# Ethic

1598 Words Nov 5th, 2012 7 Pages
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
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