Diff: 2      Page Ref: 178

Keywords:  Future Value, Semiannual Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

26) If Cathy deposits $12,000 into a bank account that pays 6% interest compounded quarterly, what will the account balance be in seven years?

  1. A) 18,001
  2. B) 18,207
  3. C) 19,112
  4. D) 19,344

Answer:  B

Diff: 2      Page Ref: 178

Keywords:  Future Value, Quarterly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

 

27) To compound $100 quarterly for 20 years at 8%, we must use

  1. A) 40 periods at 4%.
  2. B) 5 periods at 12%.
  3. C) 10 periods at 4%.
  4. D) 80 periods at 2%.

Answer:  D

Diff: 2      Page Ref: 178

Keywords:  Future Value, Quarterly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

28) Andre's wonderful parents established a college savings plan for him when he was born. They deposited $50 into the account on the last day of each month. The account has earned 10.9% compounded monthly, tax-free. How much can they withdraw on his 18th birthday to spend on his education?

  1. A) $27,560
  2. B) $30,028
  3. C) $33,307
  4. D) $43,730

Answer:  C

Diff: 2      Page Ref: 178

Keywords:  Future Value, Annuity, Monthly Compounding

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

29) Cary's wonderful parents established a college savings plan for him when he was born. They deposited $50 into the account on the last day of each month. The account has earned 10% compounded monthly, tax-free. Now he's off to State U. What equal amount can they withdraw beginning today (his 18th birthday) and each year for three additional years to spend on his education, assuming that the account now earns 7% annually.

  1. A) $8,285
  2. B) $8,865
  3. C) $9,486
  4. D) $30,028

Answer:  A

Diff: 3      Page Ref: 178

Keywords:  Annuity, Monthly Compounding, Annuity Payment

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

 

30) You discover an antique in your attic that you purchased at an estate sale 10 years ago for $400. You auction it on eBay and receive $8,000 for your item. What annual rate of return did you earn?

  1. A) 200.00%
  2. B) 34.93%
  3. C) 30.47%
  4. D) 20.00%

Answer:  B

Diff: 2      Page Ref: 175

Keywords:  Annual Rate of Return

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

31) Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly. Credit Onion is offering you a loan where payments are to be made semiannually; the rate on the loan is also 10%. Local Bank down the street is also offering a loan at 10% where the payments are made quarterly. Which loan has the lowest annual cost?

  1. A) Last National Bank's loan
  2. B) Local Bank's loan
  3. C) Credit Onion's loan
  4. D) All of the loans will have the same annual cost.

Answer:  C

Diff: 1      Page Ref: 178

Keywords:  Compounding Periods, Bank Loan

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

32) You have $25,000 in an investment account today. How much will be in the account in 30 years if the account earns (a) 8% per year, (b) 8% compounded semiannually, (c) 8% compounded quarterly, (d) 8% compounded monthly, and (e) 8% compounded daily? Comment on the effect of more frequent compounding.

Answer:  (a) $251,566.42, (b) 262,990.69, (c) $269,129.08, (d) $273,393.24, (e) $275,506.95 The more frequent the compounding the higher the future value. However, there are diminishing returns.

Diff: 2      Page Ref: 175

Keywords:  Effective Annual Rate, Future Value

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

33) Why does the future value of a given amount increase when interest is compounded nonannually as opposed to annually?

Answer:  Because "interest is earned on interest" more frequently as the length of the compounding period declines, there is an inverse relationship between the length of the compounding period and the effective annual interest rate (and future value): The shorter the compounding period is, the higher the effective interest rate will be (and the higher the future value will be). Conversely, the longer the compounding period is, the lower the effective interest rate will be (and the lower the future value will be).

Diff: 2      Page Ref: 179

Keywords:  Compounding Periods, Effective Annual Rate

Learning Obj.:  L.O. 5.3

AACSB:  Analytical Thinking

 

Learning Objective 5.4

 

1) A share of preferred stock that pays the same annual dividend forever is an example of a perpetuity.

Answer:  TRUE

Diff: 1      Page Ref: 183

Keywords:  Perpetuity, Preferred Stock

Learning Obj.:  L.O. 5.4

AACSB:  Reflective Thinking

 

2) The present value of a $100 perpetuity discounted at 5% is $5,000.

