Financial Management Theory and Practice 15th Edition Eugene Brigham

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Sample Questions

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

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCTT

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJU-CR3S-GQMG-C3UD-NCJA-GOSS-EPJ1-CRSS-NCBO-GOSU-RCTT-CRSS-NQDB-CWHS-ECJO-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCTO

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-CA5D-EPTI-GRAG-GP5R-GOSU-OPBA-CRSS-EQMR-GOSU-1C3T-COSU-YQMN-CJOU-RQMG-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCTZ

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJZ-GR4D-GP3A-GRHS-KCJ1-CESU-OQBU-CESU-NAJO-GOSU-QCMD-CRSS-CCBU-GW3D-E3UF-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCTS

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJT-8YAU-GQJA-GIUD-KCDF-GHSU-KP5N-8RSS-NPTS-GOSU-Q3DG-CCSS-N3JW-CPOU-1CMR-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCTI

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMR-GRAD-RPJO-G71D-NQJA-COSU-O3UG-CESS-GCMD-GOSU-O3UB-GCSU-CQDB-GR4U-1QMR-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCTW

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJI-CTUD-Y3MN-GJ1U-E3DD-CRSS-NCJA-CESU-CPMN-GOSS-GP3A-8RSS-KP3T-GRAU-OPMF-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC4N

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJ1-GFUG-NQJ3-GA4G-EPTT-GWSU-CA31-8YSU-NPJI-GOSU-RC3W-CASS-EP3A-G71D-ECJS-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC4B

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJI-GOAU-CQBS-GO5U-1PTS-GYSS-ECUF-CESU-QAJO-GOSU-QQMF-GHSU-1QJO-G3OU-1PB3-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC33

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJT-GAAD-RA3Z-CEAU-GQMN-CESU-CC3A-CESS-RQJZ-GOSU-RP5N-COSU-G3MB-CJOS-KATW-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC3A

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJU-CT1S-GP33-CIOS-N3TT-GASS-CC3U-8RSS-CPBI-GOSU-GAMR-8RSS-RPBI-GEAU-GC5D-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

11. If the discount (or interest) rate is positive, the present value of an expected series of payments will always exceed the future value of the same series.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV versus FV
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC4G

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMD-CW3D-GPTI-CTOS-KQJI-GRSU-Y3DG-8YSU-ECJI-GOSU-NP5N-CCSU-OPBU-GW5U-RQBS-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

12. If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV versus FV
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC4F

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJO-GH3D-1C5D-CO4G-CCJS-GYSS-K3TA-CESS-CATI-GOSS-EQMF-GCSS-RPBA-CTUD-OQDF-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

13. Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV versus FV
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC4R

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJI-G3UD-YAT1-CPTU-KCJU-8RSU-CAMB-8YSU-RP3U-GOSS-GQDG-CCSS-CCJI-GAAG-KPUR-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

14. Disregarding risk, if money has time value, it is impossible for the future value of a given sum to exceed its present value.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV versus FV
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC4D

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJS-8F1U-NQJI-GT1U-GCJ1-CASU-CPDN-CESU-Q3BS-GOSS-RCMD-CESU-GAMR-GH5G-EC3W-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

15. If a bank compounds savings accounts quarterly, the nominal rate will exceed the effective annual rate.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Effective annual rate
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC3U

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMD-GYHS-CAJ1-GE3G-NPTS-COSU-O3BA-8YSU-EPBI-GOSU-CC5D-GOSU-YQBA-CITS-CQBA-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

16. If a bank compounds savings accounts quarterly, the effective annual rate will exceed the nominal rate.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Effective annual rate
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC31

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJO-GJTG-EP5B-CIUD-K3TO-CASU-YAJU-CRSS-E3MN-GOSU-NPJA-GCSS-NATZ-GTOU-CCTU-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

17. A “growing annuity” is a cash flow stream that grows at a constant rate for a specified number of periods.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.18 – LO: 4-18
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Growing annuity
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC3T

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-GRHU-YAMG-8Y3U-CA3T-GYSU-YCUF-8RSS-NQDF-GOSU-1PTT-GESU-GCT1-GA4S-KP5D-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

18. A “growing annuity” is any cash flow stream that grows over time.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Easy
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.18 – LO: 4-18
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Growing annuity
KEYWORDS:	Bloom’s: Knowledge
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC3O

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJS-8B1U-GQJ3-CC5D-N3DF-GWSU-RCDF-8YSU-C3BU-GOSS-CCMD-GESS-EPJ1-GOHG-E3BA-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

19. The greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the greater the present value of a given lump sum to be received at some future date.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC3Z

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMG-GI1U-GA5B-8BUD-GP3U-CRSS-KQJ3-8YSS-NQMR-GOSU-1CUG-8YSS-NC31-CITG-EQBZ-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

20. The greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the smaller the present value of a given lump sum to be received at some future date.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.02 – LO: 4-2
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Compounding
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KC3S

