Question 1

Rule of 72 Approximately how many years does it take to double a $600 investment when interest rates are 6 percent per year?
A)0.08 years
B)8 years
C)8.33 years
D)12 years

Accepted Answer

The answer of Rule of 72 Approximately how many years...

Question 2

Interest-on-Interest Consider a $1,000 deposit earning 7 percent interest per year for four years.How much total interest is earned on the original deposit (excluding interest earned on interest)?
A)$28.00
B)$30.00
C)$280.00
D)$310.00

Accepted Answer

The calculation for total interest earned on the original deposit is:
Year 1: $1,000 x 7% = $70
Year 2: $1,000 x 7% = $70
Year 3: $1,000 x 7% = $70
Year 4: $1,000 x 7% = $70

Total interest earned = $70 + $70 + $70 + $70 = $280 (excluding interest earned on interest)

Question 3

Discounting One Year What is the present value of a $500 payment in one year when the discount rate is 5 percent?
A)$475.00
B)$476.19
C)$500.00
D)$525.00

Accepted Answer

To calculate the present value of a future payment, we use the formula:
PV = FV / (1 + r)^n

Where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods.

In this case, we are discounting one year, so n = 1. The future value is $500 and the discount rate is 5%.

PV = 500 / (1 + 0.05)^1
PV = 500 / 1.05
PV = $476.19

Therefore, the present value of a $500 payment in one year when the discount rate is 5 percent is $476.19. The best choice is B.

Question 4

Rule of 72 Approximately how many years does it take to double a $300 investment when interest rates are 8 percent per year?
A)0.11 years
B)4.17 years
C)9 years
D)11 years

Accepted Answer

The Rule of 72 is a simple way to estimate the number of years required to double an investment at a given annual interest rate. By dividing 72 by the interest rate (8%), you get approximately 9 years.

Question 5

Present Value What is the present value of a $200 payment made in 3 years when the discount rate is 8 percent?
A)$150.00
B)$158.77
C)$251.94
D)$515.42

Accepted Answer

We can use the present value formula: 
PV = FV / (1+r)^n 
where PV is the present value, FV is the future value, r is the discount rate, and n is the number of years.

Plugging in the given values, we get: 
PV = 200 / (1+0.08)^3 
PV = 158.77

Therefore, the present value of the $200 payment made in 3 years at a discount rate of 8% is $158.77. The best choice is B.

Question 6

Interest-on-Interest Consider a $500 deposit earning 5 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest)?
A)$13.14
B)$25.00
C)$125.00
D)$138.14

Accepted Answer

The answer of Interest-on-Interest Consider a $500 deposit earning 5...

Question 7

Discounting One Year What is the present value of a $250 payment in one year when the discount rate is 6 percent?
A)$245.00
B)$235.85
C)$250.00
D)$265.00

Accepted Answer

To calculate the present value, we need to discount the $250 payment using the discount rate of 6 percent. Since we are discounting for one year only, the calculation is simple:
Present value = $250 / (1 + 0.06) = $235.85
Therefore, the best choice is B, as it gives the correct present value of the payment.

Question 8

Present Value What is the present value of a $750 payment made in 3 years when the discount rate is 5 percent?
A)$646.96
B)$647.88
C)$712.50
D)$868.22

Accepted Answer

The answer of Present Value What is the present value...

Question 9

Rule of 72 Approximately what interest rate is needed to double an investment over eight years?
A)8 percent
B)9 percent
C)12 percent
D)100 percent

Accepted Answer

The Rule of 72 is a simple way to estimate the number of years required to double the investment at a given annual rate of return. By dividing 72 by the number of years (8), you get an approximate interest rate of 9 percent needed to double the investment.

Question 10

Compounding with Different Interest Rates A deposit of $700 earns interest rates of 10 percent in the first year and 7 percent in the second year.What would be the second year future value?
A)$771.07
B)$819.00
C)$823.90
D)$1519.00

Accepted Answer

The future value after the first year would be:

FV1 = 700 * (1 + 0.10) = 770

The future value after the second year would be:

FV2 = 770 * (1 + 0.07) = 823.90

Therefore, the second-year future value is $823.90, which corresponds to choice C.

Question 11

Rates over One Year Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.
A)0.89 percent
B)1.12 percent
C)12.00 percent
D)89.00 percent

Accepted Answer

The interest earned is $1,680 - $1,500 = $180. The interest rate is ($180 / $1,500) * 100 = 12.00 percent.

Question 12

Present Value What is the present value of a $500 payment made in 4 years when the discount rate is 8 percent?
A)$365.35
B)$367.51
C)$460.00
D)$680.24

Accepted Answer

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of years. For a $500 payment in 4 years at an 8% discount rate, PV = 500 / (1 + 0.08)^4 = $367.51.

Question 13

Compounding with Different Interest Rates A deposit of $1,000 earns the following interest rates:
8 percent in the first year
7 percent in the second year,and
8 percent in the third year.
What would be the third year future value?
A)$1,082.15
B)$1,230.00
C)$1,248.05
D)$,3030.00

Accepted Answer

Using the formula for compound interest:

FV = PV * (1 + r)^n

where FV is the future value, PV is the present value, r is the interest rate, and n is the number of time periods.

