Question 1

Five friends all open investment accounts today. Which one will withdraw the largest amount of money from their account assuming that they each withdraw their funds at the end of their initial investment period?
A) John, who invests $1,000 for eight years at 6% simple interest.
B) Terry, who invests $1,000 for four years at 9% with interest compounded annually.
C) Alicia, who invests $800 for ten years at 11% with interest compounded annually.
D) Kristi, who invests $1,200 for six years at 8% simple interest.
E) Roger, who invests $900 for nine years at 9% with interest compounded annually.

Accepted Answer

Alicia's investment grows the most due to the combination of a high interest rate (11%) and the benefit of annual compounding over a ten-year period, which allows interest to be earned on previously earned interest.

Question 2

New Metals, Inc. is planning on expanding their operations when the economy strengthens in a few years. At that time they will need to purchase additional equipment. Four years ago, they set aside $300,000 in a special account for this purpose. Today, that account is worth $383,048.98. What rate of interest is New Metals earning on this money?
A) 5.87%
B) 5.92%
C) 6.26%
D) 6.30%
E) 6.35%

Accepted Answer

The answer of New Metals, Inc. is planning on expanding...

Question 3

Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank should she use if she wishes to maximize her investment?
A) Bank A, which offers a simple rate of 4%.
B) Bank B, which offers a simple rate of 5%.
C) Bank C, which offers a rate of 4% compounded annually.
D) Bank D, which offers a rate of 5% compounded monthly.
E) Bank E, which offers a rate of 5% compounded annually.

Accepted Answer

Bank D, which offers a rate of 5% compounded monthly, will provide the highest return due to the effects of monthly compounding interest, which allows interest to be earned on previously earned interest more frequently than annual compounding.

Question 4

Chia Burgers began operations by opening 115 restaurants in Western Canada at the end of its first year of operations. By the end of year 2, an additional 5 restaurants were opened. By the end of year 3, there were 130 restaurants operational. At the end of year 5, there were 138 total restaurants.

If the number of eating establishments is expected to grow in year 6 at the same rate as the percentage increase in year 5, how many new eating establishments will be added in year 6?
A) 5
B) 6
C) 7
D) 8
E) 9

Accepted Answer

The answer of Chia Burgers began operations by opening 115...

Question 5

The process of accumulating interest on an investment over time to earn more interest is called:
A) Growth.
B) Compounding.
C) Aggregation.
D) Accumulation.
E) Discounting.

Accepted Answer

Compounding refers to the process where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes. This concept is key to the idea of interest on interest, allowing investments to grow at a faster rate.

Question 6

When you were 26 years old, you received an inheritance of $1,500 from your grandfather. You invested that amount in Nu-Wave stock and have not touched the investment since then. Today, this investment is worth $109,533.59. Nu-Wave stock has earned an average rate of return of 11.3% per year over this time period. How old are you today?
A) age 57
B) age 59
C) age 62
D) age 64
E) age 66

Accepted Answer

To find out how old you are today, you can use the formula for compound interest: $A = P(1 + r)^t$, where $A$ is the amount of money accumulated after n years, including interest, $P$ is the principal amount (the initial amount of money), $r$ is the annual interest rate (decimal), and $t$ is the time the money is invested for in years. Rearranging the formula to solve for $t$, we get $t = \frac{\log(A/P)}{\log(1 + r)}$.Given:- $A = \$109,533.59$- $P = \$1,500$- $r = 11.3\% = 0.113$Plugging in the values:$t = \frac{\log(109533.59/1500)}{\log(1 + 0.113)}$$t = \frac{\log(73.02239333)}{\log(1.113)}$$t \approx 40$ yearsSince you were 26 years old when you received the inheritance and invested it, and 40 years have passed since then, you are now:$26 + 40 = 66$ years old.

Question 7

Kay purchased some land costing $124,600. Today, that same land is valued at $179,400. How long has she owned this land if the price of land has been increasing at 6% per year?
A) 5.95 years
B) 6.26 years
C) 6.33 years
D) 6.50 years
E) 6.57 years

Accepted Answer

The answer of Kay purchased some land costing $124,600. Today,...

