ECN 801 Final Exam Toronto Metropolitan
University Actual Exam 2026/2027 | Complete
Exam-Style Questions with Detailed Rationales |
Pass Guaranteed – A+ Graded
Section 1: Time Value of Money (Compound Interest, Simple Interest,
Effective Rates, Future Worth, Present Worth, Opportunity Cost)
Q1: If $4,000 is invested today at 12% per annum compounded yearly, what is the future
worth after 6 years?
A. $6,720.00
B. $7,680.00
C. $7,888.32 [CORRECT]
D. $8,000.00
Correct Answer: C
Rationale: Correct because F = P(1+i)^n = 4000(1.12)^6 = 4000 × 1.9738 = $7,888.32.
The compound interest formula accounts for interest earned on interest over the 6-year
period.
Q2: Using simple interest, what is the future value of $2,500 invested at 8% per year for
15 years?
A. $5,200.00
B. $5,500.00 [CORRECT]
C. $7,936.00
D. $8,000.00
Correct Answer: B
Rationale: Correct because F = P + (P × r × n) = 2500 + (2500 × 0.08 × 15) = 2500 + 3000
= $5,500. Simple interest does not earn interest on interest, resulting in a lower return
than compound interest.
Q3: What is the effective annual rate for a nominal rate of 9% compounded monthly?
A. 9.00%
,B. 9.20%
C. 9.38% [CORRECT]
D. 9.50%
Correct Answer: C
Rationale: Correct because i_eff = (1 + r/m)^m - 1 = (1 + 0.09/12)^12 - 1 = (1.0075)^12 -
1 = 0.0938 or 9.38%. The effective rate exceeds the nominal rate due to intra-year
compounding.
Q4: An asset costs $18,000 with a scrap value of $3,000 after 8 years. What is the
annual straight-line depreciation?
A. $1,500.00
B. $1,750.00
C. $1,875.00 [CORRECT]
D. $2,000.00
Correct Answer: C
Rationale: Correct because Annual Depreciation = (Cost - Salvage Value) / Life = (18000
- 3000)/8 = 15000/8 = $1,875. Straight-line depreciation spreads the depreciable
amount evenly over the useful life.
Q5: What is the book value at the end of Year 3 for a $20,000 asset depreciated using
DDB over 5 years?
A. $4,320.00
B. $6,400.00
C. $7,200.00 [CORRECT]
D. $8,000.00
Correct Answer: C
Rationale: Correct because DDB rate = 2/5 = 40%. Year 1: BV = 20000 × 0.60 = $12,000.
Year 2: BV = 12000 × 0.60 = $7,200. Year 3: BV = 7200 × 0.60 = $4,320. Wait, let me
recalculate: Year 1 depreciation = 20000 × 0.40 = 8000, BV1 = 12000. Year 2
depreciation = 12000 × 0.40 = 4800, BV2 = 7200. Year 3 depreciation = 7200 × 0.40 =
2880, BV3 = 4320. The correct answer should be A. Let me fix this.
Actually, let me recalculate carefully. DDB rate = 2/5 = 40%.
● Year 1: Dep = 20000 × 0.40 = 8000, BV1 = 12000
, ● Year 2: Dep = 12000 × 0.40 = 4800, BV2 = 7200
● Year 3: Dep = 7200 × 0.40 = 2880, BV3 = 4320
So BV at end of Year 3 is $4,320. Let me fix the question.
Q5: What is the book value at the end of Year 3 for a $20,000 asset depreciated using
DDB over 5 years?
A. $4,320.00 [CORRECT]
B. $6,400.00
C. $7,200.00
D. $8,000.00
Correct Answer: A
Rationale: Correct because DDB rate = 2/5 = 40%. Year 1: BV = $20,000 × 0.60 =
$12,000. Year 2: BV = $12,000 × 0.60 = $7,200. Year 3: BV = $7,200 × 0.60 = $4,320. The
declining balance method applies a constant rate to the declining book value each
period.
Q6: A bridge costs $8 million to build and will operate forever. At 8% interest, what
annual revenue is required to recover the investment?
A. $640,000 [CORRECT]
B. $800,000
C. $1,000,000
D. $1,200,000
Correct Answer: A
Rationale: Correct because Capitalized Value = Annual Revenue / Interest Rate, so
Annual Revenue = $8,000,000 × 0.08 = $640,000. For a perpetuity, the capitalized value
equals the present worth of infinite equal annual payments.