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-GTUD-OCDD-GW4S-KPDG-GASS-NQBO-8RSS-GCBS-GOSU-C3UF-GCSS-C3MB-GW4S-ECTI-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

21. Suppose Sally Smith plans to invest $1,000. She can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%. After 11 years, the compounded value of Security B should be more than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs annually.)

	a.	True
	b.	False

ANSWER:

True

RATIONALE:

Work out the numbers with a calculator:

PV	1000	FV_A =	$1,710.34
Rate on A	5%	2 × FV_A =	$3,420.68
Rate on B	12%	FV_B =	$3,478.55
Years	11	FV_B > 2 × FV_A, so TRUE

POINTS:

DIFFICULTY:

Difficulty: Moderate

QUESTION TYPE:

True / False

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.02 – LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Comparative compounding

KEYWORDS:

Bloom’s: Comprehension

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KC3I

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJO-CW3S-NA31-GB1D-YCJ3-CRSU-NQB3-8RSU-NCJI-GOSU-GPUN-GHSS-NPBS-COAG-RCTW-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

22. Suppose Randy Jones plans to invest $1,000. He can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%. After 11 years, the compounded value of Security B should be somewhat less than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs annually.)

	a.	True
	b.	False

ANSWER:

False

RATIONALE:

Work out the numbers with a calculator:

PV	1000	FV_A =	$1,710.34
Rate on A	5%	2 × FV_A =	$3,420.68
Rate on B	12%	FV_B =	$3,478.55
Years	11	FV_B > 2 × FV_A, so FALSE

POINTS:

DIFFICULTY:

Difficulty: Moderate

QUESTION TYPE:

True / False

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.02 – LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Comparative compounding

KEYWORDS:

Bloom’s: Comprehension

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KC3W

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJU-CJTS-K3TI-GY3S-R3DD-GCSU-RA3Z-8RSU-KC3O-GOSS-N3T3-CASU-EATO-COHD-1P3O-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

23. The present value of a future sum decreases as either the discount rate or the number of periods per year increases, other things held constant.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV of a dollar
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCNN

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-GRAU-OP3T-GA5G-KCDB-GOSS-N3JS-CRSU-KCT3-GOSU-GPTS-GRSU-EPDF-8YHD-NCUB-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

24. The present value of a future sum increases as either the discount rate or the number of periods per year increases, other things held constant.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV of a sum
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCNB

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMB-CA5D-RQJS-GT1D-RCJA-GWSU-KQMG-CRSU-1QMR-GOSS-CQDN-8YSS-KCMR-GO5G-KP3T-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

25. All other things held constant, the present value of a given annual annuity decreases as the number of periods per year increases.

	a.	True
	b.	False

ANSWER:	True
RATIONALE:	One could make up an example and see that the statement is true. Alternatively, one could simply recognize that the PV of an annuity declines as the discount rate increases and recognize that more frequent compounding increases the effective rate.
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.09 – LO: 4-9
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV of an annuity
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCB3

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMR-8RHS-EQJS-CEHU-GCJ3-CASU-YA3I-CRSS-KCDB-GOSU-CA5F-GOSU-KAJA-CE3S-KQB1-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

26. All other things held constant, the present value of a given annual annuity increases as the number of periods per year increases.

	a.	True
	b.	False

ANSWER:	False
RATIONALE:	One could make up an example and see that the statement is false. Alternatively, one could simply recognize that the PV of an annuity declines as the discount rate increases and recognize that more frequent compounding increases the effective rate.
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.09 – LO: 4-9
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	PV of an annuity
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCBA

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJ1-GRHD-RCTT-8RAU-YQMB-8YSS-GCUD-8YSU-RP31-GOSU-CPBS-GRSU-KPB1-CEAU-YQJ3-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

27. If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Periodic and nominal rates
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCNG

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMB-C3TD-GAT3-8Y4G-NP3O-CWSU-G3UB-CESS-EPMN-GOSU-QPT1-GYSS-KPUD-8FOU-Q3B3-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

28. If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by dividing the periodic rate by the number of periods per year.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Periodic and nominal rates
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCNF

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-CF1G-R3JO-GTOS-G3UR-CRSS-RPT1-8YSS-C3UD-GOSU-QA3A-GESS-EP3U-GW4G-N3J1-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

29. As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan).

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Effective and nominal rates
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCNR

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMF-CO5D-RP5D-CEAU-QCMD-GESU-E3BU-CRSU-RP31-GOSS-GPMG-8YSS-KPJS-CO3U-G3BW-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

30. As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan).

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Effective and nominal rates
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCND

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJ3-GJ1S-RCTA-CJ1U-QA5B-GCSS-RQBT-CRSS-CPJA-GOSS-NCBU-GASU-RCJZ-GHHS-RQMN-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

31. When a loan is amortized, a relatively high percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment’s percentage declines in the loan’s later years.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCBU

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMG-GAHD-GCBO-CPTU-OPBT-GHSU-OPTW-CESS-G3JW-GOSU-1CBZ-CRSU-KA3I-CW3S-NCDR-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

32. When a loan is amortized, a relatively low percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment’s percentage increases in the loan’s later years.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCB1

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJ1-8RAG-CC3Z-GW4D-GPMG-GOSU-Y3JW-8YSU-KPJZ-GOSS-GCJW-GYSU-GAUF-GO3G-GP5N-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

33. The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan’s life, the greater the percentage of the payment that will be a repayment of principal.

	a.	True
	b.	False

ANSWER:	True
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCBT

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJ1-CRAG-NQJU-GIUG-NCB1-GYSU-OCMF-CRSU-QATO-GOSS-GQBI-CASU-1ATI-GPTG-CAMD-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

34. The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan’s life, the smaller the percentage of the payment that will be a repayment of principal.

	a.	True
	b.	False

ANSWER:	False
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	True / False
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Comprehension
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCBO

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMG-CO3U-GC3O-GR4S-NPUN-CESS-K3DF-8RSS-GCBT-GOSU-YCMB-CCSS-CP3Z-G3OU-OPT1-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

35. Midway through the life of an amortized loan, the percentage of the payment that represents interest must be equal to the percentage that represents repayment of principal. This is true regardless of the original life of the loan or the interest rate on the loan.

	a.	True
	b.	False

ANSWER:

False

RATIONALE:

There is no reason to think that this statement would always be true. The portion of the payment representing interest declines, while the portion representing principal repayment increases. Therefore, the statement is false. We could also work out some numbers to prove this point. Here’s an example for a 3-year loan at a 10% and a 41.45% annual interest rate. The interest component is not equal to the principal repayment component except at the high interest rate.

Original loan	$1,000	Original loan	$1,000
Rate	10%	Rate	41.45%
Life	3	Life	3
Payment	$402.11	Payment	$640.98

	Beg.			End		Beg.			End
	Balance	Interest	Principal	Bal.		Balance	Interest	Principal	Bal.
1	$1,000.00	$100.00	$302.11	$697.89	1	$1,000.00	$414.50	$226.48	$773.52
2	$697.89	$69.79	$332.33	$365.56	2	$773.52	$320.62	$320.36	$453.15
3	$365.56	$36.56	$365.56	$0.00	3	$453.15	$187.83	$453.15	$0.00

POINTS:

DIFFICULTY:

Difficulty: Challenging

QUESTION TYPE:

True / False

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.17 – LO: 4-17

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Amortization

KEYWORDS:

Bloom’s: Comprehension

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KCBZ

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJT-8Y4G-E3UG-GFOU-KQDF-GOSU-E3BW-CESU-EQDG-GOSU-QPTO-GCSS-KPB3-GA5U-KAUB-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

36. Midway through the life of an amortized loan, the percentage of the payment that represents interest could be equal to, less than, or greater than to the percentage that represents repayment of principal. The proportions depend on the original life of the loan and the interest rate.

	a.	True
	b.	False

ANSWER:

True

RATIONALE:

This statement is true. The portion of the payment representing interest declines, while the portion representing principal repayment increases. The interest portion could be equal to, greater than, or less than the principal portion. We can work out some numbers to prove this point. Here’s an example for a 3-year loan at a 10% and a 41.45% annual interest rate. The interest component is less than the principal at 10%, equal at about 41.45%, and greater at rates above 41.45%.

Original loan	$1,000	Original loan	$1,000
Rate	10%	Rate	41.45%
Life	3	Life	3
Payment	$402.11	Payment	$640.98

	Beg.			End.		Beg.			End.
	Balance	Interest	Principal	Bal.		Balance	Interest	Principal	Bal.
1	$1,000.00	$100.00	$302.11	$697.89	1	$1,000.00	$414.50	$226.48	$773.52
2	$697.89	$69.79	$332.33	$365.56	2	$773.52	$320.62	$320.36	$453.15
3	$365.56	$36.56	$365.56	$0.00	3	$453.15	$187.83	$453.15	$0.00

POINTS:

DIFFICULTY:

Difficulty: Challenging

QUESTION TYPE:

True / False

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.17 – LO: 4-17

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Amortization

KEYWORDS:

Bloom’s: Comprehension

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KCBS

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMD-G71S-EPDR-8R5S-KP31-GOSS-KCT3-8RSU-GCDD-GOSU-OCTT-8YSS-RC5F-8F1S-CQBW-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

37. Which of the following statements is CORRECT?

	a.	Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
	b.	A time line is not meaningful unless all cash flows occur annually.
	c.	Time lines are useful for visualizing complex problems prior to doing actual calculations.
	d.	Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
	e.	Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.

