FFM (Ch.5-6-7-8) Quiz_TVM_Interest Rates_Bonds_Risk&Return_

What is the future value of $1,000 invested for 3 years at 6% interest compounded annually?

• $1,180.00

• $1,191.02

• $1,200.00

• $1,196.00

• $1,159.27

The present value of $1,500 received 4 years from now at 8% discount rate is:

• $1,103.60

• $1,111.12

• $1,201.10

• $1,289.00

• $1,028.88

If interest is compounded quarterly, what is the effective annual rate (EAR) of a nominal 12% annual interest rate?

• 12.55%

• 12.00%

• 12.36%

• 12.68%

• 13.10%

The difference between simple and compound interest increases with:

• Higher inflation

• Lower interest rates

• Shorter periods

• Longer time and higher interest rates

• Declining market rates

What is the present value of an ordinary annuity of $500 received annually for 5 years if the discount rate is 10%?

• $2,372.43

• $1,895.20

• $2,000.00

• $2,564.00

• $2,190.30

What is the future value of a $200 annuity paid annually for 6 years at 7% interest?

• $1,435.62

• $1,523.10

• $1,638.61

• $1,721.30

• $1,580.50

An annuity due differs from an ordinary annuity in that payments are:

• More frequent

• Made at the end of each period

• Made at the beginning of each period

• Made semi-annually

• Deferred

The effective annual rate (EAR) is:

• Always equal to nominal rate

• Lower when compounding is monthly

• Higher than nominal rate if interest is compounded more than once a year

• Unrelated to compounding

• Used only for loans

The present value of a perpetuity is calculated as:

• PV = PMT × n

• PV = PMT / (1 + r)^n

• PV = PMT / r

• PV = FV × r

• PV = PMT / (1 + r × n)

Which factor does NOT affect the future value of a lump sum?

• The interest rate

• The number of periods

• The frequency of compounding

• Inflation expectations

• The initial investment