FM Quiz TVM

Which of the following investments has the HIGHEST value at the end of 5 years? Assume that the effective annual interest rate for all investments is the same

• pay RM 50 at the end of every 6 month period for the next 5 years (total: 10 payments).

• pay RM 50 at the beginning of every 6 month period for the next 5 years (total: 10 payments).

• pay RM 500 at the end of 5 years (total: one time payment).

• pay RM 100 at the end of each year for the next 5 years (total: 5 payments).

• pay RM 100 at the beginning of each year for the next 5 years (total: 5 payments).

Your bank account pays a nominal interest rate of 8%. Interest is compounded quarterly.

Which of the following statements is TRUE?

• The periodic interest rate is 2% and the effective interest rate is 4%.

• The periodic interest rate is 8% and the effective interest rate is greater than 8%.

• The periodic interest rate is 4% and the effective interest rate is less than 8%.

• The periodic interest rate is 2% and the effective interest rate is greater than 8%.

• The periodic interest rate is 8% and the effective interest rate is also 8%.

Today you deposit RM2,400 into a bank account that pays a simple interest rate of 4%. How much interest will you earn after 5 years?

• RM 96.00

• RM101.15

• RM480.00

• RM492.16

• RM519.97

As a result of compounding, the effective (effective) annual rate on bank deposits (or loans) is equal to or greater than the nominal rate on deposits (or loans).

• True

• False

All other things being considered fixed or unchanged, the present value of the annual annuity will decrease as the number of years increases.

• True

• False

What is the value to invest today for the amount of RM40,000 to be earned in 50 years, if the interest/discount rate is 7.5%?

• RM 924.99

• RM 1,075.57

• RM 1,140.10

• RM 1,161.61