ANSWER:	c
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.01 – LO: 4-1
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time lines
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCBI

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-8R5G-RPDG-GW3G-ECMG-GWSU-GPT3-CESS-R3MB-GOSU-NA3S-8RSS-GQBS-GA3D-1CUD-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

38. Which of the following statements is CORRECT?

	a.	Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
	b.	A time line is not meaningful unless all cash flows occur annually.
	c.	Time lines are not useful for visualizing complex problems prior to doing actual calculations.
	d.	Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
	e.	Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.

ANSWER:	e
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.01 – LO: 4-1
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time lines
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCBW

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMD-GH3D-YATT-CFTD-OQJA-GRSS-EAJA-CRSU-Q3JZ-GOSU-CCMG-GOSU-QQBT-CE5G-R3BS-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

39. Which of the following statements is CORRECT?

	a.	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.
	b.	A time line is not meaningful unless all cash flows occur annually.
	c.	Time lines are not useful for visualizing complex problems prior to doing actual calculations.
	d.	Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
	e.	Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

ANSWER:	d
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.01 – LO: 4-1
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time lines
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCKN

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJO-8Y4D-G3JI-CJ1U-C3MG-CASS-KAJ3-8RSU-RAJU-GOSU-1QJS-GYSU-GCT3-G7OU-RAJI-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

40. Which of the following statements is CORRECT?

	a.	A time line is not meaningful unless all cash flows occur annually.
	b.	Time lines are not useful for visualizing complex problems prior to doing actual calculations.
	c.	Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
	d.	Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.
	e.	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.

ANSWER:	e
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.01 – LO: 4-1
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time lines
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCKB

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMB-CW5G-GC5N-GWHG-C3TU-GOSU-NPBU-CRSU-GCMD-GOSU-13JT-GRSS-RP3S-GO4U-GQJA-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

41. 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?

	a.	The discount rate decreases.
	b.	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.
	c.	The discount rate increases.
	d.	The riskiness of the investment’s cash flows decreases.
	e.	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.

ANSWER:	c
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Effects of factors on PVs
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCJ3

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJZ-8BUD-YA3I-COAU-OAUR-GHSS-KAJI-8RSU-13JZ-GOSS-ECBZ-CASS-ECB1-GE5U-Y3DN-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

42. 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?

	a.	The discount rate increases.
	b.	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.
	c.	The discount rate decreases.
	d.	The riskiness of the investment’s cash flows increases.
	e.	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.

ANSWER:	c
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.03 – LO: 4-3
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Effects of factors on PVs
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCJA

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJW-GA3S-GPDB-GC5G-KAUD-GWSS-E3DN-CESS-GPTI-GOSU-NC33-COSU-QP5F-GIOU-OQMR-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

43. Which of the following statements is CORRECT?

	a.	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.
	b.	The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
	c.	If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
	d.	The cash flows for an annuity due must all occur at the ends of the periods.
	e.	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.

ANSWER:	e
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.06 – LO: 4-6
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Annuities
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCKG

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJI-CAAD-NAJZ-GW5S-EAMF-8YSS-GCJA-CESS-KPJO-GOSS-CC3W-CWSU-Y3MB-GITD-YPJ1-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

44. Which of the following statements is CORRECT?

	a.	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.
	b.	The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
	c.	If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
	d.	The cash flows for an annuity due must all occur at the beginning of the periods.
	e.	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.

ANSWER:	d
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.06 – LO: 4-6
NATIONAL STANDARDS:	United States – BUSPROG: Reflective Thinking
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Annuities
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCKF

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMB-CEAU-CC5R-G7TD-YPUF-GYSS-EQBW-8RSS-GAMR-GOSU-YP3O-CRSS-RPTT-GR5U-Y3UB-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

45. Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

	a.	The periodic rate of interest is 5% and the effective rate of interest is also 5%.
	b.	The periodic rate of interest is 1.25% and the effective rate of interest is 2.5%.
	c.	The periodic rate of interest is 5% and the effective rate of interest is greater than 5%.
	d.	The periodic rate of interest is 1.25% and the effective rate of interest is greater than 5%.
	e.	The periodic rate of interest is 2.5% and the effective rate of interest is 5%.

ANSWER:	d
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Quarterly compounding
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCKR

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMG-GEHU-YCUG-GY3S-KCB3-GCSS-R3TA-8YSU-CCJW-GOSU-NA5N-COSU-1CBT-GBTD-QAUF-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	The periodic rate of interest is 8% and the effective rate of interest is also 8%.
	b.	The periodic rate of interest is 2% and the effective rate of interest is 4%.
	c.	The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.
	d.	The periodic rate of interest is 4% and the effective rate of interest is less than 8%.
	e.	The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.