Question 8

Some time ago, Richard purchased five acres of land costing $123,400. Today, that land is valued at $189,700. How long has he owned this land if the price of land has been increasing at 5.5% per year?
A) 6.01 years
B) 6.98 years
C) 7.42 years
D) 8.03 years
E) 8.67 years

Accepted Answer

The answer of Some time ago, Richard purchased five acres...

Question 9

Approximately 13,500 students enrolled at Kwantlen University five years ago. Today, enrolment reached 18,800 students. Determine the annual growth rate in student enrolment.
A) 5.55%
B) 6.85%
C) 7.65%
D) 8.25%
E) 9.55%

Accepted Answer

The answer of Approximately 13,500 students enrolled at Kwantlen University...

Question 10

The process of finding the present value of some future amount is often called:
A) Growth.
B) Discounting.
C) Accumulation.
D) Compounding.
E) Reduction.

Accepted Answer

Discounting is the process of determining the present value of a future amount by applying a discount rate. It essentially reverses the process of compounding, where you find the future value of a present amount.

Question 11

On your thirteenth birthday, you received $1,000 which you invested at 6.5% interest, compounded annually. Your investment is now worth $5,476. How old are you today?
A) age 29
B) age 32
C) age 35
D) age 37
E) age 40

Accepted Answer

To find out how old you are today, you need to calculate how many years it took for the initial investment of $1,000 to grow to $5,476 at an annual compound interest rate of 6.5%. The formula for compound interest is A = P(1 + r)^n, where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), and n is the number of years the money is invested for.Rearranging the formula to solve for n gives us n = log(A/P) / log(1 + r).Plugging in the values from the problem gives us n = log(5476/1000) / log(1 + 0.065) = log(5.476) / log(1.065) ≈ 27.Since the investment started on your 13th birthday, you add these 27 years to 13 to find out your current age, which is 40.

Question 12

Neal wants to borrow $2,500 and has received the offers from his local banks. Which offer should Neal accept if he wants to repay the loan in one single payment two years from now?
A) Bank A, which offers a simple rate of 4%.
B) Bank B, which offers a simple rate of 5%.
C) Bank C, which offers a rate of 4% compounded annually.
D) Bank D, which offers a rate of 5% compounded annually.
E) Bank E, which offers a rate of 5% compounded monthly.

Accepted Answer

Bank A's offer of a simple rate of 4% will result in the lowest repayment amount because simple interest does not compound, making it cheaper than the other options where interest compounds annually or monthly.

Question 13

On your tenth birthday, you received $100 which you invested at 4.5% interest, compounded annually. That investment is now worth $3,000. How old are you today?
A) age 77
B) age 82
C) age 84
D) age 86
E) age 87

Accepted Answer

To find out how old you are today, you need to calculate how many years it took for the $100 to grow to $3,000 at an annual compound interest rate of 4.5%. The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years.Given that the interest is compounded annually, n = 1. The problem simplifies to finding t in the equation 3000 = 100(1 + 0.045)^t.Solving for t, we get:3000 = 100(1.045)^t30 = (1.045)^tTaking the natural logarithm (ln) of both sides gives:ln(30) = t * ln(1.045)t = ln(30) / ln(1.045)t ≈ 77Since this investment started on your 10th birthday, you add those 77 years to your initial age of 10:10 + 77 = 87Therefore, you are 87 years old today.

Question 14

Five years ago, Precision Tool set aside $50,000 in case of a financial emergency. Today, that account has increased in value to $64,397. What rate of interest is the firm earning on this money?
A) 5.19%
B) 5.47%
C) 6.18%
D) 6.32%
E) 6.45%

Accepted Answer

The answer of Five years ago, Precision Tool set aside...

Question 15

Thirty years ago, an average house cost $120,000 in Vancouver. Now the average house price is $950,000. Determine the annual rate of growth in Vancouver's housing prices.
A) 8.31%
B) 7.14%
C) 6.25%
D) 5.58%
E) 4.63%

Accepted Answer

The answer of Thirty years ago, an average house cost...