Answer:  FALSE

Diff: 1      Page Ref: 183

Keywords:  Perpetuity

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

3) You won the lottery and can receive either (1) $60,000 today, or (2) $10,000 one year from today plus $25,000 two years from today plus $35,000 three years from today. You plan to use the money to pay for your child's college education in 15 years. You should

  1. A) take the $60,000 today because of the time value of money regardless of current interest rates.
  2. B) take option two because you get $70,000 rather than $60,000 regardless of current interest rates.
  3. C) take the $60,000 today only if the current interest rate is at least 16.67%.
  4. D) take the $60,000 today if you can earn 6.81% per year or more on your investments.

Answer:  D

Diff: 2      Page Ref: 182

Keywords:  Present Value, Uneven Cash Flows

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

4) You have just purchased a share of preferred stock for $50.00. The preferred stock pays an annual dividend of $5.50 per share forever. What is the rate of return on your investment?

  1. A) 0.055
  2. B) 0.010
  3. C) 0.110
  4. D) 0.220

Answer:  C

Diff: 1      Page Ref: 183

Keywords:  Perpetuity, Preferred Stock

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

 

5) What is the value on 1/1/13 of the following cash flows:

 

Date Cash Received

Amount of Cash

1/1/14

$14,000

1/1/15

$20,000

1/1/16

$30,000

1/1/17

$43,000

1/1/18

$57,000

 

Use a 7% discount rate, and round your answer to the nearest $10.

  1. A) $153,270
  2. B) $128,490
  3. C) $112,350
  4. D) $107,330

Answer:  B

Diff: 2      Page Ref: 182

Keywords:  Uneven Cash Flows, Present Value

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

6) An investment is expected to yield $300 in three years, $500 in five years, and $300 in seven years. What is the present value of this investment if our opportunity rate is 5%?

  1. A) $735
  2. B) $864
  3. C) $885
  4. D) $900

Answer:  B

Diff: 2      Page Ref: 182

Keywords:  Present Value, Uneven Cash Flows

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

7) You have been depositing money at the end of each year into an account drawing 8% interest. What is the balance in the account at the end of year four if you deposited the following amounts?

 

Year

End of Year Deposit

1

$350

2

$500

3

$725

4

$400

 

  1. A) $1,622
  2. B) $2,207
  3. C) $2,384
  4. D) $2,687

Answer:  B

Diff: 3      Page Ref: 182

Keywords:  Future Value, Uneven Cash Flows

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

8) You invest $1,000 at a variable rate of interest. Initially the rate is 4% compounded annually for the first year, and the rate increases one-half of one percent annually for five years (year two's rate is 4.5%, year three's rate is 5.0%, etc.). How much will you have in the account after five years?

  1. A) $1,276
  2. B) $1,359
  3. C) $1,462
  4. D) $1,338

Answer:  A

Diff: 2      Page Ref: 182

Keywords:  Future Value, Variable Interest Rate

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

9) An investment will pay $500 in three years, $700 in five years and $1000 in nine years. If your opportunity rate is 6%, what is the present value of this investment?

Answer:  $1,534.79

Diff: 1      Page Ref: 182

Keywords:  Present Value, Uneven Cash Flows

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

10) What is the present value of the following perpetuities?

  1. $200 per year discounted at 6% annually
  2. $500 per year discounted at 9% annually
  3. $1,000 per year discounted at 5% annually
  4. $550 per year discounted at 8% annually

Answer: 

  1. $3,333.33
  2. $5,555.56
  3. $20,000.00
  4. $6,875.00

Diff: 1      Page Ref: 183

Keywords:  Perpetuity, Present Value

Learning Obj.:  L.O. 5.4

AACSB:  Analytical Thinking

 

 

 

 

 

 

 

 

 

 -----

Key Contents: Financial Management and Corporate Finance
------
Financial Management: Core Concepts, 3rd Edition, 2016, Raymond Brooks, Oregon State University
Financial Management: Concepts and Applications, 2015, Stephen Foerster, Richard Ivey School of Business, University of Western Ontario
Financial Management: Principles and Applications, 12th Edition, 2015, Sheridan Titman, Arthur J. Keown
International Financial Management, 2nd Edition, 2012, Geert J Bekaert, Columbia University, Robert J. Hodrick, Columbia University
------
Corporate Finance, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University
Corporate Finance: The Core, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University
Excel Modeling in Corporate Finance, 5th Edition, 2015, Craig W. Holden, Indiana University
Fundamentals of Corporate Finance, 3rd Edition, 2015, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University, Jarrad Harford, University of Washington

