accounts data bank

| August 14, 2017

1. Which of the following statements
is CORRECT?

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

2. 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 in situations where some of the cash flows occur annually
but others occur quarterly.
d. Time lines
can be constructed for annuities where the payments occur at either the
beginning or the end of the periods.
e. Some of the
cash flows shown on a time line can be in the form of annuity payments, but
none can be uneven amounts.

3. 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 can 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 cannot be constructed where some of the payments
constitute an annuity but others are unequal and thus are not part of the
annuity.

4. 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.

5. 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 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.
b. The discount rateincreases.
c. The riskiness of the investment’s cash flows decreases.
d. 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.
e. The discount rate decreases.

6. 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 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.
b. The discount rate decreases.
c. The riskiness of the investment’s cash
flows increases.
d. 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.
e. The discount rate increases.

7. Your bank account pays a 6% nominal
rate of interest. The interest is
compounded quarterly. Which of the
following statements is CORRECT?

a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
b. The periodic rate of interest is 6% and the
effective rate of interest is greater than 6%.
c. The periodic rate of interest is 1.5% and
the effective rate of interest is greater than 6%.
d. The periodic rate of interest is 3% and the effective rate of interest is 6%.
e. The periodic rate of interest is 6% and the effective rate of interest is also 6%.

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

9. A
$50,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

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

10. A $150,000 loan is to be amortized over 7 years, with
annual end-of-year payments. Which of these
statements is CORRECT?

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

11. Which of the following statements regarding a 15-year (180-month)
$125,000, fixed-rate mortgage is CORRECT?
(Ignore taxes and transactions costs.)

a. The remaining balance after three years
will be $125,000 less one third of the interest paid during the first three
years.
b. Because it is a fixed-rate mortgage, the
monthly loan payments (which include both interest and principal payments) are
constant.
c. Interest payments on the mortgage will
increase steadily over time, but the total amount of each payment will remain
constant.
d. 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.
e. The outstanding balance declines at a
slower rate in the later years of the loan’s life.

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