Multiple Choice Questions

1. In solving uniform series problems, n in the standard factor notation equation is equal to the number of arrows (i.e., cash flows) in the original cash flow diagram when:

(a) The payment period (PP) is longer than the compounding period (CP).

(b) The compounding period is equal to the payment period.

(c) Both (a) and (b) are correct.

(d) The compounding period is longer than the payment period.

2. A company that makes flange-mount, motorized rotary potentiometers expects to spend $50,000 for a certain machine 4 years from now. At an interest rate of 12% per year, compounded quarterly, the present worth of the machine's cost is represented by the following equation:

(a) P = 50,000(P/F, 3%, 16)

(b) P = 50,000(P/F, effective i/6 months, 8)

(c) P = 50,000(P/F, effective i/year, 4)

(d) Any of the above

3. For the cash flow diagram shown, the unit of the payment period (PP) is:

(a) Months

(b) Quarters

(c) Semiannual

(d) Years

4. A small company plans to spend $10,000 in year 2 and $10,000 in year 5. At an interest rate of effective 10% per year, compounded semiannually, the equation that represents the equivalent annual worth A in years 1 through 5 is:

(a) A = 10,000(P/F, 10%, 2)(A/P, 10%, 5) + 10,000(A/F, 10%, 5)

(b) A= 10,000(A/P, 10%, 4) + 10,000 (A/F, 10%, 5)

(c) A = 10,000(P/F, 5%, 2)(A/P, 5%, 10) + 10,000(A/F, 5%, 10)

(d) A = [10,000(F/P, 10%, 5) + 10,000](A/F,10%, 5)

5. Assume you make monthly deposits of $200 starting one month from now into an account that pays 6% per year, compounded semiannually. If you want to know the total after 4 years, the value of n you should use in the F/A factor is:

(a) 2

(b) 4

(c) 8

(d) 12

F-? 1- 1% month per 5 6 7 8 9 10 11 + 12 Quarter 3 4 3 Year $400 $400 $420 $440 $460 $480 $500