Which of the following statements is CORRECT?

Time lines are useful for visualizing complex problems prior to doing actual calculations.

Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.

Which of the following statements is CORRECT?

Time lines are not useful for visualizing complex problems prior to doing actual calculations.

Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.

Which of the following statements is CORRECT?

Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

Time lines are not useful for visualizing complex problems prior to doing actual calculations.

Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

Which of the following statements is CORRECT?

Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

Time lines are not useful for visualizing complex problems prior to doing actual calculations.

Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000.

The riskiness of the investment's cash flows decreases.

The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?

The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000.

The riskiness of the investment's cash flows increases.

The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.

Which of the following statements is CORRECT?

The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.

The cash flows for an annuity due must all occur at the ends of the periods.

If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.

Which of the following statements is CORRECT?

The cash flows for an annuity due must all occur at the beginning of the periods.

The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.

The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.

If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.

Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.

The periodic rate of interest is 1.5% and the effective rate of interest is 3%.

The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.

The periodic rate of interest is 3% and the effective rate of interest is 6%.

The periodic rate of interest is 6% and the effective rate of interest is also 6%.

Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

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

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

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

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

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

A $50,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.

The annual payments would be larger if the interest rate were lower.

If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.

The last payment would have a higher proportion of interest than the first payment.

The proportion of interest versus principal repayment would be the same for each of the 7 payments.

A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.

The annual payments would be larger if the interest rate were lower.

If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.

The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.

The proportion of interest versus principal repayment would be the same for each of the 7 payments.

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

Because it is a fixed-rate mortgage, the monthly loan payments (which include both interest and principal payments) are constant.

The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.

Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.

The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

The outstanding balance declines at a slower rate in the later years of the loan's life.

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

The outstanding balance declines at a faster rate in the later years of the loan's life.

The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.

Because the outstanding balance declines over time, the monthly payments will also decline over time.

Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.

The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.

The monthly payments will decline over time.

The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.

The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

Exactly 10% of the first monthly payment represents interest.

Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

A larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment.

The monthly payments will increase over time.

The total dollar amount of interest being paid off each month gets larger as the loan approaches maturity.

The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

Exactly 10% of the first monthly payment represents interest.

Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).

Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).

Investment D pays $2,500 at the end of 10 years (just one payment).

Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).

Bus fin ch.5 concept

Authored by Thanagid Chaichayanon

Financial Education

University

Used 3+ times

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65 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Starting to invest early for retirement increases the benefits of compound interest.

True

False

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Starting to invest early for retirement reduces the benefits of compound interest.

True

False

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A time line is meaningful even if all cash flows do not occur annually.

True

False

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

A time line is not meaningful unless all cash flows occur annually.

True

False

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

True

False

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.

True

False

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.

True

False

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Bus fin ch.5 concept

Starting to invest early for retirement increases the benefits of compound interest.

Starting to invest early for retirement reduces the benefits of compound interest.

A time line is meaningful even if all cash flows do not occur annually.

A time line is not meaningful unless all cash flows occur annually.

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.

Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts.

Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.

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