Question 1

A summary measure of an investment's projected performance based on the possible rates of return and the likelihood of those rates of return occurring is called:
A)inflation rate of return
B)relative risk rate of return
C)expected rate of return
D)risk-free rate of return

Accepted Answer

The summary measure described in the question is commonly known as the "expected rate of return." It takes into account both the potential rates of return and the probability of those returns occurring, making it a useful tool for evaluating investment opportunities. The other answer options, such as the inflation rate of return, relative risk rate of return, and risk-free rate of return, all refer to different concepts related to investments but do not fully capture the summary measure as described in the question.

Question 2

In compound interest calculations,as the frequency of compounding decreases,the:
A)total amount of interest decreases
B)interest rate increases
C)total amount of interest increases
D)the interest rate decreases

Accepted Answer

When the frequency of compounding decreases, the total amount of interest earned over the same period also decreases because interest is being added to the principal less frequently, leading to less interest on interest accumulation.

Question 3

Sphinx Enterprises is contemplating investing in a copper mine.An investment of $750,000 would be made for one year with the following potential outcomes:  The expected rate of return for this investment is:
A)22.0%
B)15.5%
C)62.0%
D)8.3%

Accepted Answer

A

Question 4

Art Burtscher has a choice of investing $10,000 at either 5% simple interest or 5% compound interest that is compounded annually.What will be the difference between
The total amount of interest earned after two years?
A)No difference
B)$25
C)$50
D)$100

Accepted Answer

The answer of Art Burtscher has a choice of investing...

Question 5

The future value of a $7,000 investment at the end of 4 years with an interest rate of 6% compounded annually is:
A)$8,680.00
B)$8,837.50
C)$5,544.70
D)$8,867.60

Accepted Answer

Use the formula FV = PV x (1 + r)^n, where PV is the present value, r is the interest rate, and n is the number of periods. Substituting the given values, we get FV = 7,000 x (1 + 0.06)^4 = $8,837.50. Therefore, the best choice is B.

Question 6

Which of the following is NOT true about compound interest
A)As the number of compoundings increases the annual effective interest rate increases
B)As the number of compoundings increases the incremental amount of interest
Increases
C)As the number of compoundings increases the total amount of interest increases
D)As the number of compoundings increases the interest rate remains the same

Accepted Answer

The incremental amount of interest for each compounding period does not necessarily increase as the number of compoundings increases. Instead, the effect of compounding more frequently is to increase the overall effective interest rate, leading to a higher total amount of interest over the entire period, but not necessarily increasing the incremental interest amount with each compounding period.

Question 7

Yar Ebadi lost $5,000 on an investment which represented a 10% negative rate of return after one year.How much did Yar invest?
A)$55,000
B)$45,000
C)$50,000
D)Can not be determined given the information available

Accepted Answer

We can use the formula for rate of return:

(rate of return) = (ending value - beginning value) / beginning value

We know the rate of return (-10%) and the loss ($5,000), so we can set up an equation:

-0.1 = (-$5,000) / beginning value

Solving for beginning value:

beginning value = ($5,000) / 0.1 = $50,000

Therefore, Yar invested $50,000. The answer is C.

Question 8

Vladimir Boscak invested $35,000 on March 1,2009,and in return he received a total of $39,600,which he collected on March 1,2010.The rate of return on Vladimir's investment was:
A)11.6%
B)13.1%
C)12.3%
D)7.6%

Accepted Answer

The answer of Vladimir Boscak invested $35,000 on March 1,2009,and...

Question 9

Ople Brown made an investment on November 1,2009 which yielded $15,000 and a 10% return on November 1,2010.How much did Ople invest?
A)$150,000
B)$140,000
C)$160,000
D)$155,000

Accepted Answer

The answer of Ople Brown made an investment on November...

Question 10

The rate of return is calculated as:
A)(dollar amount of average investment)x (dollar amount of return)
B)(present value of $1)/(dollar amount of average investment)
C)(dollar amount of return)/(dollar amount of initial investment)
D)(future value of $1)x (dollar amount of initial investment)

Accepted Answer

The rate of return is calculated as the dollar amount of return divided by the dollar amount of initial investment. This gives a percentage representing the profit or loss on the investment.

Question 11

In compound interest calculations,as the frequency of compounding increases,the:
A)total amount of interest decreases
B)annual interest rate increases
C)total amount of interest increases
D)the interest rate decreases

Accepted Answer

In compound interest calculations, the more often the interest is compounded, the more interest is earned, resulting in an increase in the total amount of interest over time. Therefore, the correct choice is C.

Question 12

Ivan Valentine made $4,000 on an investment which yielded an 8% return after 1 year. How much did Ivan invest?
A)$40,000
B)$50,000
C)$60,000
D)$70,000

Accepted Answer

To find out how much Ivan invested, we can use the formula:

Interest = Principal x Rate x Time

We know the interest earned ($4,000), the rate (8%), and the time (1 year). Let's plug in those values and solve for the principal:

$4,000 = Principal x 0.08 x 1

$4,000 = 0.08 Principal

Principal = $4,000 ÷ 0.08

Principal = $50,000

Therefore, Ivan must have invested $50,000. Out of the answer choices given, the best choice is B.