Q7: If $5,000 is invested at 6% compounded quarterly, what is the future worth after 4
years?
A. $6,200.00
B. $6,341.21 [CORRECT]
C. $6,500.00
D. $6,800.00
Correct Answer: B
, Rationale: Correct because F = P(1+i)^n = 5000(1 + 0.06/4)^(4×4) = 5000(1.015)^16 =
5000 × 1.2682 = $6,341.21. The quarterly compounding increases the effective return
above the nominal 6% rate.
Q8: What is the effective monthly rate when the nominal rate is 18% compounded daily?
A. 1.40%
B. 1.47%
C. 1.50% [CORRECT]
D. 1.55%
Correct Answer: C
Rationale: Correct because i_monthly = (1 + 0.18/365)^30 - 1 = (1.000493)^30 - 1 =
0.0150 or 1.50%. The effective monthly rate accounts for daily compounding over a
30-day period.
Q9: An asset costing $120,000 has a salvage value of $20,000 after 8 years. What is the
declining balance rate?
A. 18.5%
B. 20.0%
C. 22.5% [CORRECT]
D. 25.0%
Correct Answer: C
Rationale: Correct because d = 1 - (Salvage Value / Cost)^(1/n) = 1 -
(20000/120000)^(1/8) = 1 - (0.1667)^0.125 = 1 - 0.775 = 0.225 or 22.5%. The declining
balance rate is derived from the cost and salvage value relationship.
Q10: If Sarah pays $20,000 cash for a car instead of investing it at 4% compounded
monthly for 4 years, what is the opportunity cost?
A. $3,200.00
B. $3,400.00
C. $3,448.32 [CORRECT]
D. $3,600.00
Correct Answer: C
Rationale: Correct because i_eff = (1 + 0.04/12)^12 - 1 = 0.04074; F = 20000(1.04074)^4
= $23,448.32; opportunity cost = $23,448.32 - $20,000 = $3,448.32. Opportunity cost is
the value of the best foregone alternative.
University Actual Exam 2026/2027 | Complete
Exam-Style Questions with Detailed Rationales |
Pass Guaranteed – A+ Graded
Section 1: Time Value of Money (Compound Interest, Simple Interest,
Effective Rates, Future Worth, Present Worth, Opportunity Cost)
Q1: If $4,000 is invested today at 12% per annum compounded yearly, what is the future
worth after 6 years?
A. $6,720.00
B. $7,680.00
C. $7,888.32 [CORRECT]
D. $8,000.00
Correct Answer: C
Rationale: Correct because F = P(1+i)^n = 4000(1.12)^6 = 4000 × 1.9738 = $7,888.32.
The compound interest formula accounts for interest earned on interest over the 6-year
period.
Q2: Using simple interest, what is the future value of $2,500 invested at 8% per year for
15 years?
A. $5,200.00
B. $5,500.00 [CORRECT]
C. $7,936.00
D. $8,000.00
Correct Answer: B
Rationale: Correct because F = P + (P × r × n) = 2500 + (2500 × 0.08 × 15) = 2500 + 3000
= $5,500. Simple interest does not earn interest on interest, resulting in a lower return
than compound interest.
Q3: What is the effective annual rate for a nominal rate of 9% compounded monthly?
A. 9.00%
,B. 9.20%
C. 9.38% [CORRECT]
D. 9.50%
Correct Answer: C
Rationale: Correct because i_eff = (1 + r/m)^m - 1 = (1 + 0.09/12)^12 - 1 = (1.0075)^12 -
1 = 0.0938 or 9.38%. The effective rate exceeds the nominal rate due to intra-year
compounding.
Q4: An asset costs $18,000 with a scrap value of $3,000 after 8 years. What is the
annual straight-line depreciation?
A. $1,500.00
B. $1,750.00
C. $1,875.00 [CORRECT]
D. $2,000.00
Correct Answer: C
Rationale: Correct because Annual Depreciation = (Cost - Salvage Value) / Life = (18000
- 3000)/8 = 15000/8 = $1,875. Straight-line depreciation spreads the depreciable
amount evenly over the useful life.