Question 16

The price of fuel has tripled over the past fifteen years. Determine the rate of growth over this time period.
A) 7.6%
B) 8.7%
C) 9.6%
D) 10.5%
E) 11.3%

Accepted Answer

The rate of growth can be calculated using the formula for compound annual growth rate (CAGR): CAGR = (Ending Value/Beginning Value)^(1/n) - 1. Here, the ending value is 3 times the beginning value, and n is 15 years. Solving gives approximately 7.6%.

Question 17

Stephen has $2,400 to invest. Which one of the following investment options will produce the largest future value for him?
A) 7% simple interest for 10 years
B) 7%, compounded annually for 10 years
C) 7%, compounded monthly for 12 years
D) 7%, compounded annually for 12 years
E) 7, simple interest for 12 years

Accepted Answer

Compound interest, especially when compounded more frequently (such as monthly), generally yields a higher future value than simple interest or annual compounding over the same or a longer period. Option C, with a 7% interest rate compounded monthly for 12 years, will produce the largest future value due to the effect of compounding interest more frequently over a longer period.

Question 18

Your grandfather placed $2,000 in a trust fund for you. In 10 years the fund will be worth $5,000. What is the rate of return on the trust fund?
A) 5.98%
B) 8.76%
C) 9.60%
D) 9.98%
E) 10.14%

Accepted Answer

The answer of Your grandfather placed $2,000 in a trust...

Question 19

Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment?
A) 8.50%
B) 9.33%
C) 9.50%
D) 9.87%
E) 9.99%

Accepted Answer

To find the average rate of return, we can use the formula:
[(Final value/Initial value)^(1/n) - 1] * 100
where n is the number of years.

In this case, n = 40, Initial value = $2,500, and Final value = $107,921.

Plug in the values and simplify:
[(107,921/2,500)^(1/40) - 1] * 100 = 9.87%

Therefore, the average rate of return is 9.87%.

Question 20

Six years ago, Home Health Industries (HHI) adopted a plan to expand its services next year. At the time the plan was adopted, HHI set aside $125,000 in excess funds to be held for this purpose. As of today, that money has increased in value to $186,408. What rate of interest is the firm earning on these funds?
A) 6.89%
B) 7.10%
C) 7.18%
D) 7.27%
E) 7.43%

Accepted Answer

The answer of Six years ago, Home Health Industries (HHI)...

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

Five friends all open investment accounts today. Which one will withdraw the largest amount of money from their account assuming that they each withdraw their funds at the end of their initial investment period?

Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank should she use if she wishes to maximize her investment?

The process of accumulating interest on an investment over time to earn more interest is called:

Kay purchased some land costing $124,600. Today, that same land is valued at $179,400. How long has she owned this land if the price of land has been increasing at 6% per year?

Some time ago, Richard purchased five acres of land costing $123,400. Today, that land is valued at $189,700. How long has he owned this land if the price of land has been increasing at 5.5% per year?

Approximately 13,500 students enrolled at Kwantlen University five years ago. Today, enrolment reached 18,800 students. Determine the annual growth rate in student enrolment.

The process of finding the present value of some future amount is often called:

On your thirteenth birthday, you received $1,000 which you invested at 6.5% interest, compounded annually. Your investment is now worth $5,476. How old are you today?

Neal wants to borrow $2,500 and has received the offers from his local banks. Which offer should Neal accept if he wants to repay the loan in one single payment two years from now?

On your tenth birthday, you received $100 which you invested at 4.5% interest, compounded annually. That investment is now worth $3,000. How old are you today?

Five years ago, Precision Tool set aside $50,000 in case of a financial emergency. Today, that account has increased in value to $64,397. What rate of interest is the firm earning on this money?

Thirty years ago, an average house cost $120,000 in Vancouver. Now the average house price is $950,000. Determine the annual rate of growth in Vancouver's housing prices.

The price of fuel has tripled over the past fifteen years. Determine the rate of growth over this time period.

Stephen has $2,400 to invest. Which one of the following investment options will produce the largest future value for him?

Your grandfather placed $2,000 in a trust fund for you. In 10 years the fund will be worth $5,000. What is the rate of return on the trust fund?

Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment?