1.

A friend plans to buy a big-screen TV/entertainment system and can afford to set aside $1,320 toward the purchase today. If your friend can earn 5.0%, compounded yearly, how much can your friend spend in four years on the purchase? Round off to the nearest $1.

$1,444

$1,604

$1,764

$1,283

2.

Holding all other variables constant, payment per period for an annuity due will be higher than an ordinary annuity.

True

False

3.

As the discount rate increases, the present value of future cash flows increases.

True

False

4.

Should you prefer to receive $100,000 right now or $10,000 at the end of each of the next 12 years?

$100,000 now

$10,000 at the end of each of the next 12 years

The answer depends on the time value of money.

Either alternative is equally valuable.

5.

A friend of yours would like you to lend him $5,000 today to be paid back in 5 annual payments. What would be the equal annual end-of-year payment on this loan if you charge your friend 7% interest?

		$869.45
		$1,000.00
		$1,219.51
		$1,350.00