-----

Fundamentals of Investing, 13th Edition, Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk, 2017
Multinational Business Finance, 14th Edition, David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett, 2016
Personal Finance, 6th Edition, 2017, Jeff Madura, Emeritus Professor of Finance; Florida Atlantic University
Personal Finance: Turning Money into Wealth, 7th Edition, 2016, Arthur J. Keown, Virginia Polytechnic Instit. and State University
Foundations of Finance, 9th Edition, 2017, Arthur J. Keown, John H. Martin
Principles of Managerial Finance, 14th Edition, 2015, Lawrence J. Gitman, Chad J. Zutter
------
Part 1: Fundamental Concepts and Basic Tools of Finance
1. Financial Management
2. Financial Statements
3. The Time Value of Money (Part 1)
4. The Time Value of Money (Part 2)
5. Interest Rates
Part 2: Valuing Stocks and Bonds and Understanding Risk and Return
6. Financial Management Bonds and Bond Valuation
7. Stocks and Stock Valuation
8. Risk and Return
Part 3: Capital Budgeting
9: Capital Budgeting Decision Models
10: Cash Flow Estimation
11: The Cost of Capital
Part 4: Financial Planning and Evaluating Performance
12. Forecasting and Short-Term Financial Planning
13. Working Capital Management
14. Financial Ratios and Firm Performance
Part 5: Other Selected Finance Topics
15. Raising Capital
16. Capital Structure
17. Dividends, Dividend Policy, and Stock Splits
18. International Financial Management
Appendix 1 Future Value Interest Factors
Appendix 2 Present Value Interest Factors
Appendix 3 Future Value Interest Factors of an Annuity
Appendix 4 Present Value Interest Factors of an Annuity
Appendix 5 Answers to Prepping for Exam Questions
------
1. Overview of Financial Management
2. Sizing Up a Business: A Non-Financial Perspective
3. Understanding Financial Statements
4. Measuring Financial Performance
5. Managing Day-To-Day Cash Flow
6. Projecting Financial Requirements and Managing Growth
7. Time Value of Money Basics and Applications
8. Making Investment Decisions
9. Overview of Capital Markets: Long-Term Financing Instruments
10. Assessing the Cost of Capital: What Investors Require
11. Understanding Financing and Payout Decisions
12. Designing an Optimal Capital Structure
13. Measuring and Creating Value
14. Comprehensive Case Study: Wal-Mart Stores, Inc.

