Missouri Southern State University ECON 350 Financial Management Chapter 5 Quiz 1)The future value interest factor is A) always greater than 1

Missouri Southern State University

ECON 350

Financial Management

Chapter 5 Quiz

1)The future value interest factor is

A) always greater than 1.0.

1. 2. sometimes negative.
   3. always less than 0.
   4. never greater than 25.

2. The future value of $200 received today and deposited at 8 percent for three years is                                    .

A) $248

B) $252

C) $158

D) $200

3. The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is

                           .

A) $50

B) $200

C) $518

D) $77

4. The annual rate of return is variously referred to as
   1. the discount rate.
   2. the opportunity cost.
   3. the cost of capital.

D) all of the above.

5. The future value of a dollar                                 as the interest rate increases and                               the farther in the future an initial deposit is to be received.
   1. decreases; decreases
   2. decreases; increases

C) increases; increases

D) increases; decreases

6. The present value of an $20,000 perpetuity at a 7 percent discount rate is                                                                                                                                                                 . A) $186,915

B) $285,714 C) $140,000

D) $325,000

7. Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

A) $19,292

B) $14,938

C) $40,000

D) $144,104

8. The present value of an ordinary annuity of $2,350 each year for eight years, assuming an opportunity cost of 11 percent, is                              .

A) $ 1,020

B) $27,869

C) $18,800

D) $12,093

9. Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 8 percent on its investments.

A) $45,000

B) $53,396

C) $47,940 D) $56,690

10. The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is                              .

A) $450

B) $126

C) $889

D) $134

11. If a United States Savings bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100, what is the annual rate of return on the bond?

A) 5 percent

2. 6 percent
3. 7 percent
4. 8 percent

12. Marla borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is                                 .

A) $942

B) $1,125

C) $1,482 D) $2,641

13. Donna makes annual end-of-year payments of $5,043.71 on a four year loan with an interest rate of 13 percent. The original principal amount was                                  .

A) $24,462

B) $15,000 C) $ 3,092

D) $20,175

14. Young Sook owns stock in a company which has consistently paid a growing dividend over the last 10 years. The first year Young Sook owned the stock, she received $4.50 per share and in the 10th year, she received $4.92 per share. What is the growth rate of the dividends over the last 10 years?
    1. 5 percent
    2. 4 percent
    3. 2 percent

D) 1 percent

15. In comparing an ordinary annuity and an annuity due, which of the following is true:

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

2. The future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due.
3. The future value of an annuity due is always less than the future value of an otherwise identical ordinary annuity, since one less payment is received with an annuity due.
4. All things being equal, one would prefer to receive an ordinary annuity compared to an annuity due.