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Test: Time Value Of Money - CA Foundation MCQ


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10 Questions MCQ Test - Test: Time Value Of Money

Test: Time Value Of Money for CA Foundation 2024 is part of CA Foundation preparation. The Test: Time Value Of Money questions and answers have been prepared according to the CA Foundation exam syllabus.The Test: Time Value Of Money MCQs are made for CA Foundation 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Time Value Of Money below.
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Test: Time Value Of Money - Question 1

What is the total amount accumulated after three years if someone invests $1,000 today with a simple annual interest rate of 5 percent? With a compound annual interest rate of 5 percent?

Detailed Solution for Test: Time Value Of Money - Question 1

Simple Interest Calculation:

- Principal Amount: $1,000
- Annual Interest Rate: 5%
- Time Period: 3 years

Formula for Simple Interest:
Simple Interest = (Principal Amount * Annual Interest Rate * Time Period)

Calculation:
Simple Interest = ($1,000 * 0.05 * 3) = $150

Total Amount Accumulated:
Total Amount = Principal + Simple Interest = $1,000 + $150 = $1,150

Compound Interest Calculation:

- Principal Amount: $1,000
- Annual Interest Rate: 5%
- Time Period: 3 years

Formula for Compound Interest:
Total Amount = Principal * (1 + Annual Interest Rate)^Time Period

Calculation:
Total Amount = $1,000 * (1 + 0.05)^3 = $1,000 * (1.05)^3 = $1,000 * 1.157625 = $1,157.63

Therefore, the total amount accumulated after three years with simple interest is $1,150 and with compound interest is $1,157.63.

Test: Time Value Of Money - Question 2

Which of the following has the largest future value if $1,000 is invested today?

Detailed Solution for Test: Time Value Of Money - Question 2

The option with the largest future value is: Eight years with a compound annual interest rate of 8 percent with a future value of 1850.93

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Test: Time Value Of Money - Question 3

Suppose an investor wants to have $10 million to retire 45 years from now. How much would she have to invest today with an annual rate of return equal to 15 percent?

Detailed Solution for Test: Time Value Of Money - Question 3

Test: Time Value Of Money - Question 4

Which of the following is false?

Test: Time Value Of Money - Question 5

Maggie deposits $10,000 today and is promised a return of $17,000 in eight years. What is the implied annual rate of return?

Detailed Solution for Test: Time Value Of Money - Question 5

Solution: A.

FV=PV(1+k)n

17,000=10,000(1+ k)8

8ln(1+k)=ln(1.7), therefore k=6.86%

Or using a financial calculator (TI BAII Plus),

N=8, PV= –10,000, PMT=0, FV=17,000, CPT I/Y=6.86%

Test: Time Value Of Money - Question 6

To triple $1 million, Mika invested today at an annual rate of return of 9 percent. How long will it take Mika to achieve his goal?

Detailed Solution for Test: Time Value Of Money - Question 6

FV=PV(1+k)n
(3)(1,000,000)=1,000,000(1.09) n
ln(3)=(n)ln(1.09)
n=12.7 years
Or using a financial calculator (TI BAII Plus),
I/Y=9, PV= –1,000,000, PMT=0, FV=3,000,000, CPT N=12.7 years

option "C" 

Test: Time Value Of Money - Question 7

Which of the following concepts is incorrect?

Test: Time Value Of Money - Question 8

Jan plans to invest an equal amount of $2,000 in an equity fund every year-end beginning this year. The expected annual return on the fund is 15 percent. She plans to invest for 20 years. How much could she expect to have at the end of 20 years?

Test: Time Value Of Money - Question 9

Jan plans to invest an equal amount of $2,000 in an equity fund every year-end beginning this year. The expected annual return on the fund is 15 percent. She plans to invest for 20 years. 

What is the present value of Jan’s investments?

Detailed Solution for Test: Time Value Of Money - Question 9

PV20 = PMT[1-(1/(1+k)n)]/k 
= $2,000[1-(1/(1.15)20)]0.15
= 2000(6.25933)
= $12,519

Test: Time Value Of Money - Question 10

What is the present value of a perpetuity with an annual year-end payment of $1,500 and expected annual rate of return equal to 12 percent?

Detailed Solution for Test: Time Value Of Money - Question 10

Correct Answer :- d

Explanation : Present value of perpetuity = Annual payment ÷ Discount Rate 

=> $1500 ÷ 0.12 

= $12500

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