Managerial Finance Answers

1546 WordsMar 18, 20127 Pages
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 . 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 . 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 Answer: b Diff: E . You can earn 8 percent interest, compounded…show more content…
$117.48 Effective annual rate Answer: c Diff: E . 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 . 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 . Which of the following investments has the highest effective return (EAR)? (Assume that all CDs are of equal risk.) a. A bank CD which pays 10 percent interest quarterly. b. A bank CD which pays 10 percent monthly. c. A bank CD which pays 10.2 percent annually. d. A bank CD which pays 10 percent semiannually. e. A bank CD which pays 9.6 percent daily (on a 365-day basis). Effective annual return Answer: a Diff: E . Which one of the following investments provides the highest effective return? a. An investment which has a 9.9 percent nominal

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