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All else held constant, the future value of a lump-sum investment will decrease if the:


A) amount of the lump-sum investment increases.
B) time period is increased.
C) interest is left in the investment.
D) interest rate increases.
E) interest is changed to simple interest from compound interest.

F) A) and E)
G) None of the above

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E

Kendall is investing $3,333 today at 3 percent annual interest for three years.Which one of the following will increase the future value of that amount?


A) Shortening the investment time period
B) Paying interest only on the principal amount
C) Paying simple interest rather than compound interest
D) Paying interest only at the end of the investment period rather than throughout the investment period
E) Increasing the interest rate

F) None of the above
G) A) and C)

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Jamie earned $14 in interest on her savings account last year.She has decided to leave the $14 in her account so that she can earn interest on the $14 this year.The interest earned on last year's interest earnings is called:


A) simple interest.
B) complex interest.
C) accrued interest.
D) interest on interest.
E) discounted interest.

F) All of the above
G) A) and C)

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Lucas expects to receive a sales bonus of $7,500 one year from now.The process of determining how much that bonus is worth today is called:


A) aggregating.
B) discounting.
C) simplifying.
D) compounding.
E) extrapolating.

F) A) and E)
G) A) and B)

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Katlyn needs to invest $5,318 today in order for her savings account to be worth $8,000 six years from now.Which one of the following terms refers to the $5,318?


A) Present value
B) Compound value
C) Future value
D) Complex value
E) Factor value

F) A) and B)
G) None of the above

Correct Answer

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Which one of the following is a correct statement, all else held constant?


A) The present value is inversely related to the future value.
B) The future value is inversely related to the period of time.
C) The period of time is directly related to the interest rate.
D) The present value is directly related to the interest rate.
E) The future value is directly related to the interest rate.

F) B) and D)
G) A) and E)

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Jenny needs to borrow $5,500 for four years.The loan will be repaid in one lump sum at the end of the loan term.Which one of the following interest rates is best for Jenny?


A) 6.5 percent simple interest
B) 6.5 percent interest, compounded annually
C) 6.6 percent simple interest
D) 6.75 percent interest, compounded annually
E) 6.80 percent interest, compounded annually

F) All of the above
G) A) and D)

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You have $300 today and want to triple your money in 5 years.What interest rate must you earn if the interest is compounded annually?


A) 16.99 percent
B) 23.78 percent
C) 23.28 percent
D) 24.57 percent
E) 31.61 percent

F) All of the above
G) C) and D)

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Marcos is investing $5 today at 7 percent interest so he can have $35 later.This $35 is referred to as the:


A) true value.
B) future value.
C) present value.
D) discounted value.
E) complex value.

F) A) and E)
G) None of the above

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B

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:


A) compounding.
B) factoring.
C) time valuation.
D) simple cash flow valuation.
E) discounted cash flow valuation.

F) C) and E)
G) C) and D)

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Isaac only has $1,090 today but needs $1,979 to buy a new computer.How long will he have to wait to buy the computer if he earns 5.4 percent compounded annually on his savings? Assume the price of the computer remains constant.


A) 11.83 years
B) 11.48 years
C) 12.51 years
D) 12.77 years
E) 11.34 years

F) A) and D)
G) B) and E)

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Jessica invested $2,000 today in an investment that pays 6.5 percent annual interest.Which one of the following statements is correct, assuming all interest is reinvested?


A) She will earn the same amount of interest each year.
B) She could have the same future value and invest less than $2,000 initially if she could earn more than 6.5 percent interest.
C) She will earn an increasing amount of interest each and every year even if she should decide to withdraw the interest annually rather than reinvesting the interest.
D) Her interest for Year 2 will be equal to $2,000 × .065 × 2.
E) She will be earning simple interest.

F) A) and C)
G) A) and E)

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Today, Georgia is investing $24,000 at 5.5 percent, compounded annually, for 6 years.How much additional income could she earn if she had invested this amount at 6.5 percent, compounded annually?


A) $1,515.04
B) $1,927.19
C) $2,007,49
D) $2,515.04
E) $2.927.19

F) None of the above
G) A) and C)

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B

Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually.At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually.At the end of three years:


A) Both Stacey and Kurt will have accounts of equal value.
B) Kurt will have twice the money saved that Stacey does.
C) Kurt will earn exactly twice the amount of interest that Stacey earns.
D) Kurt will have a larger account value than Stacey will.
E) Stacey will have more money saved than Kurt.

F) A) and E)
G) A) and B)

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You are scheduled to receive $5,000 in two years.When you receive it, you will invest it at 6.5 percent per year.How much will your investment be worth eight years from now?


A) $7,295.71
B) $8,274.98
C) $6,850.43
D) $10,665.75
E) $7,302.27

F) A) and B)
G) B) and C)

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Stephen claims that he invested $6,000 six years ago and that this investment is worth $28,700 today.For this to be true, what annual rate of return did he have to earn? Assume the interest compounded annually.


A) 28.87 percent
B) 31.39 percent
C) 29.80 percent
D) 26.01 percent
E) 27.87 percent

F) A) and E)
G) All of the above

Correct Answer

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When you were born, your parents opened an investment account in your name and deposited $1,500 into the account.The account has earned an average annual rate of return of 5.3percent.Today, the account is valued at $42,856.How old are you?


A) 71.47 years
B) 70.67 years
C) 61.08 years
D) 67.33 years
E) 64.91 years

F) B) and C)
G) C) and D)

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You and your sister are planning a large anniversary party 3 years from today for your parents' 50th wedding anniversary.You have estimated that you will need $6,500 for this party.You can earn 2.6 percent compounded annually on your savings.How much would you and your sister have to deposit today in one lump sum to pay for the entire party?


A) $6,076.55
B) $6,018.26
C) $6,308.16
D) $5,934.90
E) $5,868.81

F) A) and B)
G) A) and E)

Correct Answer

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South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts.Northern Bank pays 2.5 percent simple interest on its savings accounts.You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today.The amount you must deposit today:


A) is the same regardless of which bank you choose because they both pay the same rate of interest.
B) is the same regardless of which bank you choose because they both pay simple interest.
C) is the same regardless of which bank you choose because the time period is the same for both banks.
D) will be greater if you invest with South Central Bank.
E) will be greater if you invest with Northern Bank.

F) A) and B)
G) B) and D)

Correct Answer

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Suppose that in 2015, a $10 silver certificate from 1898 sold for $11,700.For this to have been true, what would the annual increase in the value of the certificate have been?


A) 6.22 percent
B) 6.01 percent
C) 7.23 percent
D) 6.49 percent
E) 7.07 percent

F) A) and B)
G) B) and D)

Correct Answer

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