Finance Course Test with Answers

1287 Words Jun 30th, 2013 6 Pages
Question 1
(5 points) $100 today is worth the SAME as $100 tomorrow.
Your Answer Score Explanation
False Correct 5.00 Correct. You understand time value
Total 5.00 / 5.00
Question Explanation

We have assumed that time value of money is positive.
Question 2
(5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest.
Your Answer Score Explanation
True Correct 5.00 Correct. You know the mechanics for calculating FV.
Total 5.00 / 5.00
Question Explanation

All about compounding.
Question 3
(5 points) Megan wants to buy a designer handbag and plans to earn the money babysitting. Suppose the interest rate is 6% and she is willing to
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Pre-pay; 781
Pre-pay; 685
Don 't Pre-pay; 781
Total 10.00 / 10.00
Question Explanation

How to properly calculate the difference in two future values.
Question 8
(15 points) Ralph knows that he is going to have to replace his roof soon. If he has the roof replaced now, it will cost $10,000. He could wait 5 years, but it will then cost him $20,000. At what rate will these options cost the same. (Hint: This is also known as the break-even point. Exact calculation up to two decimals is not difficult. If stuck, trial and error will help. (No more than two decimals in the percentage interest rate but do not enter the % sign.)
Answer for Question 8
You entered:

Your Answer Score Explanation
15 Incorrect 0.00
Total 0.00 / 15.00
Question Explanation

This is PV or FV problem, depending on how you solve it. Exact calculation is not difficult. For those using excel, it is easiest to use the goal seek function in the data tab.
Question 9
(15 points) Jessica is in the market for a new car. She has narrowed her search down to 2 models. Model A costs $20,000 and Model B costs $18,000. With both cars she plans to pay cash and own them for 5 years before trading in for a new car. Her research indicates that the trade in value for Model A after 5 years is 50% of the initial purchase price. The trade in value for Model B is 25%. Jessica has no emotional attachment to either model and wants to make a strictly financial

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