ANSWER:	e
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Quarterly compounding
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCKD

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJW-GR4D-QAUG-GWHG-K3J1-CCSU-NC3Z-8YSU-KATT-GOSU-OQBS-GHSU-1QDG-GRAD-KA3I-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

47. A $250,000 loan is to be amortized over 8 years, with annual end-of-year payments. Which of these statements is CORRECT?

	a.	The proportion of interest versus principal repayment would be the same for each of the 8 payments.
	b.	The annual payments would be larger if the interest rate were lower.
	c.	If the loan were amortized over 10 years rather than 8 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 8-year amortization plan.
	d.	The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.
	e.	The last payment would have a higher proportion of interest than the first payment.

ANSWER:	d
RATIONALE:	a, b, and e can be ruled out as incorrect by simple reasoning. c is also incorrect because interest in the first year would be Loan amount × interest rate regardless of the life of the loan, so the interest payment would be identical for the first payment. Think about the situation where r = 0%, statement d is the “most logical guess.” One could also set up an amortization schedule and change the numbers to confirm that only d is correct.
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCJU

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJ3-GR3U-QC33-GB1D-13TO-GWSU-Q3JO-8YSU-NCJ3-GOSS-NQJZ-CWSS-KQDB-C3UG-EC3Z-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

48. A $150,000 loan is to be amortized over 6 years, with annual end-of-year payments. Which of these statements is CORRECT?

	a.	The proportion of interest versus principal repayment would be the same for each of the 7 payments.
	b.	The annual payments would be larger if the interest rate were lower.
	c.	If the loan were amortized over 10 years rather than 6 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 6-year amortization plan.
	d.	The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.
	e.	The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.

ANSWER:	e
RATIONALE:	a, b, and d are obviously incorrect. c is also incorrect because interest in the first year would be Loan amount × interest rate regardless of the life of the loan. That makes e the “most logical guess.” One could also set up an amortization schedule and change the numbers to confirm that only e is correct.
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCJ1

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMF-GI1G-RC5G-GE4D-KCMG-GYSS-R3JS-8RSS-EPB1-GOSU-EC3W-CASS-GCJZ-8R3G-R3BA-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

49. Which of the following statements regarding a 20-year (240-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

	a.	The outstanding balance declines at a slower rate in the later years of the loan’s life.
	b.	The remaining balance after three years will be $225,000 less one third of the interest paid during the first three years.
	c.	Because it is a fixed-rate mortgage, the monthly loan payments (which include both interest and principal payments) are constant.
	d.	Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.
	e.	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.

ANSWER:	c
RATIONALE:	c is the correct answer. Thinking through the question, the other answers can all be eliminated. One could also set up an amortization schedule to prove that only statement c is correct.
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCJT

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJW-GTUG-KCJT-GF1D-OPBU-CASS-NAT1-8RSS-KC3W-GOSS-NP3W-GWSS-R3DN-GF1S-CA33-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

50. Which of the following statements regarding a 15-year (180-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

	a.	The outstanding balance declines at a faster rate in the later years of the loan’s life.
	b.	The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.
	c.	Because the outstanding balance declines over time, the monthly payments will also decline over time.
	d.	Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.
	e.	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.

ANSWER:	a
RATIONALE:	a is the correct answer. Thinking through the question, the other answers can all be eliminated. One could also set up an amortization schedule to prove that only statement a is correct.
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.17 – LO: 4-17
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Amortization
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KCJO

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJU-CTTU-ECMG-8B1U-OCMN-COSU-1QJO-8RSS-GPUF-GOSU-OCTO-8YSU-QQBO-GOHU-QP33-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

51. Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT?

	a.	Exactly 8% of the first monthly payment represents interest.
	b.	The monthly payments will decline over time.
	c.	A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.
	d.	The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.
	e.	The amount representing interest in the first payment would be higher if the nominal interest rate were 6% rather than 8%.

ANSWER:

RATIONALE:

c is correct. b is clearly wrong, as are d and e. It is not obvious whether a is correct or not, but we could set up an example to see:

Loan	100000	Term	30
Rate	8%	Periods/Year	12
Periodic rate	0.00666666667	Total periods	360

Payment	−$733.76	Interest, Month 1	$666.67
Interest as % of total #360 payment:	1%	Interest, Month 360	$7.25
Principal as % of total #360 payment	99%	Principal, Month 360	$726.51

POINTS:

DIFFICULTY:

Difficulty: Moderate

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.17 – LO: 4-17

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Amortization

KEYWORDS:

Bloom’s: Analysis

OTHER:

TYPE: Multiple Choice: Conceptual

NOTES:

Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KCJZ

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJO-GYAD-CQMB-GYAU-C3B1-CESS-R3BI-8YSS-CPJW-GOSU-RCTU-GWSU-RPBT-C3TS-KP5G-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

52. Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

	a.	Exactly 10% of the first monthly payment represents interest.
	b.	The monthly payments will increase over time.
	c.	A larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment.
	d.	The total dollar amount of interest being paid off each month gets larger as the loan approaches maturity.
	e.	The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

ANSWER:

RATIONALE:

c is correct. b is clearly wrong, as are d and e. It is not obvious whether a is correct or not, but we could set up an example to see:

Loan	100000	Term	20
Rate	10%	Periods/Year	12
Periodic rate	0.00833333	Total periods	240

Payment	−$965.02	Interest Month 1	$833.33
Interest as % of total payment:	86%,	which is much larger than 10%.