1. Overview of Financial Management
• 1.1: Financial Management and the Cash Flow Cycle
• 1.2: The Role of Financial Managers
• 1.3: A Non-Financial Perspective of Financial Management
• 1.4: Financial Management’s Relationship with Accounting and Other Disciplines
• 1.5: Types of Firms
• 1.6: A Financial Management Framework
• 1.7: Relevance for Managers
• 1.8: Summary
• 1.9: Additional Readings
• 1.10: End of Chapter Problems
2. Sizing Up a Business: A Non-Financial Perspective
• 2.1: Sizing Up The Overall Economy
o 2.1.1: GDP Components
o 2.1.2: Sector-Related Fluctuations
o 2.1.3: Inflation and Interest Rates
o 2.1.4: Capital Markets
o 2.1.5: Economic Size-Up Checklist
• 2.2: Sizing Up the Industry
o 2.2.1: Industry Life Cycles
o 2.2.2: The Competitive Environment
o 2.2.3: Opportunities and Risks
o 2.2.4: Industry Size-up Checklist
• 2.3: Sizing Up Operations Management and Supply Risk
• 2.4: Sizing Up Marketing Management and Demand Risk
• 2.5: Sizing Up Human Resource Management and Strategy
• 2.6: Sizing Up Home Depot: An Example
• 2.7: Relevance for Managers
• 2.8 Summary
• 2.9: Additional Readings and Information
• 2.10: End of Chapter Problems
3. Understanding Financial Statements
• 3.1: Understanding Balance Sheets
o 3.1.1: Understanding Assets
o 3.1.2: Understanding Liabilities
o 3.1.3: Understanding Equity
• 3.2: Understanding Income Statements
o 3.2.1: Understanding Revenues, Costs, Expenses, and Profits
o 3.2.2: Connecting a Firm’s Income Statement and Balance Sheet
• 3.3: Understanding Cash Flow Statements
o 3.3.1: Cash Flows Related to Operating Activities
o 3.3.2: Cash Flows from Investing Activities
o 3.3.3: Cash Flows from Financing Activities
• 3.4: Relevance for Managers
• 3.5: Summary
• 3.6: Additional Readings and Sources of Information
• 3.7: End of Chapter Problems
4. Measuring Financial Performance
• 4.1: Performance Measures
o 4.1.1: Return on Equity
o 4.1.2: Profitability Measures
o 4.1.3: Resource Management Measures
o 4.1.4: Liquidity Measures
o 4.1.5: Leverage Measures
o 4.1.6: Application: Home Depot
• 4.2: Reading Annual Reports
• 4.3: Relevance for Managers
• 4.4: Summary
• 4.5: Additional Readings and Sources of Information
• 4.6: End of Chapter Problems
5. Managing Day-To-Day Cash Flow
• 5.1: Cash Flow Cycles
• 5.2: Working Capital Management
o 5.2.1: Managing Inventory
o 5.2.2: Managing Accounts Receivable
o 5.2.3: Managing Accounts Payable
o 5.2.4: Application: Home Depot
• 5.2.4.1: Orange Computers and Little Orange Computers
• 5.2.4.2: Home Depot
• 5.3: Short-Term Financing
o 5.3.1: Bank Loans
o 5.3.2: Commercial Paper
o 5.3.3: Banker’s Acceptance
• 5.4: Relevance for Managers
• 5.5: Summary
• 5.6: Additional Readings
• 5.7: End of Chapter Problems

6. Projecting Financial Requirements and Managing Growth
• 6.1: Generating Pro Forma Income Statements
o 6.1.1: Establishing the Cost of Goods Sold and Gross Profit
o 6.1.2: Establishing Expenses
o 6.1.3: Establishing Earnings
• 6.2: Generating Pro Forma Balance Sheets
o 6.2.1: Establishing Assets
o 6.2.2: Establishing Liabilities and Equity
• 6.3: Generating Pro Forma Cash Budgets
o 6.3.1: Establishing Cash Inflows
o 6.3.2: Establishing Cash Outflows
o 6.3.3: Establishing Net Cash Flows
• 6.4: Performing Sensitivity Analysis
o 6.4.1: Sales Sensitivity
o 6.4.1: Interest Rate Sensitivity
o 6.4.3: Working Capital Sensitivity
• 6.5: Understanding Sustainable Growth and Managing Growth
• 6.6: Relevance for Managers
• 6.7: Summary
• 6.8: Additional Readings and Resources
• 6.9: Problems

7. Time Value of Money Basics and Applications
• 7.1: Exploring Time Value of Money Concepts
o 7.1.1: Future Values
o 7.1.2: Present Values
o 7.1.3: Annuities
o 7.1.4: Perpetuities
• 7.2: Applying Time Value of Money Concepts to Financial Securities
o 7.2.1: Bonds
o 7.2.2: Preferred Shares
o 7.2.3: Common Equity
• 7.3: Relevance for Managers
• 7.4: Summary
• 7.5: Additional Readings
• 7.6: End of Chapter Problems

8. Making Investment Decisions
• 8.1: Understanding the Decision-Making Process
• 8.2: Capital Budgeting Techniques
o 8.2.1: Payback
• 8.2.1.1: Strengths and Weaknesses of the Payback Method
o 8.2.2: Net Present Value
• 8.2.2.1: Strengths and Weaknesses of the Net Present Value Method
o 8.2.3: Internal Rate of Return
• 8.2.3.1: Strengths and Weaknesses of the Internal Rate of Return Method
• 8.2.3.2: Modified Internal Rate of Return
• 8.3: Capital Budgeting Extensions
o 8.3.1: Profitability Index
o 8.3.2: Equivalent Annual Cost and Project Lengths
o 8.3.3: Mutually Exclusive Projects and Capital Rationing
• 8.4: Relevance for Managers
• 8.5: Summary
• 8.6: Additional Readings
• 8.7: End of Chapter Problems

