Question 1

Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent.

Accepted Answer

A)  PV = $600 (1 + .06) 7
B)  PV = $600 (1 + .07) 6
C)  PV = $600 × (.07 × 6) 
D)  PV = $600/(1 + .07) 6
E)  PV = $600/(1 + 6) .07F) B) and E)
G) B) and C)

Question 2

At 10 percent interest, how long does it take to triple your money?

Accepted Answer

A)  14.33 years
B)  11.53 years
C)  9.67 years
D)  10.36 years
E)  10.56 yearsF) A) and D)
G) C) and D)

Question 3

The present value of a lump-sum future amount:

Accepted Answer

A)  increases as the interest rate decreases.
B)  decreases as the time period decreases.
C)  is inversely related to the future value.
D)  is directly related to the interest rate.
E)  is directly related to the time period.F) A) and E)
G) B) and E)

Question 4

You have just made your first $5,000 contribution to your retirement account.Assuming you earn a rate of return of 5 percent and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?

Accepted Answer

A)  $26,335.37; $23,011.60
B)  $27,311.20; $29,803.04
C)  $27,311.20; $22,614.08
D)  $27,580.08; $21,609.71
E)  $31,241.90; $32,614.08F) A) and E)
G) A) and C)

Question 5

Travis invests $5,500 today into a retirement account.He expects to earn 9.2 percent, compounded annually, on his money for the next 13 years.After that, he wants to be more conservative, so only expects to earn 6 percent, compounded annually.How much money will he have in his account when he retires 25 years from now, assuming this is the only deposit he makes into the account?

Accepted Answer

A)  $29,411.20
B)  $34,747.80
C)  $34,616.56
D)  $41,919.67
E)  $42,003.12F) A) and B)
G) A) and C)

Question 6

You just won $17,500 and deposited your winnings into an account that pays 6.7 percent interest, compounded annually.How long will you have to wait until your winnings are worth $50,000?

Accepted Answer

A)  15.1 years
B)  15.31 years
C)  15.52 years
D)  15.73 years
E)  16.19 yearsF) A) and B)
G) A) and D)

Question 7

Lester had $6,270 in his savings account at the beginning of this year.This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year.This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant.This $282.15 is best described as:

Accepted Answer

A)  simple interest.
B)  interest on interest.
C)  discounted interest.
D)  complex interest.
E)  compound interest.F) C) and D)
G) A) and E)

Question 8

Tomas earned $89 in interest on his savings account last year and has decided to leave the $86 in his account this coming year so it will earn interest.This process of earning interest on prior interest earnings is called:

Accepted Answer

A)  discounting.
B)  compounding.
C)  duplicating.
D)  multiplying.
E)  indexing.F) A) and D)
G) C) and D)

Question 9

Which one of the following will increase the present value of a lump-sum future amount to be received in 15 years?

Accepted Answer

A)  An increase in the time period
B)  An increase in the interest rate
C)  A decrease in the future value
D)  A decrease in the interest rate
E)  Changing to compound interest from simple interestF) D) and E)
G) C) and E)

Question 10

Your coin collection contains ten 1949 silver dollars.If your grandparents purchased the coins for their face value when they were new, how much will your collection be worth when you retire in 2065, assuming the coins appreciate at an annual rate of 5.1 percent?

Accepted Answer

A)  $3,440.63
B)  $2,329.29
C)  $3,348.98
D)  $3,205.64
E)  $2,644.29F) D) and E)
G) B) and C)

Question 11

You have been told that you need $15,000 today for every $50,000 you want when you retire 30 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

Accepted Answer

A)  4.09 percent
B)  4.15 percent
C)  4.37 percent
D)  4.29 percent
E)  4.53 percentF) C) and D)
G) A) and D)

Question 12

What is the future value of $8,000 invested today and held for 15 years at 8.5 percent compounded annually?

Accepted Answer

A)  $25,377.35
B)  $27,197.94
C)  $29,139.86
D)  $29,509.77.
E)  $29,139.86.F) C) and D)
G) A) and B)

Question 13

Sixty years ago, your grandparents opened two savings accounts and deposited $250 in each account.The first account was with City Bank at 3.6 percent, compounded annually.The second account was with Country Bank at 3.65 percent, compounded annually.Which one of the following statements is true concerning these accounts? (Do not round intermediate calculations.)

