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##### BA 325 ? F13 ? Quiz ? Chapter 5

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The present value of a single future sum ________.;a. increases as the number of discount periods increases;b. is generally larger than the future sum;c. depends upon the number of discount periods;d. increases as the discount rate increases;2. U.S. Savings Bonds are sold at a discount. The face value of the bond represents its value on its;future maturity date. Therefore, ________.;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;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 on 5 years;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;d. the current price of a $50 face value bond will be higher if interest rates increase;3. Suppose a corporation can change its depreciation method so that its tax payments will decrease by;$1,000 this year but increase by $1,000 next year.;a. The change will have no impact on the value of the company because its cash flow over time;will be the same.;b. The change will decrease the value of the company because investors don?t like changes in;accounting methods.;c. The change will decrease the value of the company because lower tax payments this year;result from lower reported income.;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.;4. Bill borrowed $100,000 today that he must repay in 10 annual end-of-year installments of $14,902.;What annual interest rate is Bill paying on his loan?;a. 4.9%;b. 5.4%;c. 7.5%;d. 8.0%;You charged $1,000 on your credit card for Christmas presents. Your credit card company charges;you 16% 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?;a. 111 months;b. 58 months;c. 46 months;d. 40 months;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 8% 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 50 years old? (Your last;deposit will be made on his 49th birthday.);a. $8,000;b. $1,614;c. $18,400;d. $2,347;7. Assuming two investments have equal lives, a high discount rate tends to favor ________.;a. the investment with large cash flow early;b. the investment with large cash flow late;c. the investment with even cash flow;d. neither investment since they have equal lives;8. You borrow $25,000 to be repaid in 12 monthly installments of $2,292.00. The annual interest rate is;closest to ________.;a. 1.5 percent;b. 12 percent;c. 18 percent;d. 24 percent;9. 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?;a. 0.055;b. 0.010;c. 0.110;d. 0.220;What is the future value of $500 invested at 9.5% compounded quarterly for 12.5 years (round to;nearest $1)?;a. $670;b. $1,510;c. $1,617;d. $46,739;11. If you put $10,000 in an investment that returns 14 percent compounded monthly what would you;have after 12 years (round to nearest $10)?;a. $11,490;b. $48,180;c. $53,140;d. $61,270;If you put $10 in a savings account at the beginning of each month for 10 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.;a. $1,200;b. $2,323;c. $1,344;d. $3,727;13. 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.;a. $1,840;b. $2,028;c. $2,195;d. $2,718;14. To compound $100 quarterly for 20 years at 8%, we must use;a. 40 periods at 4%;b. 5 periods at 12%;c. 10 periods at 4%;d. 80 periods at 2%;15. A zero coupon bond pays no annual coupon interest payments. When it matures at the end of 10 years;it pays out $1,000. If investors wish to earn 6.5% per year on this bond investment, what is the current;price of the bond?;a. $533;b. $645;c. $729;d. $881;16. 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?;a. 200.00%;b. 34.93%;c. 30.47%;d. 20.00%. 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 semi-annually, 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?;a. Last National Bank?s loan;b. Local Bank?s loan;c. Credit Onion?s loan;d. All of the loans will have the same annual cost.;18. Which of the following conclusions would be true if you earn a higher rate of return on your;investments?;a. The greater the present value would be for any lump sum you would receive in the future.;b. The lower the present value would be for any lump sum you would receive in the future.;c. Your rate of return would not have any effect on the present value of any sum to be received in;the future.;d. The greater the present value would be for any annuity you would receive in the future.;19. (2 Points) 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;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?;a. A;b. B;c. C

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