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TVM
TEST BANK:
TIME VALUE OF MONEY

(Difficulty: E = Easy, M = Medium, and T = Tough)

Multiple Choice: Problems

Easy:

FV of a single payment Answer: d Diff: E
[i]. You deposit $2,000 in a savings account that pays 10 percent interest, compounded annually. How much will your account be worth in 15 years?

a. $2,030.21 b. $5,000.00 c. $8,091.12 d. $8,354.50 e. $9,020.10

FV of a single payment Answer: c Diff: E
[ii]. You deposit $1,000 in a savings account that pays 9 percent interest, compounded annually. How much will your account be worth in 6 years?

a. $1,054.00 b. $1,199.00 c. $1,677.10 d. $1,689.48 e. $7,523.33

PV of a single payment …show more content…

a. $240.42 b. $263.80 c. $300.20 d. $315.38 e. $346.87

Quarterly compounding Answer: a Diff: E
[xiv]. If $100 is placed in an account that earns a nominal 4 percent, compounded quarterly, what will it be worth in 5 years?

a. $122.02 b. $105.10 c. $135.41 d. $120.90 e. $117.48

Effective annual rate Answer: c Diff: E

[xv]. Gomez Electronics needs to arrange financing for its expansion program. Bank A offers to lend Gomez the required funds on a loan where interest must be paid monthly, and the quoted rate is 8 percent. Bank B will charge 9 percent, with interest due at the end of the year. What is the difference in the effective annual rates charged by the two banks?

a. 0.25% b. 0.50% c. 0.70% d. 1.00% e. 1.25%

Effective annual rate Answer: b Diff: E
[xvi]. You recently received a letter from Cut-to-the-Chase National Bank that offers you a new credit card that has no annual fee. It states that the annual percentage rate (APR) is 18 percent on outstanding balances. What is the effective annual interest rate? (Hint: Remember these companies bill you monthly.)

a. 18.81% b. 19.56% c. 19.25% d. 20.00% e. 18.00%

Effective annual return Answer: b Diff: E

[xvii]. Which of the

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