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2025 WGU C214 Financial Management
Exam – Verified Questions with 100%
Correct Answers & Step-by-Step
Rationales | A+ Graded
Time Value of Money (10 Questions)
1. What is the future value of $5,000 invested at 6% annual interest, compounded
annually, for 5 years?
a. $6,500.00
b. $6,691.13
c. $6,750.00
d. $6,800.00
Answer: b. $6,691.13
Rationale: Use the future value formula: FV = PV × (1 + r)^n, where PV = $5,000, r =
0.06, n = 5.
FV = 5,000 × (1 + 0.06)^5 = 5,000 × (1.06)^5 = 5,000 × 1.338226 = $6,691.13. Option b
is correct.
2. What is the present value of $10,000 to be received in 3 years at a 4% discount rate,
compounded annually?
a. $8,000.00
b. $8,890.00
c. $8,928.18
d. $9,000.00
Answer: c. $8,928.18
Rationale: Use the present value formula: PV = FV / (1 + r)^n, where FV = $10,000, r =
0.04, n = 3.
PV = 10,000 / (1.04)^3 = 10,.124864 = $8,928.18. Option c is correct.
3. An annuity pays $2,000 annually for 10 years at 5% interest. What is its present
value?
a. $15,000.00
b. $15,443.47
c. $16,000.00
d. $16,453.09
Answer: b. $15,443.47
Rationale: Use the present value of an ordinary annuity formula: PV = C × [(1 - (1 + r)^-
n) / r], where C = $2,000, r = 0.05, n = 10.
PV = 2,000 × [(1 - (1.05)^-10) / 0.05] = 2,000 × [0..05] = 2,000 × 7.721735 =
$15,443.47. Option b is correct.
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4. What is the future value of an annuity of $3,000 paid annually for 4 years at 8%
interest?
a. $12,000.00
b. $13,271.65
c. $13,500.00
d. $14,000.00
Answer: b. $13,271.65
Rationale: Use the future value of an ordinary annuity formula: FV = C × [((1 + r)^n - 1)
/ r], where C = $3,000, r = 0.08, n = 4.
FV = 3,000 × [(1.08^4 - 1) / 0.08] = 3,000 × [(1.360488 - 1) / 0.08] = 3,000 × 4.42372 =
$13,271.65. Option b is correct.
5. If the nominal interest rate is 8% and inflation is 3%, what is the real interest rate?
a. 4.85%
b. 5.00%
c. 5.15%
d. 5.50%
Answer: a. 4.85%
Rationale: Use the Fisher equation: (1 + real rate) = (1 + nominal rate) / (1 + inflation
rate).
(1 + r) = 1..03 = 1.048543. Real rate = 1.048543 - 1 = 0.048543 or 4.85%. Option a
is correct.
6. What is the present value of a perpetuity paying $500 annually at a 6% discount
rate?
a. $7,500.00
b. $8,000.00
c. $8,333.33
d. $8,500.00
Answer: c. $8,333.33
Rationale: Use the perpetuity formula: PV = C / r, where C = $500, r = 0.06.
PV = .06 = $8,333.33. Option c is correct.
7. What is the effective annual rate (EAR) for a 12% nominal rate compounded
monthly?
a. 12.00%
b. 12.68%
c. 13.00%
d. 13.50%
Answer: b. 12.68%
Rationale: Use the EAR formula: EAR = (1 + r/n)^n - 1, where r = 0.12, n = 12.
EAR = (1 + 0.12/12)^12 - 1 = (1.01)^12 - 1 = 1.126825 - 1 = 0.126825 or 12.68%.
Option b is correct.
8. How much must be invested today at 7% interest, compounded annually, to have
$20,000 in 6 years?
a. $12,000.00
b. $13,318.53
c. $14,000.00
d. $15,000.00
2025 WGU C214 Financial Management
Exam – Verified Questions with 100%
Correct Answers & Step-by-Step
Rationales | A+ Graded
Time Value of Money (10 Questions)
1. What is the future value of $5,000 invested at 6% annual interest, compounded
annually, for 5 years?
a. $6,500.00
b. $6,691.13
c. $6,750.00
d. $6,800.00
Answer: b. $6,691.13
Rationale: Use the future value formula: FV = PV × (1 + r)^n, where PV = $5,000, r =
0.06, n = 5.
FV = 5,000 × (1 + 0.06)^5 = 5,000 × (1.06)^5 = 5,000 × 1.338226 = $6,691.13. Option b
is correct.
2. What is the present value of $10,000 to be received in 3 years at a 4% discount rate,
compounded annually?
a. $8,000.00
b. $8,890.00
c. $8,928.18
d. $9,000.00
Answer: c. $8,928.18
Rationale: Use the present value formula: PV = FV / (1 + r)^n, where FV = $10,000, r =
0.04, n = 3.
PV = 10,000 / (1.04)^3 = 10,.124864 = $8,928.18. Option c is correct.
3. An annuity pays $2,000 annually for 10 years at 5% interest. What is its present
value?
a. $15,000.00
b. $15,443.47
c. $16,000.00
d. $16,453.09
Answer: b. $15,443.47
Rationale: Use the present value of an ordinary annuity formula: PV = C × [(1 - (1 + r)^-
n) / r], where C = $2,000, r = 0.05, n = 10.
PV = 2,000 × [(1 - (1.05)^-10) / 0.05] = 2,000 × [0..05] = 2,000 × 7.721735 =
$15,443.47. Option b is correct.
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4. What is the future value of an annuity of $3,000 paid annually for 4 years at 8%
interest?
a. $12,000.00
b. $13,271.65
c. $13,500.00
d. $14,000.00
Answer: b. $13,271.65
Rationale: Use the future value of an ordinary annuity formula: FV = C × [((1 + r)^n - 1)
/ r], where C = $3,000, r = 0.08, n = 4.
FV = 3,000 × [(1.08^4 - 1) / 0.08] = 3,000 × [(1.360488 - 1) / 0.08] = 3,000 × 4.42372 =
$13,271.65. Option b is correct.
5. If the nominal interest rate is 8% and inflation is 3%, what is the real interest rate?
a. 4.85%
b. 5.00%
c. 5.15%
d. 5.50%
Answer: a. 4.85%
Rationale: Use the Fisher equation: (1 + real rate) = (1 + nominal rate) / (1 + inflation
rate).
(1 + r) = 1..03 = 1.048543. Real rate = 1.048543 - 1 = 0.048543 or 4.85%. Option a
is correct.
6. What is the present value of a perpetuity paying $500 annually at a 6% discount
rate?
a. $7,500.00
b. $8,000.00
c. $8,333.33
d. $8,500.00
Answer: c. $8,333.33
Rationale: Use the perpetuity formula: PV = C / r, where C = $500, r = 0.06.
PV = .06 = $8,333.33. Option c is correct.
7. What is the effective annual rate (EAR) for a 12% nominal rate compounded
monthly?
a. 12.00%
b. 12.68%
c. 13.00%
d. 13.50%
Answer: b. 12.68%
Rationale: Use the EAR formula: EAR = (1 + r/n)^n - 1, where r = 0.12, n = 12.
EAR = (1 + 0.12/12)^12 - 1 = (1.01)^12 - 1 = 1.126825 - 1 = 0.126825 or 12.68%.
Option b is correct.
8. How much must be invested today at 7% interest, compounded annually, to have
$20,000 in 6 years?
a. $12,000.00
b. $13,318.53
c. $14,000.00
d. $15,000.00