POINTS:

DIFFICULTY:

Difficulty: Moderate

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.17 – LO: 4-17

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Amortization

KEYWORDS:

Bloom’s: Analysis

OTHER:

TYPE: Multiple Choice: Conceptual

NOTES:

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KCJS

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJS-GCAU-N3J3-CEAS-NCBO-GOSS-RPJS-CESS-KPB1-GOSS-GQBS-GRSU-O3MG-CE3U-K3DB-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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

	a.	Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).
	b.	Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
	c.	Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
	d.	Investment D pays $2,500 at the end of 10 years (just one payment).
	e.	Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).

ANSWER:

RATIONALE:

A dominates B because it provides the same total amount, but it comes faster, hence it can earn more interest over the 10 years. A also dominates C and E for the same reason, and it dominates D because with D no interest whatever is earned. We could also do these calculations to answer the question:

A	$4,382.79	Largest	EFF%	10.00%	10	250
B	$4,081.59		NOM%	9.76%		125
C	$4,280.81					125
D	$2,500.00					2500
E	$3,984.36					250

POINTS:

DIFFICULTY:

Difficulty: Moderate

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.15 – LO: 4-15

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Time value concepts

KEYWORDS:

Bloom’s: Analysis

OTHER:

TYPE: Multiple Choice: Conceptual

NOTES:

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KCJI

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMD-8B1U-YP3S-C3OU-RPDB-CRSU-CP31-CRSU-QPJT-GOSS-C3TI-GYSS-NP5D-GAAG-RQMF-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

54. Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

	a.	Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).
	b.	Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
	c.	Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
	d.	Investment D pays $2,500 at the end of 10 years (just one payment).
	e.	Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

ANSWER:

RATIONALE:

A is smaller than E and B is smaller than C because the money comes in later. A is smaller than B because a larger annuity is received later. So, now the choice comes down to either A or D. Since all of D is received at the end, this is the logical choice. We could also do these calculations to answer the question:

A	$1,536.14		EFF%	10.00%	10	250
B	$1,573.63		NOM%	9.76%		125
C	$1,650.44					125
D	$963.86	Smallest				2500
E	$1,689.76					250

POINTS:

DIFFICULTY:

Difficulty: Moderate

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.15 – LO: 4-15

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Time value concepts

KEYWORDS:

Bloom’s: Analysis

OTHER:

TYPE: Multiple Choice: Conceptual

NOTES:

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KCJW

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJW-CWAD-13UG-GP1U-YCJI-8YSS-RQBZ-CESU-QA3W-GOSS-GPTI-CESS-GC3O-CT1D-RP3S-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

55. A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

	a.	The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.
	b.	The periodic interest rate is greater than 3%.
	c.	The periodic rate is less than 3%.
	d.	The present value would be greater if the lump sum were discounted back for more periods.
	e.	The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.

ANSWER:	e
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time value concepts
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KP1N

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJW-CW3S-EC3S-GO3D-OCJI-GESU-1AUF-8RSU-NCT3-GOSU-NPUG-CASU-CCJI-G7TG-KA3U-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

56. A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

	a.	The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity.
	b.	The periodic interest rate is greater than 3%.
	c.	The periodic rate is less than 3%.
	d.	The present value would be greater if the lump sum were discounted back for more periods.
	e.	The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually.

ANSWER:	a
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time value concepts
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KP1B

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJI-CWAU-QCDR-GHHS-ECBT-GHSS-NPDR-CRSU-NCUR-GOSS-RCMF-GRSS-NAUN-CITS-GP5N-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

57. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

	a.	Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.
	b.	The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
	c.	A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
	d.	A bank loan’s nominal interest rate will always be equal to or less than its effective annual rate.
	e.	If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.

ANSWER:	d
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time value concepts
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KPT3

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMR-GO3D-QCJI-CC3U-Q3JI-GRSS-RPTI-8YSS-KCDF-GOSU-KA33-CESS-G3DG-GJ1G-NPTZ-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

58. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

	a.	Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.
	b.	The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
	c.	A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
	d.	A bank loan’s nominal interest rate will always be equal to or greater than its effective annual rate.
	e.	If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%.

