Which of the following statements is incorrect with respect to time lines?
- Interest rates are not included on our time lines.
- Cash flows we receive are called inflows and denoted with a positive number.
- Cash flows we pay out are called outflows and designated with a negative number.
- A helpful tool for organizing our analysis is the time line.
If an average home in your town currently costs $300,000, and house prices are expected to grow at an average rate of 5 percent per year, what will an average house cost in 10 years?
What is the present value of a $600 payment in one year when the discount rate is 8 percent?
Which of the following is the equivalent of $300 received today?
- Three hundred dollars compounded at 10 percent for one year.
- All of these choices are correct.
- Seven hundred ninety-five dollars ninety-nine cents to be received 20 years in the future assuming a 5 percent annual interest rate.
- Hundred dollars to be received two years from now and $200 three years from now.
You double your money in five years. The reason your return is not 20 percent per year is because:
- it does not reflect the effect of discounting.
- it does not reflect the effect of the Rule of 72.
- it is probably a “fad” investment.
- it does not reflect the effect of compounding.
What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?
A perpetuity, a special form of annuity, pays cash flows
- that do not have time value of money implications.
- continuously for one year.
- and is not effected by interest rate changes.
- periodically forever.
Which of the following will increase the present value of an annuity?
- The interest rate decreases.
- The amortization schedule decreases.
- The effective rate is calculated over fewer years.
- The number of periods decreases.
Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value
- is affected only if the calculation involves an annuity due.
- is independent of the monthly compounding.
A loan is offered with monthly payments and a 14.5 percent APR. What is the loan’s effective annual rate (EAR)?
- 14.97 percent
- 15.63 percent
- 15.13 percent
- 15.50 percent
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