Q5: What is the book value at the end of Year 3 for a $20,000 asset depreciated using
DDB over 5 years?
A. $4,320.00
B. $6,400.00
C. $7,200.00 [CORRECT]
D. $8,000.00
Correct Answer: C
Rationale: Correct because DDB rate = 2/5 = 40%. Year 1: BV = 20000 × 0.60 = $12,000.
Year 2: BV = 12000 × 0.60 = $7,200. Year 3: BV = 7200 × 0.60 = $4,320. Wait, let me
recalculate: Year 1 depreciation = 20000 × 0.40 = 8000, BV1 = 12000. Year 2
depreciation = 12000 × 0.40 = 4800, BV2 = 7200. Year 3 depreciation = 7200 × 0.40 =
2880, BV3 = 4320. The correct answer should be A. Let me fix this.
Actually, let me recalculate carefully. DDB rate = 2/5 = 40%.
● Year 1: Dep = 20000 × 0.40 = 8000, BV1 = 12000
, ● Year 2: Dep = 12000 × 0.40 = 4800, BV2 = 7200
● Year 3: Dep = 7200 × 0.40 = 2880, BV3 = 4320
So BV at end of Year 3 is $4,320. Let me fix the question.
Q5: What is the book value at the end of Year 3 for a $20,000 asset depreciated using
DDB over 5 years?
A. $4,320.00 [CORRECT]
B. $6,400.00
C. $7,200.00
D. $8,000.00
Correct Answer: A
Rationale: Correct because DDB rate = 2/5 = 40%. Year 1: BV = $20,000 × 0.60 =
$12,000. Year 2: BV = $12,000 × 0.60 = $7,200. Year 3: BV = $7,200 × 0.60 = $4,320. The
declining balance method applies a constant rate to the declining book value each
period.
Q6: A bridge costs $8 million to build and will operate forever. At 8% interest, what
annual revenue is required to recover the investment?
A. $640,000 [CORRECT]
B. $800,000
C. $1,000,000
D. $1,200,000
Correct Answer: A
Rationale: Correct because Capitalized Value = Annual Revenue / Interest Rate, so
Annual Revenue = $8,000,000 × 0.08 = $640,000. For a perpetuity, the capitalized value
equals the present worth of infinite equal annual payments.
Q7: If $5,000 is invested at 6% compounded quarterly, what is the future worth after 4
years?
A. $6,200.00
B. $6,341.21 [CORRECT]
C. $6,500.00
D. $6,800.00
Correct Answer: B
, Rationale: Correct because F = P(1+i)^n = 5000(1 + 0.06/4)^(4×4) = 5000(1.015)^16 =
5000 × 1.2682 = $6,341.21. The quarterly compounding increases the effective return
above the nominal 6% rate.
Q8: What is the effective monthly rate when the nominal rate is 18% compounded daily?
A. 1.40%
B. 1.47%
C. 1.50% [CORRECT]
D. 1.55%
Correct Answer: C
Rationale: Correct because i_monthly = (1 + 0.18/365)^30 - 1 = (1.000493)^30 - 1 =
0.0150 or 1.50%. The effective monthly rate accounts for daily compounding over a
30-day period.
Q9: An asset costing $120,000 has a salvage value of $20,000 after 8 years. What is the
declining balance rate?
A. 18.5%
B. 20.0%
C. 22.5% [CORRECT]
D. 25.0%
Correct Answer: C
Rationale: Correct because d = 1 - (Salvage Value / Cost)^(1/n) = 1 -
(20000/120000)^(1/8) = 1 - (0.1667)^0.125 = 1 - 0.775 = 0.225 or 22.5%. The declining
balance rate is derived from the cost and salvage value relationship.
Q10: If Sarah pays $20,000 cash for a car instead of investing it at 4% compounded
monthly for 4 years, what is the opportunity cost?
A. $3,200.00
B. $3,400.00
C. $3,448.32 [CORRECT]
D. $3,600.00
Correct Answer: C
Rationale: Correct because i_eff = (1 + 0.04/12)^12 - 1 = 0.04074; F = 20000(1.04074)^4
= $23,448.32; opportunity cost = $23,448.32 - $20,000 = $3,448.32. Opportunity cost is
the value of the best foregone alternative.