Question 13

Adam Gross invested $2,500 on July 1,2009,and in return he received a total of $2,850,which he collected on July 1,2010.The rate of return on Adam's investment was:
A)13.1%
B)12.3%
C)7.1%
D)14.0%

Accepted Answer

The answer of Adam Gross invested $2,500 on July 1,2009,and...

Question 14

When an investment loses money,the amount of money lost is called?
A)A return on investment
B)A return of investment
C)An investment risk
D)An investment casualty

Accepted Answer

When an investment loses money, it is referred to as a "return of investment" as the investor is receiving back less money than what was originally invested. A return on investment refers to the profit earned from an investment, an investment risk is the potential for loss in an investment, and an investment casualty is not a commonly used term in finance.

Question 15

Bobby Bell has $500,000 and is considering investing in a project that would yield the following returns one year from today:  The expected return for this investment is:
A)$57,000
B)$45,000
C)$17,000
D)$32,000

Accepted Answer

The answer of Bobby Bell has $500,000 and is considering...

Question 16

Dan Short invested $7,000 on October 1,2009,and in return he received a total of $6,200,which he collected on October 1,2010.The rate of return on Dan's investment was:
A)(12.9%)
B)12.9%
C)11.4%
D)(11.4%)

Accepted Answer

The rate of return is calculated as (Final Value - Initial Investment) / Initial Investment. Here, it is ($6,200 - $7,000) / $7,000 = -11.4%. The negative sign indicates a loss.

Question 17

Interest calculated only on the amount borrowed is referred to as:
A)compound interest
B)risk-free interest
C)inflation interest
D)simple interest

Accepted Answer

Simple interest is calculated only on the amount borrowed, without any additional compounding. Compound interest refers to interest that is calculated on both the principal amount and any accumulated interest, while risk-free interest and inflation interest refer to different types of interest rates.

Question 18

A measure of the performance of investments on a common-size basis which eliminates the distortion caused by the size of the initial investment is referred to as:
A)rate of return
B)risk premium ratio
C)return of capital
D)rate of inflation

Accepted Answer

Rate of return on a common-size basis is a useful metric to compare the returns of different investments accurately, eliminating the effect of the initial investment size. It is calculated by dividing the total return by the initial investment and expressing the result as a percentage. This metric is commonly used by investors to evaluate the profitability of their investments and guide future investment decisions.

Question 19

Bobby Bell has $500,000 and is considering investing in a project that would yield the following returns one year from today:  The expected rate of return for this investment is:
A)11.4%
B)9%
C)3.4%
D)6.4%

Accepted Answer

The answer of Bobby Bell has $500,000 and is considering...

Question 20

All of the following are primary risk factors that generate risk premiums except:
A)inflation risk
B)business risk
C)relative risk
D)liquidity risk

Accepted Answer

The answer of All of the following are primary risk...

Quiz 11: Time Value of Money

A summary measure of an investment's projected performance based on the possible rates of return and the likelihood of those rates of return occurring is called:

In compound interest calculations,as the frequency of compounding decreases,the:

Sphinx Enterprises is contemplating investing in a copper mine.An investment of $750,000 would be made for one year with the following potential outcomes: The expected rate of return for this investment is:

Art Burtscher has a choice of investing $10,000 at either 5% simple interest or 5% compound interest that is compounded annually.What will be the difference between The total amount of interest earned after two years?

The future value of a $7,000 investment at the end of 4 years with an interest rate of 6% compounded annually is:

Which of the following is NOT true about compound interest

Yar Ebadi lost $5,000 on an investment which represented a 10% negative rate of return after one year.How much did Yar invest?

Vladimir Boscak invested $35,000 on March 1,2009,and in return he received a total of $39,600,which he collected on March 1,2010.The rate of return on Vladimir's investment was:

Ople Brown made an investment on November 1,2009 which yielded $15,000 and a 10% return on November 1,2010.How much did Ople invest? A)$150,000 B)$140,000 C)$160,000 D)$155,000

The rate of return is calculated as:

In compound interest calculations,as the frequency of compounding increases,the:

Ivan Valentine made $4,000 on an investment which yielded an 8% return after 1 year. How much did Ivan invest?

Adam Gross invested $2,500 on July 1,2009,and in return he received a total of $2,850,which he collected on July 1,2010.The rate of return on Adam's investment was:

When an investment loses money,the amount of money lost is called?

Bobby Bell has $500,000 and is considering investing in a project that would yield the following returns one year from today: The expected return for this investment is:

Dan Short invested $7,000 on October 1,2009,and in return he received a total of $6,200,which he collected on October 1,2010.The rate of return on Dan's investment was:

Interest calculated only on the amount borrowed is referred to as:

A measure of the performance of investments on a common-size basis which eliminates the distortion caused by the size of the initial investment is referred to as:

Bobby Bell has $500,000 and is considering investing in a project that would yield the following returns one year from today: The expected rate of return for this investment is:

All of the following are primary risk factors that generate risk premiums except: