Question 1

You want to have $35,000 in cash to buy a car 3 years from today.You expect to earn 3.6 percent,compounded annually,on your savings.How much do you need to deposit today if this is the only money you save for this purpose?
A)$32,618.92
B)$34,511.68
C)$33,726.04
D)$31,476.67
E)$30,156.19

Accepted Answer

The answer of You want to have $35,000 in cash...

Question 2

Suppose that in 2015,a $10 silver certificate from 1898 sold for $11,700.For this to have been true,what would the annual increase in the value of the certificate have been?
A)6.22 percent
B)6.01 percent
C)7.23 percent
D)6.49 percent
E)7.07 percent

Accepted Answer

The answer of Suppose that in 2015,a $10 silver certificate...

Question 3

Assume the total cost of a college education will be $325,000 when your child enters college in 16 years.You presently have $40,000 to invest and do not plan to invest anything further.What annual rate of interest must you earn on your investment to cover the entire cost of your child's college education?
A)12.65 percent
B)10.40 percent
C)13.99 percent
D)14.62 percent
E)11.08 percent

Accepted Answer

Using the compound interest formula, we can solve for the annual interest rate:

$40,000 * (1 + r)^{16} = $325,000

(1 + r)^{16} = 8.125

1 + r = (8.125)^{1/16}

1 + r = 1.1399

r = 0.1399 or 13.99%

Therefore, you must earn an annual interest rate of 13.99% to cover the entire cost of your child's college education. Answer choice C is the best choice.

Question 4

Stephen claims that he invested $6,000 six years ago and that this investment is worth $28,700 today.For this to be true,what annual rate of return did he have to earn? Assume the interest compounded annually.
A)28.87 percent
B)31.39 percent
C)29.80 percent
D)26.01 percent
E)27.87 percent

Accepted Answer

We can use the compounding interest formula A = P(1+r)^n, where A is the final amount, P is the initial investment, r is the annual interest rate, and n is the number of years. 
In this case, we have:
A = $28,700
P = $6,000
n = 6 (since the investment was made 6 years ago)
Using algebra, we can solve for r:
A = P(1+r)^n
$28,700 = $6,000(1+r)^6
(1+r)^6 = 4.7833
1+r = (4.7833)^(1/6)
1+r = 1.298
r = 0.298 = 29.8%
Therefore, Stephen had to earn an annual rate of return of 29.8% to turn his initial investment of $6,000 into $28,700 after 6 years. The answer is C.

Question 5

You have been told that you need $32,000 today for each $100,000 you want when you retire 28 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.
A)4.15 percent
B)4.37 percent
C)4.29 percent
D)4.53 percent
E)4.58 percent

Accepted Answer

The answer of You have been told that you need...

Question 6

Eight years from now,you will be inheriting $100,000.What is this inheritance worth to you today if you can earn 7.25 percent interest,compounded annually?
A)$57,124.39
B)$63,215.46
C)$58,419.05
D)$61,798.47
E)$53,003.15

Accepted Answer

The correct answer is A because $100,000 invested at 7.25% interest, compounded annually, will be worth $57,124.39 in eight years.

Question 7

Isaac only has $1,090 today but needs $1,979 to buy a new computer.How long will he have to wait to buy the computer if he earns 5.4 percent compounded annually on his savings? Assume the price of the computer remains constant.
A)11.83 years
B)11.48 years
C)12.51 years
D)12.77 years
E)11.34 years

Accepted Answer

The answer of Isaac only has $1,090 today but needs...

Question 8

You and your sister are planning a large anniversary party 3 years from today for your parents' 50^th wedding anniversary.You have estimated that you will need $6,500 for this party.You can earn 2.6 percent compounded annually on your savings.How much would you and your sister have to deposit today in one lump sum to pay for the entire party? A)$6,076.55 B)$6,018.26 C)$6,308.16 D)$5,934.90 E)$5,868.81

Accepted Answer

The answer of You and your sister are planning a...

Question 9

You want to have $40,000 for a down payment on a house 4 years from now.If you can earn 5.6 percent,compounded annually on your savings,how much do you need to deposit today to reach your goal?
A)$32,166.54
B)$34,420.73
C)$27,880.69
D)$28,211.17
E)$30,886.40

Accepted Answer

To find the present value, use the formula: PV = FV / (1 + r)^n. Here, FV = $40,000, r = 0.056, and n = 4. Calculating gives PV = $40,000 / (1.056)^4 = $32,166.54.

Question 10

You have $1,500 today in your savings account.How long must you wait for your savings to be worth $4,000 if you are earning 1.1 percent interest,compounded annually?
A)76.68 years
B)79.69 years
C)72.13 years
D)80.57 years
E)89.66 years

Accepted Answer

The answer of You have $1,500 today in your savings...

Question 11

How long will it take to double your savings if you earn 6.4 percent interest,compounded annually?
A)11.89 years
B)12.02 years
C)11.39 years
D)11.17 years
E)10.58 years

Accepted Answer

The answer of How long will it take to double...

Question 12

Starlite Industries will need $2.2 million 4.5 years from now to replace some equipment.Currently,the firm has some extra cash and would like to establish a savings account for this purpose.The account pays 3.6 percent interest,compounded annually.How much money must the company deposit today to fully fund the equipment purchase?
A)$1,679,947.20
B)$1,798,407.21
C)$1,350,868.47
D)$1,876,306.49
E)$1,412,308.18

Accepted Answer

The answer of Starlite Industries will need $2.2 million 4.5...