9. Overview of Capital Markets: Long-Term Financing Instruments
• 9.1: Bonds
o 9.1.1: Changing Bond Yields
o 9.1.2: Bond Features
o 9.1.3: Bond Ratings
• 9.2: Preferred Shares
• 9.3: Common Shares
o 9.3.1: Historical Returns
• 9.4: Capital Markets Overview
o 9.4.1: Private versus Public Markets
o 9.4.2: Venture Capital and Private Equity
o 9.4.3: Initial Offerings versus Seasoned Issues
o 9.4.4: Organized Exchanges versus Over-The-Counter Markets
o 9.4.5: Role of Intermediaries
• 9.5: Market Efficiency
o 9.5.1: Weak Form
o 9.5.2: Semi-strong Form
o 9.5.3: Strong Form
o 9.5.4: U.S. Stock Market Efficiency
• 9.6: Relevance for Managers
• Appendix: Understanding Bond and Stock Investment Information
• 9.7: Summary
• 9.8: Additional Readings
• 9.9: End of Chapter Problems

10. Assessing the Cost of Capital: What Investors Require
• 10.1: Understanding the Cost of Capital: An Example
• 10.2: Understanding the Implications of the Cost of Capital
• 10.3: Defining Risk
• 10.4: Estimating the Cost of Debt
• 10.5: Estimating the Cost of Preferred Shares
• 10.6: Estimating the Cost of Equity
o 10.6.1: Dividend Model Approach
o 10.6.2: Capital Asset Pricing Model
• 10.6.2.1: Risk-Free Rate
• 10.6.2.2: Market Risk Premium
• 10.6.2.3: Beta
• 10.7: Estimating Component Weights
• 10.8: Home Depot Application
• 10.9: Hurdle Rates
• 10.10: Relevance for Managers
• 10.11: Summary
• 10.12: Additional Readings
• 10.13: Problems
11. Understanding Financing and Payout Decisions
• 11.1: Capital Structure Overview
• 11.2: Understanding the Modigliani-Miller Argument: Why Capital Structure Does Not Matter
• 11.3: Relaxing the Assumptions: Why Capital Structure Does Matter
o 11.3.1: Understanding the Impact of Corporate Taxes
o 11.3.2: Understanding the Impact of Financial Distress
o 11.3.3: Combining Corporate Taxes and Financial Distress Costs
o 11.3.4: Impact of Asymmetric Information
• 11.4: Understanding Payout Policies
o 11.4.1: Paying Dividends
o 11.4.2: Repurchasing Shares
o 11.4.3: Do Dividend Policies Matter?
• 11.5: Relevance for Managers
• 11.6: Summary
• 11.7: Additional Resources
• 11.8: End of Chapter Problems
• Appendix: Why Dividend Policy Doesn’t Matter: Example

12. Designing an Optimal Capital Structure
• 12.1: Factor Affecting Financing Decisions: The FIRST Approach
o 12.1.1: Maximizing Flexibility
o 12.1.2: Impact on EPS: Minimizing Cost
• 12.1.2.1: A Simple Valuation Model
• 12.1.2.2: Earnings before Interest and Taxes Break-Even: What Leverage Really Means
• 12.1.2.3: Does Issuing Equity Dilute the Value of Existing Shares?
o 12.1.3: Minimizing Risk
o 12.1.4: Maintaining Shareholder Control
o 12.1.5: Optimal Training
• 12.2: Tradeoff Assessment: Evaluating FIRST Criteria
• 12.3: Relevance for Managers
• 12.4: Summary
• 12.5: Additional Resource
• 12.6: End of Chapter Problems

