Question 1

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned over the same time period?
A) $86.20
B) $92.47
C) $413.80
D) $436.29
E) $500.00

Accepted Answer

To find the simple interest, first determine the compound interest rate using the formula for compound interest: A = P(1 + r)^n. Here, A = $1,500, P = $1,000, and n = 10. Solving for r gives approximately 0.0414 or 4.14%. For simple interest, use I = P * r * t, where P = $1,000, r = 0.0414, and t = 10. This results in $413.80.

Question 2

Today, you earn a salary of $42,500. What will be your annual salary 10 years from now if you earn annual raises of 3.2%?
A) $56,100.00
B) $57,414.06
C) $58,235.24
D) $59,122.08
E) $59,360.45

Accepted Answer

To calculate the future salary, use the formula for compound interest: Future Salary = Present Salary * (1 + raise rate)^number of years. Here, Future Salary = $42,500 * (1 + 0.032)^10 = $58,235.24.

Question 3

Antoinette needs $20,000 as a down payment for a house five years from now. She earns 4% on her savings. Antoinette can either deposit one lump sum today for this purpose or she can wait a year and deposit a lump sum. How much additional money must Antoinette deposit if she waits for one year rather than making the deposit today?
A) $639.19
B) $657.54
C) $658.23
D) $659.04
E) $800.00

Accepted Answer

The answer of Antoinette needs $20,000 as a down payment...

Question 4

Your big brother deposited $10,000 today at 9% interest for 6 years. You would like to have just as much money at the end of the next 6 years as your brother. However, you can only earn 7.5% interest. How much more money must you deposit today than your brother did if you are to have the same amount at the end of the 6 years?
A) $398.68
B) $487.63
C) $575.00
D) $648.21
E) $866.96

Accepted Answer

To solve this problem, we need to calculate the future value of both deposits and then find the difference in the present value required to achieve the same future value at different interest rates.First, calculate the future value of the brother's deposit using the formula for future value: FV = PV * (1 + r)^n, where PV is the present value, r is the annual interest rate, and n is the number of years.For the brother's deposit:PV = $10,000r = 9% or 0.09n = 6 yearsFV = $10,000 * (1 + 0.09)^6 ≈ $16,093.71Next, we need to find out how much you need to deposit to have the same amount in 6 years at a 7.5% interest rate. We already know the future value we want to achieve ($16,093.71), so we rearrange the future value formula to solve for the present value (PV):PV = FV / (1 + r)^nFor your deposit:FV = $16,093.71 (the target future value)r = 7.5% or 0.075n = 6 yearsPV = $16,093.71 / (1 + 0.075)^6 ≈ $10,866.96Finally, to find out how much more you need to deposit than your brother, subtract your brother's initial deposit from your required deposit:$10,866.96 - $10,000 = $866.96Therefore, you must deposit $866.96 more than your brother to have the same amount at the end of 6 years.

Question 5

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned each year over the same time period?
A) $36.97
B) $40.41
C) $40.75
D) $41.38
E) $50.00

Accepted Answer

The answer of An account paying annual compound interest was...

Question 6

Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from now. She can earn 7% on her savings. How much more will she have to deposit if she waits one more year before investing versus if she deposits one lump sum today?
A) $466.44
B) $469.15
C) $470.23
D) $471.08
E) $471.54

Accepted Answer

The correct answer is A because the difference in the amount of money Theresa will have to deposit if she waits one more year before investing versus if she deposits one lump sum today is $466.44. This is because if she waits one more year, she will lose out on one year of interest, which will amount to $466.44.

Question 7

You received a $1 savings account earning 5% on your 1^stbirthday. How much will you have in the account on your 40^thbirthday if you don't withdraw any money before then? A) $5.89 B) $6.34 C) $6.70 D) $7.00 E) $7.04

Accepted Answer

The answer of You received a $1 savings account earning...

Question 8

You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan uses a rate of 4.75% per year, what was contributed into this plan?
A) $4,459
B) $5,800
C) $6,506
D) $7,007
E) $8,576

Accepted Answer

To find the initial contribution for a future value in an educational savings plan, we use the formula for the present value of a single sum, which is $PV = \frac{FV}{(1 + r)^n}$, where $PV$ is the present value or initial contribution, $FV$ is the future value, $r$ is the annual interest rate, and $n$ is the number of years. Plugging in the given values: $PV = \frac{15,000}{(1 + 0.0475)^{18}}$, calculating this gives a present value of approximately $6,506, which is the amount contributed into the plan.

Question 9

Lisa deposited $500 in a savings account this morning. The account pays 2.5% simple interest. If Lisa leaves this money in the account for five years, how much total interest will she earn?
A) $10.75
B) $12.50
C) $53.75
D) $62.50
E) $67.25

Accepted Answer

Simple interest is calculated as principal * rate * time. Here, it's $500 * 0.025 * 5 = $62.50.

Question 10

You will be receiving $2,500 from your family as a graduation present. You have decided to save this money for your retirement. You plan to retire 40 years after graduation. How much additional money will you have at that time if you can earn an average of 12.5% on your investment instead of just 12%?
A) $45,370.08
B) $51,400.62
C) $53,018.97
D) $58,811.99
E) $64,367.48

Accepted Answer

The answer of You will be receiving $2,500 from your...

Question 11

Which of the following will result in a future value greater than $100?
A) $40 deposited now with an annual interest rate of 14% for 8 years.
B) $60 deposited now with an annual interest rate of 12% for 4 years.
C) $60 deposited now with an annual interest rate of 8% for 6 years.
D) $80 deposited now with an annual interest rate of 7% for 3 year.
E) $80 deposited now with an annual interest rate of 10% for 2 year.