For the first year, 
FV = 1,000 * (1 + 0.08)^1 = 1,080

For the second year, 
FV = 1,080 * (1 + 0.07)^1 = 1,159.60

For the third year, 
FV = 1,159.60 * (1 + 0.08)^1 = 1,248.05

Therefore, the third year future value is $1,248.05.

The best choice is C.

Question 14

Rule of 72 Approximately what interest rate is needed to double an investment over six years?
A)6 percent
B)12 percent
C)17 percent
D)100 percent

Accepted Answer

The doubling time (years) for an investment is calculated by dividing 72 by the interest rate. Thus, for an investment to double in 6 years, the interest rate needed is approximately 12 percent (72/6=12).

Question 15

Rule of 72 Approximately how many years does it take to double a $500 investment when interest rates are 4 percent per year?
A)0.06 years
B)6 years
C)6.94 years
D)18 years

Accepted Answer

The Rule of 72 is a simple way to estimate the number of years required to double an investment at a given annual interest rate. By dividing 72 by the interest rate (4% in this case), you get 18 years.

Question 16

Rates over One Year Determine the interest rate earned on a $450 deposit when $475 is paid back in one year.
A)0.89 percent
B)1.13 percent
C)5.56 percent
D)13.0 percent

Accepted Answer

The interest earned is $475 - $450 = $25. The interest rate is ($25 / $450) * 100 = 5.56 percent.

Question 17

Rates over One Year Determine the interest rate earned on a $500 deposit when $650 is paid back in one year.
A)0.77 percent
B)1.30 percent
C)30.0 percent
D)77.0 percent

Accepted Answer

The interest earned is $650 - $500 = $150. The interest rate is ($150 / $500) * 100% = 30.0 percent.

Question 18

Rule of 72 Approximately what interest rate is needed to double an investment over four years?
A)4 percent
B)18 percent
C)25 percent
D)100 percent

Accepted Answer

The rule of 72 states that if you divide 72 by the annual interest rate, you get the number of years it takes for an investment to double. Thus, for an investment to double in 4 years, the interest rate needs to be roughly 18 percent (72/4=18). So, the best choice is B.

Question 19

Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest)?
A)$60.00
B)$76.45
C)$600.00
D)$676.45

Accepted Answer

The total interest earned on the original deposit is simply the interest earned each year multiplied by the number of years:

Year 1: $2,000 x 0.06 = $120.00
Year 2: $2,000 x 0.06 = $120.00
Year 3: $2,000 x 0.06 = $120.00
Year 4: $2,000 x 0.06 = $120.00
Year 5: $2,000 x 0.06 = $120.00

Total interest earned = $120 x 5 years = $600.00.

We are asked to exclude any interest earned on interest, so the answer is C, $600.00.

Question 20

Compounding with Different Interest Rates A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year.What would be the second year future value?
A)$351.00
B)$353.10
C)$602.17
D)$651.00

Accepted Answer

The future value after the first year is $300 * (1 + 0.07) = $321. The future value after the second year is $321 * (1 + 0.10) = $353.10.

Quiz 4: Time Value of Money

Rule of 72 Approximately how many years does it take to double a $600 investment when interest rates are 6 percent per year?

Interest-on-Interest Consider a $1,000 deposit earning 7 percent interest per year for four years.How much total interest is earned on the original deposit (excluding interest earned on interest) ?

Discounting One Year What is the present value of a $500 payment in one year when the discount rate is 5 percent?

Rule of 72 Approximately how many years does it take to double a $300 investment when interest rates are 8 percent per year?

Present Value What is the present value of a $200 payment made in 3 years when the discount rate is 8 percent?

Interest-on-Interest Consider a $500 deposit earning 5 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest) ?

Discounting One Year What is the present value of a $250 payment in one year when the discount rate is 6 percent?

Present Value What is the present value of a $750 payment made in 3 years when the discount rate is 5 percent?

Rule of 72 Approximately what interest rate is needed to double an investment over eight years?

Compounding with Different Interest Rates A deposit of $700 earns interest rates of 10 percent in the first year and 7 percent in the second year.What would be the second year future value?

Rates over One Year Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.

Present Value What is the present value of a $500 payment made in 4 years when the discount rate is 8 percent?

Compounding with Different Interest Rates A deposit of $1,000 earns the following interest rates: 8 percent in the first year 7 percent in the second year,and 8 percent in the third year. What would be the third year future value?

Rule of 72 Approximately what interest rate is needed to double an investment over six years?

Rule of 72 Approximately how many years does it take to double a $500 investment when interest rates are 4 percent per year?

Rates over One Year Determine the interest rate earned on a $450 deposit when $475 is paid back in one year.

Rates over One Year Determine the interest rate earned on a $500 deposit when $650 is paid back in one year.

Rule of 72 Approximately what interest rate is needed to double an investment over four years?

Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest) ?

Compounding with Different Interest Rates A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year.What would be the second year future value?