Reference no: EM132787269

Questions -

Q1. When monthly interest is expressed as only being compounded annually, this is known as the annual percentage rate.

True

False

Q2. When a trust fund is established to provide annual scholarships indefinitely, which of the following is the best way to describe the scholarships?

A. The annual scholarships are an example of perpetuity.

B. The annual scholarships are an example of an amortized payment.

C. The annual scholarships are an example of ordinary annuity.

D. The annual scholarships are an example of annuity due.

Q3. When a scholarship offers a set amount per month, paid on the first of the month, and extends for a certain period of time (e.g., $325 a month for 36 months), which of the following is the best way to describe the payments for this type of scholarship?

A. The payments for this type of scholarship are an example of ordinary annuity.

B. The payments for this type of scholarship are an example of annuity due.

C. The payments for this type of scholarship are an example of perpetuity due.

D. The payments for this type of scholarship are an example of ordinary perpetuity.

Q4. If an inheritance is compounded annually at 6% and reaches a total of $100,000 after 12 years, what would the starting amount of the investment be?

A. $48,976

B. $51,386

C. $49,852

D. $49,697

Q5. Medical bills are an example of an annuity.

True

False

Q6. How many years does it take to save $1,284 if you start with $625 and earn a 9% annual interest rate?

A. 8.50 years

B. 8.35 years

C. 9.25 years

D. 11.35ears

Q6. You have a present value of $217, future value of $307, and 3 years as the number of periods. What is the interest rate?

A. 12.49%

B. 12.26%

C. 13.00%

D. 13.05%

Q7. If Barbara increases the monthly payment amount by $200 for her mortgage, which is on a 30-year payment plan, this decreases the present value of the annuity.

True

False

Q8. Of the various methods of capital budgeting, which one is considered to be the superior method to analyze a project or investment?

A. Net Present Value

B. Internal Rate of Return

C. Payback

D. Profitability Index

Q9. Over the course of 5 years, how much interest would you earn at a rate of 6% simple interest on a deposit of $3,600?

A. $1,080

B. $920

C. $1,050

D. $1,280

Q10. The value created per dollar invested is known as the _____.

A. net present value

B. future value

C. annuity

D. profitability index

Q11. What is the future value of $6,500 invested for 7 years at 10% compounded annually?

A. $12,565

B. $12,667

C. $11,325

D. $13,525

Q12. If you were determining whether to proceed with a project, which of the following statements would cause you to reject it?

A. There is a Net Present Value that is positive.

B. There is a Profitability Index that is less than 1.

C. The requirement period is longer than the payback period.

D. The requirement of the average accounting return is exceeded.

Q13. If you were to analyze a project using the payback method, which of the following aspects would you purposely disregard?

A. Initial cost of the investment

B. Ease of use

C. Timing of each cash inflow

D. Time Value of Money

Q14. The Net Present Value:

A. is equal to the present value of an investment plus the amount you intend to invest

B. is used to determine how profitable an investment will be

C. is the amount to which an investment made today will grow by a particular date

D. is a calculation of the money you have at present

Q15. A/An _____ is calculated by multiplying the monthly interest rate by 12.

A. effective annual rate

B. simple rate

C. annual percentage rate

D. variable rate

Q16. At the age of 18, Brad began saving cash so he could buy a used car on his 21st birthday. For any investment he made, he earned 4% in interest. Brad invested $800 at the end of the first year, $1,200 at the end of the second year, and $1,350 at the end of the third year. What is the total amount of money he had at the end of the third year?

A. $3,517.28

B. $3,463.28

C. $3,430.00

D. $3,350.00

Q17. When the discount rate for a project reflects a net present value of zero, this is the definition of an internal rate of return.

True

False

Q18. Jonathan is purchasing a car and plans to finance it. He decides to take out a 6-year loan, which will mean that his monthly payments are $345. Which of the following terms can be used to describe his car payments?

A. Lump sum

B. Factor

C. Perpetuity

D. Annuity

Q19. What would the net present value of an investment be if it produces a return that is equivalent to the required return?

A. The net present value would be negative.

B. The net present value of the investment would be zero.

C. The net present value would be the same as the net profit.

D. The net present value would reflect a larger number than what was initially invested.