Accepted Answer

Using the formula for future value FV = PV * (1 + r)^n, only option A results in a future value greater than $100.

Question 12

Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase in the price of automobiles, how much will a new Suburban cost you five years from now, if today's price is $48,000?
A) $41,405
B) $48,000
C) $54,024
D) $55,200
E) $55,645

Accepted Answer

To calculate the future cost, use the formula for compound interest: Future Value = Present Value * (1 + rate)^n. Here, Present Value = $48,000, rate = 0.03, and n = 5. So, $48,000 * (1.03)^5 = $55,645.

Question 13

Faith invests $4,500 in an account that pays 4% simple interest. How much money will she have at the end of eight years?
A) $4,680
B) $5,367
C) $5,940
D) $6,122
E) $6,159

Accepted Answer

Simple interest is calculated using the formula I = PRT, where P is the principal amount ($4,500), R is the rate (4% or 0.04), and T is the time (8 years). The interest is $4,500 * 0.04 * 8 = $1,440. Adding the interest to the principal gives $4,500 + $1,440 = $5,940.

Question 14

Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you earn annual raises of 3.5%?
A) $47,035.35
B) $47,522.89
C) $47,747.44
D) $48,091.91
E) $48,201.60

Accepted Answer

To calculate the future salary with annual raises, you can use the formula for compound interest: Future Value = Present Value * (1 + rate)^number of periods. Here, Present Value = $28,500, rate = 3.5% or 0.035, and number of periods = 15 years. Plugging these values into the formula gives: Future Salary = $28,500 * (1 + 0.035)^15 ≈ $47,747.44.

Question 15

Today, you earn a salary of $37,800. What will your annual salary be twelve years from now if you receive annual raises of 3.6%?
A) $55,981.03
B) $56,324.17
C) $56,907.08
D) $57,784.17
E) $58,213.46

Accepted Answer

The answer of Today, you earn a salary of $37,800....

Question 16

You own a classic automobile that is currently valued at $39,500. If the value increases by 6% annually, how much will the auto be worth ten years from now?
A) $64,341.34
B) $44,734.42
C) $69,843.06
D) $70,738.48
E) $74,146.93

Accepted Answer

The answer of You own a classic automobile that is...

Question 17

Betty invests $500 in an account that pays 3% simple interest. How much money will Betty have at the end of ten years?
A) $630.00
B) $633.33
C) $650.00
D) $671.96
E) $675.00

Accepted Answer

The answer of Betty invests $500 in an account that...

Question 18

You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw your funds. Given this information calculate the balance at the end of year two.
A) $665,202
B) $632,804
C) $636,549
D) $687,702
E) $693,303

Accepted Answer

The answer of You deposit $500,000 in a higher risk...

Question 19

Cooper invests $6,500 in a savings account at his local bank. The bank pays 2.75% simple interest. Cooper does not make any additional withdrawals or deposits to this account. How much will his account be worth after 12 years?
A) $2,145
B) $2,655
C) $6,679
D) $8,645
E) $9,001

Accepted Answer

The account's worth is calculated using the formula for simple interest: A = P(1 + rt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($6,500), r is the annual interest rate (2.75%, or 0.0275 as a decimal), and t is the time the money is invested for (12 years). Plugging in the values: A = $6,500(1 + 0.0275*12) = $6,500(1 + 0.33) = $6,500 * 1.33 = $8,645.

Question 20

You want to have $10,000 saved ten years from now. How much less do you have to deposit today to reach this goal if you can earn 6% rather than 5% on your savings?
A) $555.18
B) $609.81
C) $615.48
D) $928.73
E) $1,046.22

Accepted Answer

The answer of You want to have $10,000 saved ten...

Quiz 5: Introduction to Valuation: the Time Value of Money

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned over the same time period?

Today, you earn a salary of $42,500. What will be your annual salary 10 years from now if you earn annual raises of 3.2%?

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned each year over the same time period?

Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from now. She can earn 7% on her savings. How much more will she have to deposit if she waits one more year before investing versus if she deposits one lump sum today?

You received a $1 savings account earning 5% on your 1stbirthday. How much will you have in the account on your 40thbirthday if you don't withdraw any money before then?

You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan uses a rate of 4.75% per year, what was contributed into this plan?

Lisa deposited $500 in a savings account this morning. The account pays 2.5% simple interest. If Lisa leaves this money in the account for five years, how much total interest will she earn?

Which of the following will result in a future value greater than $100?

Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase in the price of automobiles, how much will a new Suburban cost you five years from now, if today's price is $48,000?

Faith invests $4,500 in an account that pays 4% simple interest. How much money will she have at the end of eight years?

Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you earn annual raises of 3.5%?

Today, you earn a salary of $37,800. What will your annual salary be twelve years from now if you receive annual raises of 3.6%?

You own a classic automobile that is currently valued at $39,500. If the value increases by 6% annually, how much will the auto be worth ten years from now?

Betty invests $500 in an account that pays 3% simple interest. How much money will Betty have at the end of ten years?

You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw your funds. Given this information calculate the balance at the end of year two.

Cooper invests $6,500 in a savings account at his local bank. The bank pays 2.75% simple interest. Cooper does not make any additional withdrawals or deposits to this account. How much will his account be worth after 12 years?

You want to have $10,000 saved ten years from now. How much less do you have to deposit today to reach this goal if you can earn 6% rather than 5% on your savings?

You received a $1 savings account earning 5% on your 1^stbirthday. How much will you have in the account on your 40^thbirthday if you don't withdraw any money before then?