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Post-Test
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1
Compounding is the process of accumulating interest in an investment over time to earn more interest.
A)True
B)False
2
If a lump sum of $5,000 is invested for four years at 10 percent compounded annually, it will earn total simple interest of $2,320.50 over that period.
A)True
B)False
3
The present value discount factor:
A)is greater than 1.0.
B)is equal to zero when the discount rate is zero.
C)increases as the time period increases.
D)decreases as the discount rate increases.
E)increases as the amount invested increases.
4
What is the future value of $15,000 received today if it is invested at 5.5 percent compounded annually for six years?
A)$15,831.00
B)$19,950.00
C)$20,682.64
D)$21,820.19
E)$23,784.59
5
What is the future value at the end of year four of the following set of end-of-year cash flows? Assume an interest rate of 8 percent.

YearCash Flow
1 $1,000
2-$1,000
3 $1,000
4-$1,000

A)$0.00
B)$127.38
C)$173.31
D)$379.41
E)$3,312.13
6
Assuming a 3 percent annual increase in the price of automobiles, how much will a new BMW cost you 5 years from now if today's price is $42,000?
A)$36,230
B)$40,779
C)$46,575
D)$48,300
E)$48,690
7
Five years ago, $1,200 was deposited into a savings account paying 4.5 percent interest. Today, the balance in the account is $1,495. If interest paid on the account was compounded annually, how much interest on interest was earned?
A)$25.00
B)$93.10
C)$102.39
D)$130.28
E)$295.00
8
An account was opened with an investment of $500 three years ago. The account pays 3.75 percent simple interest. How much simple interest was earned in year 3?
A)$18.75
B)$40.41
C)$40.75
D)$58.61
E)$56.25
9
Given the following end-of-year cash flows, what is the present value of the second cash flow if the discount rate is 7 percent?

YearCash Flow
1$600
2$650
3$800

A)$560.75
B)$567.74
C)$607.48
D)$641.32
E)$653.04
10
A savings account, which started with a balance of $500, has the following end of year balances: Year 1 = $525; Year 2 = $550; Year 3 = $580; Year 4 = $612; Year 5 = $700. No withdrawals were made over the life of the account. During year 2, the account earned:
A)4.76 percent.
B)4.83 percent.
C)4.91 percent.
D)5.10 percent.
E)5.25 percent.





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