A+ Answers of the following Questions

1. If an investor prefers the present value of an investment to its future value
a. he has selected an interest rate that is too high.
b. he has selected an interest rate that is too low.
c. he has a zero time value of money.
d. none of the above

2. If the interest rate is 0%,
a. future amounts have zero present value.
b. future amounts have an infinite present value.
c. the present value of amounts to be received in the future is equal to the sum of those amounts.
d. the future value of an investment is less than the sum of its cash flows.

3. Which of the following would increase the future value of an amount?
a. an increase in the interest rate
b. an increase in the amount
c. an increase in the time until future value is to be received
d. a and b
e. all of the above

1. Opportunity cost is the:
a. benefit that would have been available from the next best use of money.
b. prime rate for large firms.
c. unemployment rate.
d. rate on standard savings accounts.

2. Holding all other variables constant, an increase in the ____ will increase the future value of an annuity.
a. Annuity Payment
b. Rate of Interest
c. Number of periods
d. Both a & b
e. All of the above

3. The present value of an annuity
a. is equal to the sum of the present values of each period's cash flow
b. has a future value (as an amount) equal to the future value of the annuity
c. has a future value (as an amount) equal to the sum of the annuity's cash flows.
d. a and b

1. When using a future value of an annuity table
a. payments are assumed to be made at the end of each period
b. FVFA factors increase with an increase in the interest rate
c. FVFA factors increase with an increase in the number of periods
d. all of the above

2. More frequent compounding results in ____ future values and ____ present values than less frequent compounding at the same nominal interest rate.
a. higher, higher
b. lower, higher
c. higher, lower
d. lower, lower

3. Interest rates are quoted by stating the ____ followed by the compounding period.
a. effective annual rate
b. nominal rate
c. yield
d. coupon rate
e. none of the above

1. A series of equal payments that occur at equal intervals and go on forever is called a:
a. ordinary annuity
b. an annuity due
c. a perpetuity
d. a non-ending stream
e. none of the above.

2. Six years ago you paid $20 per share for 100 shares of stock. Today you sold the 100 shares for $30 per share. Determine the average annual rate of return on your investment, assuming the stock paid no dividends.
a. 25%
b. 8.33%
c. 150%
d. 7%

3. Many IRA funds argue that investors should invest at the beginning of the year rather than at the end. What is the difference to an investor who invests $2,000 per year at 11 percent over a 30-year period?
a. $43,785
b. $36,189
c. $54,244
d. There is no difference

1. When interest rates move up or down, bond prices move:
a. in the opposite direction
b. in the same direction
c. in the opposite direction and further the longer is the term until maturity
d. a and c

2. Once a bond has been issued, if the holder of the bond retains it until maturity:
a. the market value of the bond may change, but the cash flows will not.
b. the cash flows associated with the bond may change, but the market value will not.
c. both the market value of the bond and the cash flows may change.
d. neither the market value of the bond or the cash flows will change.

3. When using a future value of an annuity table
a. payments are assumed to be made at the end of each period
b. FVFA factors increase with an increase in the interest rate
c. FVFA factors increase with an increase in the number of periods
d. all of the above