13. Measuring and Creating Value
• 13.1: An Overview of Measuring and Creating Value
• 13.2: Measuring Value: The Book Value Plus Adjustments Method
o 13.2.1: Pros and Cons of the Book Value of Equity Plus Adjustments Method
• 13.3: Measuring Value: The Discount Cash Flow Analysis Method
o 13.3.1: Estimating Free Cash Flows
o 13.3.2: Estimating the Cost of Capital
o 13.3.3: Estimating the Present Value of Free Cash Flows
o 13.3.4: Estimating the Terminal Value
o 13.3.5: Estimating the Value of Equity
o 13.3.6: Pros and Cons of the Free Cash Flow to the Firm Approach
• 13.4: Measuring Value: Relative Valuations and Comparable Analysis
o 13.4.1: The Price-Earnings Method
• 13.4.1.1: Pros and Cons of the Price-Earnings Approach
o 13.4.2: The Enterprise Value-to-EBITDA Method
• 13.4.2.1: Pros and Cons of the EV/EBITDA Approach
• 13.5: Creating Value and Value-Based Management
• 13.6: Valuing Mergers and Acquisitions
o 13.6.1: Valuing Comparable M&A Transactions
• 13.7: Relevance for Managers
• 13.8: Summary
• 13.9: Additional Readings
• 13.10: End of Chapter Problems

14. Comprehensive Case Study: Wal-Mart Stores, Inc.
• 14.1: Sizing Up Wal-Mart
o 14.1.1: Analyzing the Economy
o 14.1.2: Analyzing the Industry
o 14.1.3: Analyzing Walmart’s Strengths and Weaknesses in Operations, Marketing, Management, and Strategy
• 14.1.3.1: Analyzing Walmart’s Operations
• 14.1.3.2: Analyzing Walmart’s Marketing
• 14.1.3.3: Analyzing Walmart’s Management and Strategy
o 14.1.4: Analyzing Walmart’s Financial Health
• 14.2: Projecting Walmart’s Future Performance
o 14.2.1: Projecting Walmart’s Income Statement
o 14.2.2: Projecting Walmart’s Balance Sheet
o 14.2.3: Examining Alternate Scenarios
• 14.3: Assessing Walmart’s Long-Term Investing and Financing
o 14.3.1: Assessing Walmart’s Investments
o 14.3.2: Assessing Walmart’s Capital Raising and the Cost of Capital
• 14.4: Valuing Walmart
o 14.4.1: Measuring Walmart’s Economic Value Added
o 14.4.2: Estimating Walmart’s Intrinsic Value: The DCF Approach
o 14.4.3: Estimating Walmart’s Intrinsic Value: Comparable Analysis
o 14.4.4: Creating Value and Overall Assessment of Walmart
• 14.5: Relevance for Managers and Final Comments
• 14.6: Additional Readings and Sources of Information
• 14.7: End of Chapter Problems
------
Part 1: Introduction to Financial Management
Chapter 1: Getting Started - Principles of Finance
Chapter 2: Firms and the Financial Market
Chapter 3: Understanding Financial Statements, Taxes, and Cash Flows
Chapter 4: Financial Analysis - Sizing Up Firm Performance
Part 2: Valuation of Financial Assets
Chapter 5: Time Value of Money - The Basics
Chapter 6: The Time Value of Money - Annuities and Other Topics
Chapter 7: An Introduction to Risk and Return - History of Financial Market Returns
Chapter 8: Risk and Return - Capital Market Theory
Chapter 9: Debt Valuation and Interest Rates
Chapter 10: Stock Valuation
Part 3: Capital Budgeting
Chapter 11: Investment Decision Criteria
Chapter 12: Analyzing Project Cash Flows
Chapter 13: Risk Analysis and Project Evaluation
Chapter 14: The Cost of Capital
Part 4: Capital Structure & Dividend Policy
Chapter 15: Capital Structure Policy
Chapter 16: Dividend Policy
Part 5: Liquidity Management & Special Topics in Finance
Chapter 17: Financial Forecasting and Planning
Chapter 18: Working Capital Management
Chapter 19: International Business Finance
Chapter 20: Corporate Risk Management
------
PART I: INTRODUCTION TO FOREIGN EXCHANGE MARKETS AND RISKS
Chapter 1: Globalization and the Multinational Corporation
Chapter 2: The Foreign Exchange Market
Chapter 3: Forward Markets and Transaction Exchange Risk
Chapter 4: The Balance of Payments
Chapter 5: Exchange Rate Systems
PART II: INTERNATIONAL PARITY CONDITIONS AND EXCHANGE RATE DETERMINATION
Chapter 6: Interest Rate Parity
Chapter 7: Speculation and Risk in the Foreign Exchange Market
Chapter 8: Purchasing Power Parity and Real Exchange Rates
Chapter 9: Measuring and Managing Real Exchange Risk
Chapter 10: Exchange Rate Determination and Forecasting