Accepted Answer

A)  The City Bank account is currently worth $2,076.42.
B)  The City Bank account has paid $48.19 more in interest than the Country Bank account.
C)  The Country Bank account is currently worth $2,170.32.
D)  The Country Bank account has paid $72.24 more in interest than the City Bank account.
E)  The Country Bank account has paid $61.30 more in interest than the City Bank account.F) None of the above
G) A) and B)

Question 14

You want to have $35,000 in cash to buy a car 3 years from today.You expect to earn 3.6 percent, compounded annually, on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

Accepted Answer

A)  $32,618.92
B)  $34,511.68
C)  $33,726.04
D)  $31,476.67
E)  $30,156.19F) B) and D)
G) B) and E)

Question 15

Lew has $3,600 that he wants to invest for 5 years.He can invest this amount at his credit union and earn 2.2 percent simple interest.Or, he can open an account at Compass Bank and earn 2.15 percent interest, compounded annually.If he decides to invest at Compass Bank for 5 years, he will:

Accepted Answer

A)  earn $6 more than if he had invested with his credit union.
B)  earn $8 more than if he had invested with his credit union.
C)  earn the same amount as if he had invested with the credit union.
D)  have a total balance of $3,680 in his account after one year.
E)  have a total balance of $4,012 in his account after 5 years.F) A) and B)
G) D) and E)

Question 16

Roberto just deposited $11,500 into his savings account at Security Savings Bank.The bank will pay ..55 percent interest, compounded annually, on this account.How much interest on interest will he earn over the next 6 years?

Accepted Answer

A)  $6.78
B)  $9.5.26
C)  $87.03
D)  $7.60
E)  $7.84F) None of the above
G) C) and D)

Question 17

You have $12,500 you want to invest for the next 30 years.You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years.How much will you have at the end of the 45 years?

Accepted Answer

A)  $101,516.38
B)  $119,874.49
C)  $151,018.51
D)  $190,253.91
E)  $209,092.54F) D) and E)
G) C) and D)

Question 18

The future value of a lump-sum investment will increase if you:

Accepted Answer

A)  decrease the interest rate.
B)  decrease the number of compounding periods.
C)  increase the time period.
D)  decrease the time period.
E)  decrease the lump-sum amount.F) A) and B)
G) B) and D)

Question 19

Today, you deposit $2,500 in a bank account that pays 3.6 percent simple interest.How much interest will you earn over the next 5 years?

Accepted Answer

A)  $90.00
B)  $120.00
C)  $450.00
D)  $483.59
E)  $492.27F) A) and B)
G) A) and E)

Question 20

Rob wants to invest $15,000 for 7 years.Which one of the following rates will provide him with the largest future value?

Accepted Answer

A)  3 percent simple interest
B)  3 percent interest, compounded annually
C)  2 percent interest, compounded annually
D)  4 percent simple interest
E)  4 percent interest, compounded annuallyF) A) and E)
G) A) and D)

Exam 4: Introduction to Valuation: the Time Value of Money

Correct Answer
verified

You have $12,500 you want to invest for the next 30 years.You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years.How much will you have at the end of the 45 years?

Correct Answer
verified

You have been told that you need $15,000 today for every $50,000 you want when you retire 30 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

Correct Answer
verified

Correct Answer
verified

You have just made your first $5,000 contribution to your retirement account.Assuming you earn a rate of return of 5 percent and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?

Correct Answer
verified

Tomas earned $89 in interest on his savings account last year and has decided to leave the $86 in his account this coming year so it will earn interest.This process of earning interest on prior interest earnings is called:

Correct Answer
verified

Today, you deposit $2,500 in a bank account that pays 3.6 percent simple interest.How much interest will you earn over the next 5 years?

Correct Answer
verified

The future value of a lump-sum investment will increase if you:

Correct Answer
verified

At 10 percent interest, how long does it take to triple your money?