Question 13

Sixty years ago,your grandparents opened two savings accounts and deposited $250 in each account.The first account was with City Bank at 3.6 percent,compounded annually.The second account was with Country Bank at 3.65 percent,compounded annually.Which one of the following statements is true concerning these accounts? (Do not round intermediate calculations.)
A)The City Bank account is currently worth $2,076.42.
B)The City Bank account has paid $48.19 more in interest than the Country Bank account.
C)The Country Bank account is currently worth $2,170.32.
D)The Country Bank account has paid $72.24 more in interest than the City Bank account.
E)The Country Bank account has paid $61.30 more in interest than the City Bank account.

Accepted Answer

The answer of Sixty years ago,your grandparents opened two savings...

Question 14

Today,Stacy is investing $18,000 at 6.72 percent,compounded annually,for 5 years.How much additional income could she earn if she had invested this amount at 7.15 percent,compounded annually?
A)$43.11
B)$506.06
C)$401.16
D)$442.79
E)$484.08

Accepted Answer

To find the additional income, calculate the future value for both interest rates and find the difference. At 6.72%, the future value is $24,892.92. At 7.15%, the future value is $25,398.98. The difference is $506.06.

Question 15

Your coin collection contains ten 1949 silver dollars.If your grandparents purchased the coins for their face value when they were new,how much will your collection be worth when you retire in 2065,assuming the coins appreciate at an annual rate of 5.1 percent?
A)$3,440.63
B)$2,329.29
C)$3,348.98
D)$3,205.64
E)$2,644.29

Accepted Answer

The answer of Your coin collection contains ten 1949 silver...

Question 16

You're trying to save to buy a new car valued at $48,690.You have $38,000 today that can be invested at your bank.The bank pays 3.7 percent annual interest on its accounts.How long will it be before you have enough to buy the car for cash? Assume the price of the car remains constant.
A)5.13 years
B)9.29 years
C)4.67 years
D)7.08 years
E)6.82 years

Accepted Answer

The answer of You're trying to save to buy a...

Question 17

You have $500 today and want to triple your money in 6 years.What interest rate must you earn if the interest is compounded annually?
A)18.08 percent
B)19.90 percent
C)22.15 percent
D)20.09 percent
E)21.21 percent

Accepted Answer

The answer of You have $500 today and want to...

Question 18

Western Bank pays 5 percent simple interest on its savings account balances,whereas Eastern Bank pays 5 percent compounded annually.If you deposited $6,000in each bank,how much more money would you earn from the Eastern Bank account at the end of 3 years?
A)$55.84
B)$45.75
C)$60.47
D)$40.09
E)$50.14

Accepted Answer

The answer of Western Bank pays 5 percent simple interest...

Question 19

You have just made your first $5,000 contribution to your retirement account.Assuming you earn a rate of return of 5 percent and make no additional contributions,what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?
A)$26,335.37; $23,011.60
B)$27,311.20; $29,803.04
C)$27,311.20; $22,614.08
D)$27,580.08; $21,609.71
E)$31,241.90; $32,614.08

Accepted Answer

The answer of You have just made your first $5,000...

Question 20

At 10 percent interest,how long does it take to triple your money?
A)14.33 years
B)11.53 years
C)9.67 years
D)10.36 years
E)10.56 years

Accepted Answer

The answer of At 10 percent interest,how long does it...

Quiz 4: Introduction to Valuation: The Time Value of Money

You want to have $35,000 in cash to buy a car 3 years from today.You expect to earn 3.6 percent,compounded annually,on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

Suppose that in 2015,a $10 silver certificate from 1898 sold for $11,700.For this to have been true,what would the annual increase in the value of the certificate have been?

Stephen claims that he invested $6,000 six years ago and that this investment is worth $28,700 today.For this to be true,what annual rate of return did he have to earn? Assume the interest compounded annually.

You have been told that you need $32,000 today for each $100,000 you want when you retire 28 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

Eight years from now,you will be inheriting $100,000.What is this inheritance worth to you today if you can earn 7.25 percent interest,compounded annually?

Isaac only has $1,090 today but needs $1,979 to buy a new computer.How long will he have to wait to buy the computer if he earns 5.4 percent compounded annually on his savings? Assume the price of the computer remains constant.

You want to have $40,000 for a down payment on a house 4 years from now.If you can earn 5.6 percent,compounded annually on your savings,how much do you need to deposit today to reach your goal?

You have $1,500 today in your savings account.How long must you wait for your savings to be worth $4,000 if you are earning 1.1 percent interest,compounded annually?

How long will it take to double your savings if you earn 6.4 percent interest,compounded annually?

Today,Stacy is investing $18,000 at 6.72 percent,compounded annually,for 5 years.How much additional income could she earn if she had invested this amount at 7.15 percent,compounded annually?

Your coin collection contains ten 1949 silver dollars.If your grandparents purchased the coins for their face value when they were new,how much will your collection be worth when you retire in 2065,assuming the coins appreciate at an annual rate of 5.1 percent?

You're trying to save to buy a new car valued at $48,690.You have $38,000 today that can be invested at your bank.The bank pays 3.7 percent annual interest on its accounts.How long will it be before you have enough to buy the car for cash? Assume the price of the car remains constant.

You have $500 today and want to triple your money in 6 years.What interest rate must you earn if the interest is compounded annually?

Western Bank pays 5 percent simple interest on its savings account balances,whereas Eastern Bank pays 5 percent compounded annually.If you deposited $6,000in each bank,how much more money would you earn from the Eastern Bank account at the end of 3 years?

You have just made your first $5,000 contribution to your retirement account.Assuming you earn a rate of return of 5 percent and make no additional contributions,what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?

At 10 percent interest,how long does it take to triple your money?