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← Introduction to Financial Analysis

Part III- The Time Value of Money

11.27: Chapters 10 - 11- Review Questions

117 of 150 · 404 words

From Introduction to Financial Analysis by LibreTexts (Kenneth S. Bigel, Touro University), used under the CC BY 4.0 licence. Written for a general audience, not for NEPSE.

  1. 1You are given $2.30 in the present. It will compound quarterly at annual rate of 12% for ten years. What is its Future Value?
  2. 2What if you will have $2.30 in ten years – in the prior question. What is its Present Value?
  3. 3Define “Annuity.”
  4. 4Why are simple Present- and Future-Value factors reciprocals of one another while annuity factors are not?
  5. 5How are Ordinary Annuities and Annuities Due different?
  6. 6How does one adjust an Ordinary Annuity in order to make it an Annuity Due?
  7. 7Give real world examples of Annuities.
  8. 8How are annuities and perpetuities different from one another?
  9. 9An annuity due pays $138 .55 every quarter for seven years at a rate of 4.375%. Calculate both its present- and future-values. ( Hint : use the mathematical formula for calculating annuity factors and also use the annuity adjustment multiplier.)
  10. 10What is a “Growth Perpetuity”?
  11. 11Explain the “Law of Limits.” How does it apply to Perpetuities? (Search Law of Limits online if it helps.)
  12. 12Simple Future Factors grow at a(n) increasing/ decreasing rate . Which is it? Why?
  13. 13The rate of change in Future Value factors is increasing/decreasing . Which is it? Why?
  14. 14A mortgage is self-amortizing. Explain.
  15. 15Over time, interest expense on a mortgage is increasing/decreasing . Which is it? Why?
  16. 16Over time, a mortgage’s amortization increases or decreases . Which is it? Why?
  17. 17You are given an 8% annual rate on a bank Certificate of Deposit, which pays quarterly. What is its Annual Percentage Equivalent Yield?
  18. 18A mortgage charges 5% interest payable annually for thirty years. How much interest and amortization will there be in the second year? Assume a loan of $1 million.
  19. 19Over the life of this mortgage, how much interest will there have been – above and beyond the principal payments?
  20. 20An investor will receive a $400, 4% annual annuity for the next ten years, payable semi-annually; that is $200 every six months. What are the present- and future values of the annuity?
  21. 21What if this were an Annuity Due?
  22. 22In the case of a Perpetuity, why is Present Value unaffected by discounting frequencies?
  23. 23A semi-annual, “constant-growth” cash flow series last paid, $5.80. Payments will be made every six months and will grow at an annual rate of10% per year. Assume a four-year horizon. What is the Present Value of the cash flow series?Utilize a 12% discount rate.
  24. 24In the prior question, what if “G” were negative 5% (annually) ?

This chapter at LibreTexts (Kenneth S. Bigel, Touro University). Tables and text are reproduced; images, videos and quizzes are not.