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1. ________ is the process of going from present value to future value, whereas ________ is finding the present value of some future amount.

• Discounting; compounding

• Compounding; annualizing

• (a) Compounding; discounting

• (a) Discounting; leasing

1. The difference between an immediate annuity and an ordinary annuity is ________.

• the number of periods

• the amount of the payments

• the interest rate

• (a) the timing of the payments

What is the effective annual rate on a bank account that has APR of 8 percent with interest compounded quarterly? 

• (a) 6.12%

• (a) 8.24%

• (a) 8.48%

• (a) 17.17%

1. The NPV is a measure of how much your ________ wealth changes as a result of your choice and if the NPV is ________it does not pay to undertake that choice. 

• (a) future; negative

• (a) current; negative

• (a) current; positive

• (a) future; positive

1. A rule of thumb with using the internal rate of return is to invest in a project if the IRR is ________ the opportunity cost of capital. 

• (a) greater than

• less than

• (a) less than or equal to

• (a) one-half of

The NPV is the difference between the ________ value of all ________ cash inflows minus the ________ value of all current and future cash outflows. 

• (a) present; future; present

• (a) future; present; present

• (a) present; present; future

• (a) present; future; future

1. As part of your new job at CyberInc. the company is providing you with a new Jeep. Your firm will lease this $34,000 Jeep for you. The terms of the lease are seven annual payments at an interest rate of 10%, which will fully amortize the cost of the car. What is the annual lease payment?  

• (a) $6,984.39

• (a) $5,342.86

• (a) $4,857.14

• (a) $3,584.00

In five years you intend to go to graduate school. For each of your four years in graduate school, you need to have a fund that will provide $25,000 per year at the beginning of each year. If the interest rate is 9% throughout, how much must you put in the fund today?  

• (a) $64,996

• (a) $57,379

• $50,184

• (a) $16,249

1. When considering the timeframe of an investment, a rule followed by some is to choose the investment with ______ payback period.

• the longest

• (a) an infinite

• (a) no

• (a) the shortest

1. To compute the future value of a present amount use the compound amount factor defined as ________.

• FV = PV(1 + i)ⁿ

• FV = PV(1 + i)(n)

•  FV = PV/(1 + i)ⁿ [NOTE: this should be formatted as a stacked fraction]

• FV = PV/(1 + i)(n) [NOTE: this should be formatted as a stacked fraction]