ANSWER:	e
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time value concepts
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KPTA

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJI-GWHS-GPDN-G7UD-1PUB-GESS-G3JZ-CESU-RQMF-GOSU-GCMB-GHSU-K3TI-GW4G-RCUN-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

59. Which of the following statements is CORRECT?

	a.	An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.
	b.	The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity.
	c.	If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%.
	d.	If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.
	e.	The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

ANSWER:	b
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time value concepts
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KP1G

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-GR4G-EPJO-CE3D-G3MF-GWSS-GPUR-CRSS-GCJZ-GOSU-Q3BW-GCSU-GP5N-GWAG-R3BT-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

60. Which of the following statements is CORRECT?

	a.	An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.
	b.	The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due.
	c.	If a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.
	d.	If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.
	e.	The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

ANSWER:	c
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.15 – LO: 4-15
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Time value concepts
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KP1F

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMB-CO4U-ECBO-C3TU-YPTZ-CRSS-KATZ-8YSS-KC5F-GOSU-OQBZ-COSU-YP5D-GY4U-QPJT-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

61. You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

	a.	If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.
	b.	The present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE.
	c.	The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.
	d.	The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.
	e.	The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD.

ANSWER:	e
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.09 – LO: 4-9
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Annuities
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KP1R

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJT-GA5S-RAT3-CPUG-KCMD-8YSU-GPBS-8RSU-GPB1-GOSU-G3TO-CCSS-CCT1-CPTG-KQJT-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

62. You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

	a.	If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.
	b.	A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ.
	c.	The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.
	d.	The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.
	e.	The present value of ORD exceeds the present value of DUE, while the future value of DUE exceeds the future value of ORD.

ANSWER:	b
POINTS:	1
DIFFICULTY:	Difficulty: Moderate
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.09 – LO: 4-9
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Annuities
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KP1D

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJ1-8YHG-GPDR-CPTD-YQB1-8RSS-NA3O-8RSU-C3TS-GOSU-OA3I-GASS-N3DB-GE5U-O3DD-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

63. Which of the following statements is CORRECT?

	a.	If CF₀ is positive and all the other CFs are negative, then you cannot solve for I.
	b.	If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
	c.	If you have a series of cash flows, and CF₀ is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
	d.	To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
	e.	If you solve for I and get a negative number, then you must have made a mistake.

ANSWER:	d
POINTS:	1
DIFFICULTY:	Difficulty: Challenging
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.14 – LO: 4-14
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Solving for I: uneven CFs
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KPTU

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMD-GEAS-CPBT-CC3U-YCT3-CESS-GP3A-CESU-G3MD-GOSU-1CJ1-CWSU-NC5R-GCHS-EAT1-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

64. Which of the following statements is CORRECT?

	a.	If CF₀ is positive and all the other CFs are negative, then you can still solve for I.
	b.	If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
	c.	If you have a series of cash flows, and CF₀ is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
	d.	To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs. It is impossible to find the value of I without a computer or financial calculator.
	e.	If you solve for I and get a negative number, then you must have made a mistake.

ANSWER:	a
POINTS:	1
DIFFICULTY:	Difficulty: Challenging
QUESTION TYPE:	Multiple Choice
HAS VARIABLES:	False
LEARNING OBJECTIVES:	FMTP.EHRH.17.04.14 – LO: 4-14
NATIONAL STANDARDS:	United States – BUSPROG: Analytic
STATE STANDARDS:	United States – AK – DISC: Time value of money
LOCAL STANDARDS:	United States – OH – Default City – TBA
TOPICS:	Solving for I: uneven CFs
KEYWORDS:	Bloom’s: Analysis
OTHER:	TYPE: Multiple Choice: Conceptual
NOTES:	Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation requirements for this question.
DATE CREATED:	8/26/2015 10:44 AM
DATE MODIFIED:	8/26/2015 10:44 AM
QUESTION ID:	JFND-GO4G-EO5U-KPT1

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJW-8R5U-G3J1-CTTG-C3UN-GCSS-NCTU-8YSU-CCTZ-GOSU-EAJW-GESS-KC3O-CW4D-EP3W-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

65. Which of the following bank accounts has the highest effective annual return?

	a.	An account that pays 8% nominal interest with daily (365-day) compounding.
	b.	An account that pays 8% nominal interest with monthly compounding.
	c.	An account that pays 8% nominal interest with annual compounding.
	d.	An account that pays 7% nominal interest with daily (365-day) compounding.
	e.	An account that pays 7% nominal interest with monthly compounding.

ANSWER:

RATIONALE:

By inspection, we can see that a dominates b and c, and that d dominates e because, with the same interest rate, the account with the most frequent compounding has the highest EFF%. Thus, the correct answer must be either a or d. Moreover, we can see by inspection that since a and d have the same compounding frequency yet a has the higher nominal rate, a must have the higher EFF%. You could also prove that a is the correct choice by calculating the EFF%s:

a.	8.328% = (1 + 0.08/365)³⁶⁵⁻¹
b.	8.300% = (1 + 0.08/12)¹²⁻¹
c.	8.000% = (1 + 0.08/1)¹⁻¹
d.	7.250% = (1 + 0.07/365)³⁶⁵⁻¹
e.	7.229% = (1 + 0.07/12)¹²⁻¹

POINTS:

DIFFICULTY:

Difficulty: Challenging

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.15 – LO: 4-15

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Effective annual rate

KEYWORDS:

Bloom’s: Analysis

OTHER:

TYPE: Multiple Choice: Conceptual

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KPTT

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJA-GOAD-NQBT-CEAS-NCJI-CWSS-EQBZ-CESU-QP5D-GOSS-KC3A-GWSU-RCMR-C31D-EP3Z-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

66. Which of the following bank accounts has the lowest effective annual return?

	a.	An account that pays 8% nominal interest with daily (365-day) compounding.
	b.	An account that pays 8% nominal interest with monthly compounding.
	c.	An account that pays 8% nominal interest with annual compounding.
	d.	An account that pays 7% nominal interest with daily (365-day) compounding.
	e.	An account that pays 7% nominal interest with monthly compounding.

