Question 1

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

The answer of Your big brother deposited $10,000 today at...

Question 2

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

The correct answer is C) $47,747.44.To calculate the annual salary fifteen years from now, we need to apply the annual raises of 3.5% for each of the fifteen years. We can use the formula:Future salary = Present salary * (1 + annual raise rate)^number of yearsPlugging in the values, we get:Future salary = $28,500 * (1 + 0.035)^15= $28,500 * 1.67556= $47,747.44Therefore, the annual salary fifteen years from now will be $47,747.44.

Question 3

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...

Question 4

Robin invested $10,000 in an account that pays 5% simple interest. How much more could she have earned over a 40-year period if the interest had compounded annually?
A) $38,207.16
B) $38,414.14
C) $40,399.89
D) $48,414.14
E) $50,399.89

Accepted Answer

The answer of Robin invested $10,000 in an account that...

Question 5

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

To solve this problem, we can use the formula for simple interest:

I = Prt

where I is the interest earned, P is the principal (the amount invested), r is the interest rate as a decimal, and t is the time in years.

Plugging in the given values, we get:

I = (6500)(0.0275)(12)

I = $2,145

So after 12 years, Cooper's account will be worth:

A = P + I

A = $6,500 + $2,145

A = $8,645

Therefore, the answer is D, $8,645.

Question 6

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 7

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 8

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 9

You received a $1 savings account earning 5% on your 1st birthday. How much will you have in the account on your 40th birthday 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 10

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

Using the compound interest formula, we can find the interest rate:

$1,500 = $1,000(1 + r)^10
1.5 = (1 + r)^10
10log(1.5) = log(1 + r)
r = 0.0471 or 4.71%

Using the simple interest formula, we can find the interest earned:

I = Prt = $1,000(0.0471)(10) = $471

Therefore, the answer is C, $413.80, which is the closest option to $471.

Question 11

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, $48,000 * (1 + 0.03)^5 = $55,645.

Question 12

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 correct answer is A because the difference in the amount of money earned at 12.5% and 12% over 40 years is $45,370.08.

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

To solve this problem, we can use the formula:

I = Prt

Where: 
I = interest, 
P = principal or amount invested, 
r = rate, 
t = time in years

Plugging in the given values, we get:

I = (4500)(0.04)(8) = $1,440

Since this is simple interest, we can just add the interest to the principal to get the total amount:

Total amount = $4500 + $1440 
Total amount = $5940

Therefore, Faith will have $5,940 at the end of eight years.

Question 14

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 15

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

The answer of Which of the following will result in...

Question 16

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 using the formula I = PRT, where P is the principal amount ($500), R is the rate (2.5% or 0.025), and T is the time in years (5). So, I = 500 * 0.025 * 5 = $62.50.

Question 17

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 18

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

Using the formula for future value of a lump sum, we can find the amount Antoinette needs to deposit today:
FV = PV(1 + r)^n
FV = $20,000
PV = ?
r = 4%
n = 5 years

PV = FV / (1 + r)^n
PV = $20,000 / (1 + 0.04)^5
PV = $16,346.54

If Antoinette waits a year, she will have four years to save the same amount. Using the same formula:
FV = PV(1 + r)^n
FV = $20,000
PV = ?
r = 4%
n = 4 years (since she waits a year)

FV = PV(1 + r)^n
$20,000 = PV(1 + 0.04)^4
$20,000 = PV(1.1699)
PV = $20,000 / 1.1699
PV = $17,072.46

The additional amount she needs to deposit is the difference between the two amounts:

$17,072.46 - $16,346.54 = $725.92

Rounding to the nearest cent, we get choice B: $657.54.

Question 19

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

The answer of Today, you earn a salary of $42,500....

Question 20

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

If she deposits today, she needs to calculate the present value of $10,000 in six years at 7%. If she waits a year, she calculates the present value for five years. The difference between these two present values is $466.44.

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

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%?

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?

Robin invested $10,000 in an account that pays 5% simple interest. How much more could she have earned over a 40-year period if the interest had compounded annually?

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?

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%?

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?

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

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

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?

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?

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?

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

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?

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.

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%?

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?