Question 1

Which of the following bank accounts has the lowest effective annual return?

Accepted Answer

The lowest effective annual return is obtained when interest is compounded most frequently. Therefore, option D - An account that pays 7% nominal interest with monthly compounding - has the lowest effective annual return.

Question 2

deposit $500 today in a savings account that pays 3.5% interest, compounded annually.How much will your account be worth at the end of 25 years?

Accepted Answer

The answer of deposit $500 today in a savings account...

Question 3

plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?

Accepted Answer

Bank 5 provides the highest effective rate of interest because it compounds daily, which means that the interest is being calculated and added to the account balance every day. This results in a higher effective rate of interest compared to the other banks that compound less frequently.

Question 4

Suppose you have $1,500 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually.How much will you have when the CD matures?

Accepted Answer

The answer of Suppose you have $1,500 and plan to...

Question 5

much would $1, growing at 3.5% per year, be worth after 75 years?

Accepted Answer

The answer of much would $1, growing at 3.5% per...

Question 6

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 7

year Tempe Corporation's sales were $525 million.If sales grow at 7.5% per year, how large (in millions) will they be 8 years later?

Accepted Answer

To find the future sales, use the formula for compound growth: Future Value = Present Value * (1 + growth rate)^number of years. Here, Future Value = $525 million * (1 + 0.075)^8 = $936.33 million.

Question 8

year Rocco Corporation's sales were $225 million.If sales grow at 6% per year, how large (in millions) will they be 5 years later?

Accepted Answer

The answer of year Rocco Corporation's sales were $225 million.If...

Question 9

Suppose a State of California bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

Accepted Answer

The answer of Suppose a State of California bond will...

Question 10

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 11

Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually.How much will you have when the CD matures?

Accepted Answer

The answer of Suppose you have $2,000 and plan to...

Question 12

Ellen now has $125.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Accepted Answer

We can solve this using the formula A=P(1+r/n)^(nt) where A is the ending amount, P is the principal (starting amount), r is the annual interest rate (as a decimal), n is the number of times the interest is compounded in a year, and t is the number of years. Plugging in the given values, we get A=125(1+0.085/1)^(1*8)=$240.08.

Question 13

now has $500.How much would he have after 6 years if he leaves it invested at 5.5% with annual compounding?

Accepted Answer

The answer of now has $500.How much would he have...

Question 14

much would $100, growing at 5% per year, be worth after 75 years?

Accepted Answer

The answer of much would $100, growing at 5% per...

Question 15

Which of the following bank accounts has the highest effective annual return?

Accepted Answer

The account with 8% nominal interest and daily compounding (365-day) has the highest effective annual return because the more frequent the compounding, the greater the effective annual return.

Question 16

deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually.How much will your account be worth at the end of 25 years?

Accepted Answer

The answer of deposit $1,000 today in a savings account...

Question 17

Suppose a State of New York bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 5.5%, how much is the bond worth today?

Accepted Answer

The answer of Suppose a State of New York bond...

Question 18

are considering two equally risky annuities, each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

Accepted Answer

The present value of an annuity due will always be greater than the present value of an ordinary annuity due to the fact that each payment is received one period earlier. Therefore, the present value of DUE exceeds the present value of ORD. Additionally, since the two annuities are equally risky and offer the same payments and duration, the only difference between the two is the timing of payments. Therefore, the future value of DUE will also exceed the future value of ORD. Option D is the only choice that reflects both of these facts.

Option E is incorrect because the difference between the present values of the two annuities will decrease as the interest rate decreases, as the value of earlier cash flows increase at a lower interest rate.

Question 19

much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?

Accepted Answer

The answer of much would $20,000 due in 50 years...

Question 20

are considering two equally risky annuities, each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

Accepted Answer

An annuity due has payments at the beginning of each period, leading to a higher present value compared to an ordinary annuity, where payments are at the end. Therefore, a rational investor would pay more for an annuity due.

Quiz 4: Time Value of Money

Which of the following bank accounts has the lowest effective annual return?

deposit $500 today in a savings account that pays 3.5% interest, compounded annually.How much will your account be worth at the end of 25 years?

plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?

Suppose you have $1,500 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually.How much will you have when the CD matures?

much would $1, growing at 3.5% per year, be worth after 75 years?

Which of the following statements is CORRECT?

year Tempe Corporation's sales were $525 million.If sales grow at 7.5% per year, how large (in millions) will they be 8 years later?

year Rocco Corporation's sales were $225 million.If sales grow at 6% per year, how large (in millions) will they be 5 years later?

Suppose a State of California bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

Which of the following statements is CORRECT?

Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually.How much will you have when the CD matures?

Ellen now has $125.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

now has $500.How much would he have after 6 years if he leaves it invested at 5.5% with annual compounding?

much would $100, growing at 5% per year, be worth after 75 years?

Which of the following bank accounts has the highest effective annual return?

deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually.How much will your account be worth at the end of 25 years?

Suppose a State of New York bond will pay $1,000 ten years from now.If the going interest rate on these 10-year bonds is 5.5%, how much is the bond worth today?

are considering two equally risky annuities, each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?

are considering two equally risky annuities, each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?