ANSWER:

RATIONALE:

By inspection, we can see that c must have a lower EFF% than either a or b because they all pay the same nominal rate but c is compounded least frequently. Similarly, d and e pay the same rate, but e is compounded less frequently, hence e must have the lower EFF%. So, the correct answer must be either c or e. It is not obvious which of these two has the lower EFF%, so we must do a quick calculation to determine the correct response. As the following calculations show, e is the correct answer.

a.	8.328% = (1 + 0.08/365)³⁶⁵⁻¹
b.	8.300% = (1 + 0.08/12)¹²⁻¹
c.	8.000% = (1 + 0.08/1)¹⁻¹
d.	7.250% = (1 + 0.07/365)³⁶⁵⁻¹
e.	7.229% = (1 + 0.07/12)¹²⁻¹

POINTS:

DIFFICULTY:

Difficulty: Challenging

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.15 – LO: 4-15

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Effective annual rate

KEYWORDS:

Bloom’s: Analysis

OTHER:

TYPE: Multiple Choice: Conceptual

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KPTO

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMF-G7TS-RATZ-GITU-RQJS-CCSU-YC33-CRSU-R3JA-GOSU-E3TU-CCSU-RP3I-8FOU-OCB1-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

67. You plan to invest some money in a bank account. Which of the following banks provides you with the highest effective rate of interest?

	a.	Bank 1; 6.1% with annual compounding.
	b.	Bank 2; 6.0% with monthly compounding.
	c.	Bank 3; 6.0% with annual compounding.
	d.	Bank 4; 6.0% with quarterly compounding.
	e.	Bank 5; 6.0% with daily (365-day) compounding.

ANSWER:

RATIONALE:

By inspection, we can see that e dominates b, c, and d because, with the same interest rate, the account with the most frequent compounding has the highest EFF%. Thus, the correct answer must be either a or e. However, we cannot tell by inspection whether a or e provides the higher EFF%. We know that with one compounding period an EFF% is 6.1%, so we can calculate e’s EFF%. It is 6.183%, so e is the correct answer.

a.	(1 + 0.061/12)¹²⁻¹ = 6.100%
e.	(1 + 0.06/365)³⁶⁵⁻¹ = 6.183%

POINTS:

DIFFICULTY:

Difficulty: Challenging

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.15 – LO: 4-15

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

Effective annual rate

KEYWORDS:

Bloom’s: Analysis

OTHER:

TYPE: Multiple Choice: Conceptual

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KPTZ

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMMF-GRAU-13BW-GR4G-GPB1-8YSU-KPJW-8YSU-OATT-GOSU-OQJ3-CCSU-KPDB-GW3U-QPJT-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

68. Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

	a.	$205.83
	b.	$216.67
	c.	$228.07
	d.	$240.08
	e.	$252.08

ANSWER:

RATIONALE:

N	8
I/YR	8.5%
PV	$125
PMT	$0
FV	$240.08

POINTS:

DIFFICULTY:

Difficulty: Easy

QUESTION TYPE:

Multiple Choice

HAS VARIABLES:

False

LEARNING OBJECTIVES:

FMTP.EHRH.17.04.02 – LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

STATE STANDARDS:

United States – AK – DISC: Time value of money

LOCAL STANDARDS:

United States – OH – Default City – TBA

TOPICS:

FV of a lump sum

KEYWORDS:

Bloom’s: Application

OTHER:

TYPE: Multiple Choice: Problem

DATE CREATED:

8/26/2015 10:44 AM

DATE MODIFIED:

8/26/2015 10:44 AM

QUESTION ID:

JFND-GO4G-EO5U-KPTS

QUESTION GLOBAL ID:

GCID-E7BW-1TBP-GCHS-KCJW-COAD-GPTA-CC5N-4ATU-CJTN-4A3S-CW4N-4PJT-CO41-4CTA-CT1D-OPTO-CTDI-GWN8-EPRW-EMJI-GA3D-NPTS-GA5S-RQMG-GCSS-RP5G-CRSU-GQDD-GOSS-G3MR-GWSU-1PBO-CFTS-GQJO-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

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Financial Management Theory and Practice 15th Edition Eugene Brigham – Test Bank

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