Correct Answer
verified

You want to have $35,000 in cash to buy a car 3 years from today.You expect to earn 3.6 percent, compounded annually, on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

Correct Answer
verified

The present value of a lump-sum future amount:

Correct Answer
verified

Lew has $3,600 that he wants to invest for 5 years.He can invest this amount at his credit union and earn 2.2 percent simple interest.Or, he can open an account at Compass Bank and earn 2.15 percent interest, compounded annually.If he decides to invest at Compass Bank for 5 years, he will:

Correct Answer
verified

Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent.

Correct Answer
verified

Rob wants to invest $15,000 for 7 years.Which one of the following rates will provide him with the largest future value?

Correct Answer
verified

Roberto just deposited $11,500 into his savings account at Security Savings Bank.The bank will pay ..55 percent interest, compounded annually, on this account.How much interest on interest will he earn over the next 6 years?

Correct Answer
verified

Your coin collection contains ten 1949 silver dollars.If your grandparents purchased the coins for their face value when they were new, how much will your collection be worth when you retire in 2065, assuming the coins appreciate at an annual rate of 5.1 percent?

Correct Answer
verified

Correct Answer
verified

You just won $17,500 and deposited your winnings into an account that pays 6.7 percent interest, compounded annually.How long will you have to wait until your winnings are worth $50,000?

Correct Answer
verified

What is the future value of $8,000 invested today and held for 15 years at 8.5 percent compounded annually?

Correct Answer
verified

Which one of the following will increase the present value of a lump-sum future amount to be received in 15 years?

Correct Answer
verified

Exam 4: Introduction to Valuation: the Time Value of Money

Correct AnswerverifiedShow Answer

You have $12,500 you want to invest for the next 30 years.You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years.How much will you have at the end of the 45 years?

Correct AnswerverifiedShow Answer

You have been told that you need $15,000 today for every $50,000 you want when you retire 30 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You have just made your first $5,000 contribution to your retirement account.Assuming you earn a rate of return of 5 percent and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?

Correct AnswerverifiedShow Answer

Tomas earned $89 in interest on his savings account last year and has decided to leave the $86 in his account this coming year so it will earn interest.This process of earning interest on prior interest earnings is called:

Correct AnswerverifiedShow Answer

Today, you deposit $2,500 in a bank account that pays 3.6 percent simple interest.How much interest will you earn over the next 5 years?

Correct AnswerverifiedShow Answer

The future value of a lump-sum investment will increase if you:

Correct AnswerverifiedShow Answer

At 10 percent interest, how long does it take to triple your money?

Correct AnswerverifiedShow Answer

You want to have $35,000 in cash to buy a car 3 years from today.You expect to earn 3.6 percent, compounded annually, on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

Correct AnswerverifiedShow Answer

The present value of a lump-sum future amount:

Correct AnswerverifiedShow Answer

Lew has $3,600 that he wants to invest for 5 years.He can invest this amount at his credit union and earn 2.2 percent simple interest.Or, he can open an account at Compass Bank and earn 2.15 percent interest, compounded annually.If he decides to invest at Compass Bank for 5 years, he will:

Correct AnswerverifiedShow Answer

Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent.

Correct AnswerverifiedShow Answer

Rob wants to invest $15,000 for 7 years.Which one of the following rates will provide him with the largest future value?

Correct AnswerverifiedShow Answer

Roberto just deposited $11,500 into his savings account at Security Savings Bank.The bank will pay ..55 percent interest, compounded annually, on this account.How much interest on interest will he earn over the next 6 years?

Correct AnswerverifiedShow Answer

Your coin collection contains ten 1949 silver dollars.If your grandparents purchased the coins for their face value when they were new, how much will your collection be worth when you retire in 2065, assuming the coins appreciate at an annual rate of 5.1 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You just won $17,500 and deposited your winnings into an account that pays 6.7 percent interest, compounded annually.How long will you have to wait until your winnings are worth $50,000?

Correct AnswerverifiedShow Answer

What is the future value of $8,000 invested today and held for 15 years at 8.5 percent compounded annually?

Correct AnswerverifiedShow Answer

Which one of the following will increase the present value of a lump-sum future amount to be received in 15 years?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified