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1 – Note some of the answers are rounded a few dollars.
1. The present value of a single future sum:
a. increases
as the number of discount periods increases.
b. is
generally larger than the future sum.
c. depends
upon the number of discount periods.
d. increases
as the discount rate increases
2. At 8 percent compounded annually, how long
will it take $750 to double?
a. 6.5
years
b. 48
months
c. 9
years
d. 12
years
3. If the interest rate is zero:
a. PV =
FVn
b. PV =
FVn
c. FV =
PV
d. FV =
PV/en
4. You wish to borrow $2,000 to be repaid in 12
monthly installments of $189.12. The annual interest rate is:
a. 24
percent.
b. 8
percent.
c. 18
percent.
d. 12
percent.
5. If you have $20,000 in an account earning 8
percent annually, what constant amount could you withdraw each year and have
nothing remaining at the end of 5 years?
a. $3,525.62
b. $5,008.76
c. $3,408.88
d. $2,465.78
6. You just purchased a parcel of land for
$10,000. If you expect a 12 percent annual rate of return on your investment,
how much will you sell the land for in 10 years?
a. $25,000
b. $31,060
c. $38,720
d. $34,310
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7. A commercial bank will loan you $7,500 for two
years to buy a car. The loan must be repaid in 24 equal monthly payments. The
annual interest rate on the loan is 12 percent of the unpaid balance. How large
are the monthly payments?
a. $282.43
b. $390.52
c. $369.82
d. $353.05
8. Which of the following provides the greatest
annual interest?
a. 10%
compounded annually
b. 9.5%
compounded monthly
c. 9%
compounded daily
9. If you place $50 in a savings account with an
interest rate of 7% compounded weekly, what will the investment be worth at the
end of five years (round to nearest dollar)?
a. $72
b. $70
c. $71
d. $57
10. What is the annual compounded interest rate of
an investment with a stated interest rate of 6% compounded quarterly for 7
years (round to the nearest .1%)?
a. 51.7%
b. 6.7%
c. 10.9%
d. 6.1%
11. If you put $600 in a savings account that
yields an 8% rate of interest compounded weekly, what will the investment be
worth in 37 weeks (round to the nearest dollar)?
a. $648
b. $635
c. $634
d. $645
12. What is the value of $750 invested at 7.5%
compounded quarterly for 4.5 years (round to nearest $1)?
a. $1,048
b. $1,010
c. $1,038
d. $808
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13. If you put $900 in a savings account that
yields 10% compounded semi-annually, how much money will you have in the account
in three years (round to nearest dollar)?
a. $1,340
b. $1,170
c. $1,227
d. $1,206
14. Which of the following provides the greatest
annual yield?
a. 16%
compounded quarterly
b. 15.2%
compounded monthly
c. 15.2%
compounded daily
d. cannot
be determined
15. How much would $1,000 in an account paying 14
percent interest compounded semi-annually accumulate to in 10 years?
a. $2,140
b. $3,707
c. $1,647
d. $3,870
16. If you want to have $90 in four years, how much
money must you put in a savings account today? Assume that the savings account
pays 8.5% and it is compounded monthly (round to the nearest $1).
a. $64
b. $65
c. $66
d. $71
17. What is the present value of $12,500 to be
received 10 years from today? Assume a discount rate of 8% compounded annually
and round to the nearest $10.
a. $5,790
b. $11,574
c. $9,210
d. $17,010
18. If you want to have $1,200 in 27 months, how
much money must you put in a savings account today? Assume that the savings
account pays 14% and it is compounded monthly (round to nearest $10).
a. $910
b. $890
c. $880
d. $860
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19. If you want to have $2,100 in 3 years, how much
money must you put in a savings account today? Assume that the savings account pays
7% and it is compounded quarterly.
a. $1,656
b. $1,705
c. $1,674
d. $1,697
20. What is the present value of an annuity of $27
received at the beginning of each year for the next six years? The first
payment will be received today, and the discount rate is 10% (round to nearest
$10).
