 |
| 1 | |
The future value is the amount an investment is worth after one or more periods. |
| | A) | True |
| | B) | False |
|
|
|
| 2 | |
All else equal, the higher the interest rate, the lower the present value of an amount to be received at some point in the future. |
| | A) | True |
| | B) | False |
|
|
|
| 3 | |
You are choosing between investments offered by two different banks. One bank promises a return of 10 percent for three years based on simple interest while the other offers a return of 10 percent for three years based on compound interest. You should choose the: |
| | A) | simple interest option because both have the same basic interest rate. |
| | B) | compound interest option because it provides a higher return than the simple interest option. |
| | C) | compound interest option only if the compounding is for monthly periods. |
| | D) | simple interest option only if compounding occurs more than once a year. |
| | E) | compound interest option only if you are investing less than $5,000. |
|
|
|
| 4 | |
You received a $1 savings account earning 6 percent on your 1st birthday. How much will you have in the account on your 40th birthday if you do not withdraw any money before then? |
| | A) | $6.70 |
| | B) | $8.40 |
| | C) | $9.70 |
| | D) | $10.02 |
| | E) | $10.29 |
|
|
|
| 5 | |
Your grandfather placed $2,500 in a trust fund for you. In 12 years the fund will be worth $6,000. What is the rate of return on the trust fund? |
| | A) | 5.98 percent |
| | B) | 6.76 percent |
| | C) | 7.57 percent |
| | D) | 7.73 percent |
| | E) | 8.14 percent |
|
|
|
| 6 | |
What is the total future value six years from now of $125 received in one year, $250 received in two years, and $500 received in six years if the discount rate is 9.00 percent? |
| | A) | $1,045.22 |
| | B) | $1,047.93 |
| | C) | $1,145.57 |
| | D) | $1,237.21 |
| | E) | $1,269.15 |
|
|
|
| 7 | |
All else equal, the:
I. present value increases as the discount rate increases.
II. present value increases the further away in time the future value is.
III. present value is always less than the future value when both the interest rate and the number of years are positive. |
| | A) | I only |
| | B) | II only |
| | C) | III only |
| | D) | I and II only |
| | E) | II and III only |
|
|
|
| 8 | |
All County Insurance, Inc., promises to pay Ted $2 million on his 65th birthday in return for a one-time payment of $200,000 today. Ted just turned 25. At what rate of interest would Ted be fairly indifferent between accepting the company's offer and investing the premium on his own? |
| | A) | 2.41 percent |
| | B) | 5.93 percent |
| | C) | 6.18 percent |
| | D) | 6.77 percent |
| | E) | 7.20 percent |
|
|
|
| 9 | |
You just won a prize! You can either receive $950 today or $1,000 in one year. Which option do you prefer and why if you can earn 6 percent on your money? |
| | A) | $950; because it has the higher future value |
| | B) | $950; because you receive it sooner |
| | C) | $1,000; because it is more money |
| | D) | $1,000; because it has the higher future value |
| | E) | either; because both options are of equal value to you |
|
|
|
| 10 | |
In a growing Midwestern town, the number of eating establishments at the end of each of the last five years are as follows: Year 1 = 128; Year 2 = 143; Year 3 = 166; Year 4 = 173; Year 5 = 181. From the end of year 1 to the end of year 5, the number of eating establishments grew at a rate of ________ compounded annually. |
| | A) | 5.52 percent |
| | B) | 6.75 percent |
| | C) | 7.18 percent |
| | D) | 8.72 percent |
| | E) | 9.05 percent |
|
|
.