Test Bank for Principals of Finance [Questions and Answers] Complete with all chapters

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Financial managers use the time value of money to: A) make business decisions. B) compare cash flows of different projects. C) determine the price of common stock. D) both A and B. E) all of the ... above. D) both A and B.  The time value of money is created by: A) the existence of profitable investment alternatives and interest rates. B) the fact that the passing of time increases the value of money. C) the elimination of the opportunity cost as a consideration. D) the fact that the value of saving money for tomorrow could be more or less than spending it today. A) the existence of profitable investment alternatives and interest rates.  Which of the following statements is FALSE? A) Quarterly compounding has a higher annual percentage yield than monthly compounding. B) On monthly compounding loans, the annual percentage yield will be less than the nominal or quoted rate of interest. C) Compounding essentially means earning interest on interest on an initial balance. D) Perpetuities pay an equal payment forever. A) Quarterly compounding has a higher annual percentage yield than monthly compounding  An investment has a nominal interest rate of 12% annually, but interest on the investment is compounded monthly. Therefore, the annual percentage yield on the investment is: A) 12%. B) 12.68%. C) 13.89%. D) 12.36%. B) 12.68%.  An investment has a nominal interest rate of 12% annually, but interest on the investment is compounded semiannually. Therefore, the annual percentage yield on the investment is: A) 12%. B) 12.68%. C) 13.89%. D) 12.36%. D) 12.36%.  6) Which of the following provides the greatest annual interest? A) 10%, compounded annually B) 10%, compounded semiannually C) 10%, compounded quarterly D) 10%, compounded monthly E) 10%, compounded daily E) 10%, compounded daily  A bank pays a quoted annual (nominal) interest rate of 4.25%, compounded daily (365-day year). What is the annual percentage yield (APY)? A) 4.25% B) 5.56% C) 4.75% D) 6.20% E) 4.34% E) 4.34%  Northwest Bank pays a quoted annual (nominal) interest rate of 4.75%. However, it pays interest (compounds) daily using a 365-day year. What is the effective annual rate of return (APY)? A) 4.75% B) 5.02% C) 3.61% D) 4.86% D) 4.86%  If you are an investor, which of the following would you prefer? A) Earnings on funds invested would compound annually. B) Earnings on funds invested would compound daily. C) Earnings on funds invested would compound monthly. D) Earnings on funds invested would compound quarterly. B) Earnings on funds invested would compound daily  You have $10,000 to invest. You do not want to take any risk, so you will put the funds in a savings account at the local bank. Of the following choices, which one will produce the largest sum at the end of 22 years? A) An account that compounds interest annually. B) An account that compounds interest daily. C) An account that compounds interest quarterly. D) An account that compounds interest monthly B) An account that compounds interest daily  Which of the following statements is true about the time value of money? A) The future value of a single sum will be greater if funds earn 5% instead of 10%. B) The future value of a single sum will be unaffected by the rate of return at which funds grow. C) The future value of a single sum will be greater if funds earn 12% instead of 6%. D) The future value of a single sum will be unaffected by the length of time funds are invested C) The future value of a single sum will be greater if funds earn 12% instead of 6% [Show More]

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