## Description

Test: Week 3 Test

When dealing in the area of finance, individuals and financial managers might ask questions such as: In which type of interest-bearing account should I invest my funds? If I need to save $20,000 in 3 years, how much do I need to put away if I can earn 5% interest? Should our company finance a new operation and, if so, what is the best method to estimate its profitability? To answer these questions with confidence and accuracy, individual investors and financial managers rely on the concepts of time value of money and utilize capital budgeting methods.

This 20-question test is worth 120 points and contains a series of multiple-choice and true/false questions related to this week’s content: time value of money and capital budgeting.

By Day 7

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__Test Information__

Description | Complete this 20-question Test to demonstrate your understanding of the concepts presented this week. |

Instructions | Answer each of the following questions and click Submit when you have completed the Test. |

Timed Test | This test has a time limit of 2 hours and 30 minutes.You will be notified when time expires, and you may continue or submit. Warnings appear when half the time, 5 minutes, 1 minute, and 30 seconds remain. |

Multiple Attempts | Not allowed. This test can only be taken once. |

Force Completion | This test can be saved and resumed later. The timer will continue to run if you leave the test. |

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**QUESTION 1**

The net present value increases when there is also an increase in the required rate of return.

True

False

**6 points **

**QUESTION 2**

When the discount rate for a project results in zero cash flows from assets, this is the definition of an internal rate of return.

True

False

**6 points **

**QUESTION 3**

Of the various methods of capital budgeting, which one is considered to be the superior method to analyze a project or investment?

A. | Profitability Index | |

B. | Net Present Value | |

C. | Payback | |

D. | Internal Rate of Return |

**6 points **

**QUESTION 4**

If the payment for an annuity is lowered, this will also create a reduction in the annuity’s present value.

True

False

**6 points **

**QUESTION 5**

How many years does it take to save $1,284 if you start with $625 and earn a 9% annual interest rate?

A. | 11.35 years | |

B. | 8.35 years | |

C. | 9.25 years | |

D. | 8.50 years |

**6 points **

**QUESTION 6**

Medical bills are an example of an annuity.

True

False

**6 points **

**QUESTION 7**

When the monthly interest rate of a credit card is multiplied by 12, this is referred to as the _____.

A. | effective annual rate | |

B. | compounded rate | |

C. | fixed rate | |

D. | annual percentage rate |

**6 points **

**QUESTION 8**

Kirsten and Tanner will celebrate their 30th wedding anniversary in a few years, and their four children want to surprise them with a cruise. The children prefer to save the money together and then purchase the tickets in 3 years. The children will be able to earn 6% interest on their investment. At the end of the first year, the oldest child will contribute $1,000. The two middle children will contribute $1,600 at the end of the second year. At the end of the third year, the youngest child will contribute $600. When the siblings purchase the tickets at the end of the third year, how much money will they be able to spend on the cruise?

A. | $3,455.60 | |

B. | $3,356.00 | |

C. | $3,419.60 | |

D. | $3,200.00 |

**6 points **

**QUESTION 9**

What would the net present value of an investment be if it produces a return that is equivalent to the required return?

A. | The net present value of the investment would be zero. | |

B. | The net present value would reflect a larger number than what was initially invested. | |

C. | The net present value would be negative. | |

D. | The net present value would be the same as the net profit. |

**6 points **

**QUESTION 10**

If you were determining whether to proceed with a project, which of the following statements would cause you to reject it?

A. | The requirement period is longer than the payback period. | |

B. | There is a Net Present Value that is positive. | |

C. | The requirement of the average accounting return is exceeded. | |

D. | There is a Profitability Index that is less than 1. |

**6 points **

**QUESTION 11**

The value created per dollar invested is known as the _____.

A. | future value | |

B. | profitability index | |

C. | annuity | |

D. | net present value |

**6 points **

**QUESTION 12**

You have a present value of $432, future value of $896, and 10 years as the number of periods. What is the interest rate?

A. | 8.57% | |

B. | 7.57% | |

C. | 7.69% | |

D. | 7.75% |

**6 points **

**QUESTION 13**

When a scholarship offers a set amount per month, paid on the first of the month, and extends for a certain period of time (e.g., $325 a month for 36 months), which of the following is the best way to describe the payments for this type of scholarship?

A. | The payments for this type of scholarship are an example of ordinary annuity. | |

B. | The payments for this type of scholarship are an example of perpetuity due. | |

C. | The payments for this type of scholarship are an example of annuity due. | |

D. | The payments for this type of scholarship are an example of ordinary perpetuity. |

**6 points **

**QUESTION 14**

When the payback method is used, which advantage does this create?

A. | Initial cost of the investment is ignored | |

B. | Time value of money is accounted for | |

C. | Ease of use | |

D. | Only returns for the designated period are accounted for |

**6 points **

**QUESTION 15**

When monthly interest is expressed as only being compounded annually, this is known as the annual percentage rate.

True

False

**6 points **

**QUESTION 16**

Jonathan is purchasing a car and plans to finance it. He decides to take out a 6-year loan, which will mean that his monthly payments are $345. Which of the following terms can be used to describe his car payments?

A. | Perpetuity | |

B. | Annuity | |

C. | Factor | |

D. | Lump sum |

**6 points **

**QUESTION 17**

What is the future value of $6,500 invested for 7 years at 10% compounded annually?

A. | $13,525 | |

B. | $12,565 | |

C. | $12,667 | |

D. | $11,325 |

**6 points **

**QUESTION 18**

When a trust fund is established to provide annual scholarships indefinitely, which of the following is the best way to describe the scholarships?

A. | The annual scholarships are an example of perpetuity. | |

B. | The annual scholarships are an example of annuity due. | |

C. | The annual scholarships are an example of an amortized payment. | |

D. | The annual scholarships are an example of ordinary annuity. |

**6 points **

**QUESTION 19**

You deposit $3,325 in a bank account that pays 3% simple interest. How much interest will you earn over the next 7 years?

A. | $698.25 | |

B. | $355.25 | |

C. | $256.00 | |

D. | $524.50 |

**6 points **

**QUESTION 20**

If an inheritance is compounded annually at 11% and reaches a total of $100,000 after 21 years, what would the starting amount of the investment be?

A. | $9,852 | |

B. | $11,476 | |

C. | $11,174 | |

D. | $13,146 |

**6 points **

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