a. $120
b. $130
c. $100
d. $110
21. What is the present value of $250 received at
the beginning of each year for 21 years. Assume that the first payment is
received today. Use a discount rate of 12%, and round your answer to the
nearest $10.
a. $1,870
b. $2,090
c. $2,120
d. $2,200
22. What is the present value of an annuity of $100
received at the end of each year for seven years? The first payment will be received
one year from today (round to nearest $10). The discount rate is 13%.
a. $440
b. $43
c. $500
d. $1,040
23. What is the present value of annuity of an $50
received at the end of each year for 3 years? Assume a discount rate of 11%.
The first payment will be received one year from today (round to nearest $1).
a. $68
b. $122
c. $136
d. $110
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24. You are considering two investments: A & B.
Both investments provide a cash flow of $100 per year for n years. However,
investment A receives the cash flow at the beginning of each year, while
investment B receives the cash at the end of each year. If the present value of
cash flows from investment A is P, and the discount rate is r, what is the
present value of the cash flows from investment B?
a. P/(1+r)
b. P(1+r)
c. P/(1+r)n
d. P(1+r)n
25. What is the value on 1/1/85 of the following
cash flows:
Date
Cash Received Amount of Cash
1/1/87 $100
1/1/88 $200
1/1/89 $100
1/1/90 $100
1/1/91 $100
Use
a 10% discount rate, and round your answer to the nearest $10.
a. $490
b. $460
c. $420
d. $450
26. Charlie Stone wants to retire in 30 years, and
he wants to have an annuity of $1000 a year for 20 years after retirement.
Charlie wants to receive the first annuity payment at the end of the 30th year.
Using an interest rate of 10%, how much must Charlie invest today in order to
have his retirement annuity (round to nearest $10).
a. $500
b. $490
c. $540
d. $570
27. If you put $510 in a savings account at the
beginning of each year for 30 years, how much money will be in the account at
the end of the 30th year? Assume that the account earns 5% and round to the
nearest $100.
a. $33,300
b. $32,300
c. $33,900
d. none
of the above
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28. If you put $310 in a savings account at the
beginning of each year for 10 years, how much money will be in the account at
the end of the 10th year? Assume that the account earns 5.5% and round to the
nearest $100.
a. $3,800
b. $3,900
c. $4,000
d. $4,200
29. How much money must you pay into an account at
the beginning of each of 30 years in order to have $10,000 at the end of the 30th
year? Assume that the account pays 11% per annum, and round to the nearest $1.
a. $39
b. $46
c. $50
d. none
of the above
30. How much money must you pay into an account at
the beginning of each of 5 years in order to have $5,000 at the end of the 5th
year? Assume that the account pays 12% per year, and round to the nearest $10.
a. $700
b. $1,390
c. $1,550
d. $790
31. You are going to pay $800 into an account at
the beginning of each of 20 years. The account will then be left to compound
for an additional 20 years. At the end of the 41st year you will begin
receiving a perpetuity from the account. If the account pays 14%, how much each
year will you receive from the perpetuity (round to nearest $1,000)?
a. $140,000
b. $150,000
c. $160,000
d. $170,000
32. You are going to pay $100 into an account at
the beginning of each of the next 40 years. At the beginning of the 41st year
you buy a 30 year annuity whose first payment comes at the end of the 41st year
(the account pays 12%). How much will you receive at the end of the 41st year
(i.e. the first annuity payment). Round to nearest $100.
a. $93,000
b. $7,800
c. $11,400
d. $10,700
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1. c
2. c
3. c
4. a
5. b
6. b
7. d
8. a
9. c
10. d
11. b
12. a
13. d
14. a
15. d
16. a
17. a
18. c
19. b
20. b
21. c
22. a
23. b
24. a
25. c
26. c
27. d
28. d
29. b
30. a
31. c
32. d