PART III: INTERNATIONAL CAPITAL MARKETS
Chapter 11: International Debt Financing
Chapter 12: International Equity Financing
Chapter 13: International Capital Market Equilibrium
Chapter 14: Political and Country Risk

PART IV: INTERNATIONAL CORPORATE FINANCE
Chapter 15: International Capital Budgeting
Chapter 16: Additional Topics in International Capital Budgeting
Chapter 17: Risk Management and the Foreign Currency Hedging Decision
Chapter 18: Financing International Trade
Chapter 19: Managing Net Working Capital

PART V: FOREIGN CURRENCY DERIVATIVES
Chapter 20: Foreign Currency Futures and Options
Chapter 21: Interest Rate and Foreign Currency Swaps
------
PART 1: INTRODUCTION
1. The Corporation
2. Introduction to Financial Statement Analysis
3. Financial Decision Making and the Law of One Price
PART 2: TIME, MONEY, AND INTEREST RATES
4. The Time Value of Money
5. Interest Rates
6. Valuing Bonds
PART 3: VALUING PROJECTS AND FIRMS
7. Investment Decision Rules
8. Fundamentals of Capital Budgeting
9. Valuing Stocks
PART 4: RISK AND RETURN
10. Capital Markets and the Pricing of Risk
11. Optimal Portfolio Choice and the Capital Asset Pricing Model
12. Estimating the Cost of Capital
13. Investor Behavior and Capital Market Efficiency
PART 5: CAPITAL STRUCTURE
14. Capital Structure in a Perfect Market
15. Debt and Taxes
16. Financial Distress, Managerial Incentives, and Information
17. Payout Policy
PART 6: ADVANCED VALUATION
18. Capital Budgeting and Valuation with Leverage
19. Valuation and Financial Modeling: A Case Study
PART 7: OPTIONS
20. Financial Options
21. Option Valuation
22. Real Options

PART 8: LONG-TERM FINANCING
23. Raising Equity Capital
24. Debt Financing
25. Leasing
PART 9: SHORT-TERM FINANCING
26. Working Capital Management
27. Short-Term Financial Planning
PART 10: SPECIAL TOPICS
28. Mergers and Acquisitions
29. Corporate Governance
30. Risk Management
31. International Corporate Finance
------
PART 1: INTRODUCTION
1. The Corporation
2. Introduction to Financial Statement Analysis
3. Financial Decision Making and the Law of One Price
PART 2: TIME, MONEY, AND INTEREST RATES
4. The Time Value of Money
5. Interest Rates
6. Valuing Bonds
PART 3: VALUING PROJECTS AND FIRMS
7. Investment Decision Rules
8. Fundamentals of Capital Budgeting
9. Valuing Stocks
PART 4: RISK AND RETURN
10. Capital Markets and the Pricing of Risk
11. Optimal Portfolio Choice and the Capital Asset Pricing Model
12. Estimating the Cost of Capital
13. Investor Behavior and Capital Market Efficiency
PART 5: CAPITAL STRUCTURE
14. Capital Structure in a Perfect Market
15. Debt and Taxes
16. Financial Distress, Managerial Incentives, and Information
17. Payout Policy
PART 6: ADVANCED VALUATION
18. Capital Budgeting and Valuation with Leverage
19. Valuation and Financial Modeling: A Case Study
------
------
PART 1 INTRODUCTION
Chapter 1 Corporate Finance and the Financial Manager
Chapter 2 Introduction to Financial Statement Analysis
PART 2 INTEREST RATES AND VALUING CASH FLOWS
Chapter 3 Time Value of Money: An Introduction
Chapter 4 Time Value of Money: Valuing Cash Flow Streams
Chapter 5 Interest Rates
Chapter 6 Bonds
Chapter 7 Stock Valuation
PART 3 VALUATION AND THE FIRM
Chapter 8 Investment Decision Rules
Chapter 9 Fundamentals of Capital Budgeting
Chapter 10 Stock Valuation: A Second Look
PART 4 RISK AND RETURN
Chapter 11 Risk and Return in Capital Markets
Chapter 12 Systematic Risk and the Equity Risk Premium
Chapter 13 The Cost of Capital
PART 5 LONG-TERM FINANCING
Chapter 14 Raising Equity Capital
Chapter 15 Debt Financing
PART 6 CAPITAL STRUCTURE AND PAYOUT POLICY
Chapter 16 Capital Structure
Chapter 17 Payout Policy
PART 7 FINANCIAL PLANNING AND FORECASTING
Chapter 18 Financial Modeling and Pro Forma Analysis
Chapter 19 Working Capital Management
Chapter 20 Short-Term Financial Planning
PART 8 Special Topics
Chapter 21 Option Applications and Corporate Finance
Chapter 22 Mergers and Acquisitions
Chapter 23 International Corporate Finance  

------

FINANCIAL MANAGEMENT AND CORPORATE FINANCE - COLLECTION 2017 (FREE DOWNLOAD)

Financial Management: Core Concepts, 3rd Edition, 2016, Raymond Brooks, Oregon State University
Free download - PPT - Link
Free donwload - PPT - Link


Financial Management: Concepts and Applications, 2015, Stephen Foerster, Richard Ivey School of Business
Free download - PPT - Link

International Financial Management, 2nd Edition, 2012, Geert J Bekaert, Columbia University, Robert J. Hodrick
Free download - PPT 1 - Link
Free download - PPT 2 - Link

Corporate Finance, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University
Free download - PPT 1 - Link
Free download - PPT 2 - Link
Free download - PPT 3 - Link

Free download Link - Core 4

Excel Modeling in Corporate Finance, 5th Edition, 2015, Craig W. Holden, Indiana University
Fundamentals of Corporate Finance, 3rd Edition, 2015, Jonathan Berk, Stanford University, Peter DeMarzo, 
Financial Management: Principles and Applications, 12th Edition, 2015, Sheridan Titman, Arthur J. Keown

 

Fundamentals of Investing, 13th Edition, Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk, 2017
Free download - PPT  - Link


Multinational Business Finance, 14th Edition, David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett, 2016
Free download - PPT  - Link


Personal Finance, 6th Edition, 2017, Jeff Madura, Emeritus Professor of Finance; Florida Atlantic University
Free download - PPT  - Link


Personal Finance: Turning Money into Wealth, 7th Edition, 2016, Arthur J. Keown, 
Free download - PPT  - Link


Foundations of Finance, 9th Edition, 2017, Arthur J. Keown, John H. Martin
Free download - PPT  - Link


Principles of Managerial Finance, 14th Edition, 2015, Lawrence J. Gitman, Chad J. Zutter
 Free download - PPT  - Link

 

DOWNLOAD ALL TEST BANKs & CASE STUDY GUIDES - 2017

Corporate Finance, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo, Stanford University - Test bank

Financial Management: Concepts and Applications, 2015, Stephen Foerster, Richard Ivey School of Business - Test bank

Financial Management: Core Concepts, 3rd Edition, 2016, Raymond Brooks, Oregon State University - Test bank

International Financial Management, 2nd Edition, 2012, Geert J Bekaert, Columbia University, Robert J. Hodrick - Test bank

Financial Management: Principles and Applications, 12th Edition, 2015, Sheridan Titman, Arthur J. Keown - Test bank

Corporate Finance: The Core, 4th Edition, 2017, Jonathan Berk, Stanford University, Peter DeMarzo - Test bank

Fundamentals of Investing, 13th Edition, Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk, 2017 - Test bank

Multinational Business Finance, 14th Edition, David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett, 2016 - Test bank

Personal Finance, 6th Edition, 2017, Jeff Madura, Emeritus Professor of Finance; Florida Atlantic University - Test bank

Personal Finance: Turning Money into Wealth, 7th Edition, 2016, Arthur J. Keown - Test bank

Foundations of Finance, 9th Edition, 2017, Arthur J. Keown, John H. Martin - Test bank

Principles of Managerial Finance, 14th Edition, 2015, Lawrence J. Gitman, Chad J. Zutter - Test bank

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Good Luck and Success, Enjoy Your Study !

 

 

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