Question 1

Suppose you deposit $500 in a savings account that earns 5% annual interest. How much will you have in your account after 2 years?

Accepted Answer

$551.25

Question 2

Which formula correctly represents the future value (FV) of a present sum (PV) invested at an annual interest rate $$r$$ for $$n$$ years?

Accepted Answer

$$FV = PV 	imes (1 + r)^n$$

Question 3

If you borrow $1,000 from a friend for 3 years at an interest rate of 7%, how much would you pay them back at the end of 3 years?

Accepted Answer

$$1,225.04$$

Question 4

What is the present value (PV) of $1,000 to be received in 5 years if the interest rate is 6%?

Accepted Answer

$$747.26$$

Question 5

Which of the following best explains why $$1000 today is worth more than 1000 a $$year from now?

Accepted Answer

Money today can be invested to earn interest, increasing its value over time.

Question 6

A bond pays $$50 in coupon payments for 4 years and 1$$,000 at the end of the fourth year. If the interest rate is 6%, what is the present value of the bond?

Accepted Answer

$$1,039.72$$

Question 7

Suppose a stock will pay a dividend of $60 in one year, and the dividend will increase by 4% per year thereafter. If the required rate of return is 7%, what is the price of the stock?

Accepted Answer

$$2,000.00$$

Question 8

If a company pays a dividend of $2 to be received one year from now, dividends are expected to grow at a rate of 3% per year for the indefinite future, and the interest rate is 4%, the price of the company's stock should be:

Accepted Answer

$$200.00$$

Question 9

Which formula is used to calculate the present value (PV) of a future sum (FV) to be received in $$n$$ years at an interest rate $$r$$?

Accepted Answer

$$PV = \frac{FV}{(1 + r)^n}$$

Question 10

You win a contest and can choose between Prize 1: $$50,000 now and 50$$,000 each year for the next 4 years, or Prize 2: $175,000 now. If the interest rate is 10%, which prize has the higher present value?

Accepted Answer

Prize 1

Question 11

If a stock's dividend is expected to grow at a constant rate of 6% in the future and it has just paid a dividend of $2.50 per share, and you have an alternative investment of equal risk that will earn an 8% rate of return, what would you be willing to pay per share for this stock today?

Accepted Answer

$$33.13$$

Question 12

Which of the following is NOT a reason why present value calculations are important for investors?

Accepted Answer

They guarantee a specific rate of return regardless of market conditions.

Question 13

A company issues a bond with a face value of $$1,000, a coupon payment of 80 $$per year, and 2 years to maturity. If the market interest rate is 10%, what is the present value of the bond?

Accepted Answer

$$964.46$$

Question 14

Which of the following best describes the relationship between interest rates and present value?

Accepted Answer

As interest rates increase, present value decreases.

Question 15

If you want to have $10,000 in 5 years and the annual interest rate is 8%, how much must you invest today?

Accepted Answer

$$6,805.83$$

Question 16

Which of the following is the correct formula for the price of a stock with a dividend $$D_1$$, a constant growth rate $$g$$, and a required rate of return $$r$$?

Accepted Answer

$$P = \frac{D_1$}{r - g}$$

Time Value of Money, Bond and Stock Valuation in Macroeconomics

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