Question 1

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account.If your accountant is correct,then what is the current interest rate?

Accepted Answer

We can use the formula for compound interest to solve this problem:

A = P(1 + r/n)^(nt)

where A is the final amount, P is the initial balance, r is the interest rate, n is the number of times interest is compounded per year, and t is the time period in years.

In this case, we know that P = $800, A = $898.88, n = 1 (annual compounding), and t = 2 years. We can solve for r by plugging in these values and solving for r:

$898.88 = $800(1 + r/1)^(1*2)
$898.88/$800 = (1 + r)^2
1.1236 = (1 + r)^2
sqrt(1.1236) = 1 + r
1.0604 = 1 + r
r = 0.0604 = 6.04%

Rounding to the nearest whole percent, we get an answer of 6 percent, which corresponds to choice A. Therefore, A is the best choice.

Question 2

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

Accepted Answer

The answer of Your financial advisor tells you that if...

Question 3

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the largest sum when he retires?

Accepted Answer

The answer of Al,Ralph,and Stan are all intending to retire.Each...

Question 4

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Accepted Answer

We can use the compound interest formula to solve this problem:
A = P(1 + r/n)^(nt)
Where:
A = Final amount after 10 years = $983.58
P = Principal amount (initial balance) = $500
r = Annual interest rate (what we want to find)
n = Number of times interest is compounded per year (unknown, but we can assume it's once per year)
t = Time in years = 10

Plugging in the numbers:
$983.58 = $500(1 + r/1)^(1*10)
1.96716 = (1 + r)
r = 0.96716 (converted from decimal to percentage)
r = 9.6716%
Therefore, the current rate of interest is about 7 percent (choice C).

Question 5

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years,you will have $944.78 in your account.If your accountant is correct,then what is the current interest rate?

Accepted Answer

The future value formula is FV = PV * (1 + r)^n. Plugging in the values: $944.78 = $750 * (1 + r)^3. Solving for r gives approximately 8 percent.

Question 6

Sage decides to cash in all his savings to open a recording studio.He has three accounts to cash in.The first earned 9 percent for two years.The second earned 6 percent for three years.And the last earned 3 percent for six years.Supposing he started with $5,000 in each account,from which account will he get the most cash?

Accepted Answer

The answer of Sage decides to cash in all his...

Question 7

Two years ago Lenny put some money into an account.He earned 6 percent interest on this account and now he has about $1,000.About how much did Lenny deposit into his account two years ago?

Accepted Answer

The answer of Two years ago Lenny put some money...

Question 8

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

The correct expression for finding the present value of a future payment is to divide the future value by (1 + interest rate) to the power of the number of periods. In this case, we only have one period (one year), so the expression is $1,000/(1.06). This gives a present value of $943.40.

Question 9

When he was 18,Hussam put $100 into an account at an interest rate of 8 percent.He now has $158.69 in this account.For how many years did Hussam leave this money in his account?

Accepted Answer

The answer of When he was 18,Hussam put $100 into...

Question 10

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,917.66.What rate of interest did Robert earn?

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The answer of Robert put $15,000 into an account with...

Question 11

You are given three options.You may have the balance in an account that has been collecting 5 percent interest for 20 years,the balance in an account that has been collecting 10 percent interest for 10 years,or the balance in an account that has been collecting 20 percent interest for five years.Each account had the same original balance.Which account now has the lowest balance?

Accepted Answer

The balance in the account that has been collecting 20 percent interest for five years will have the lowest balance. This is because it has the highest interest rate and the shortest time frame. In contrast, the account that has been collecting 5 percent interest for 20 years has the lowest interest rate and the longest time frame, so it will have the highest balance. The account that has been collecting 10 percent interest for 10 years is in between and does not have the lowest balance.

Question 12

You want to have $100,000 in five years.If the interest rate is 8 percent,about how much do you need to have today?

Accepted Answer

The answer of You want to have $100,000 in five...

Question 13

The price of a bond is equal to the sum of the present values of its future payments.Suppose a certain bond pays $50 one year from today and $1,050 two years from today.What is the price of the bond if the interest rate is 5 percent?

Accepted Answer

The answer of The price of a bond is equal...

Question 14

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate.How much money do you have in your account now?

Accepted Answer

To calculate the amount in the account after two years with an 8% annual interest rate, use the formula for compound interest: A = P(1 + r)^n, where P is the principal amount ($20,000), r is the interest rate (0.08), and n is the number of years (2). A = 20000(1 + 0.08)^2 = 20000(1.1664) = $23,328.00.

Question 15

Daniel has $300 in a bank account.Some years ago he put $213.20 into this account,and it has earned 5 percent interest every year since then.How many years ago did Daniel open his account?

Accepted Answer

The answer of Daniel has $300 in a bank account.Some...

Question 16

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

Accepted Answer

The answer of Tonya put $250 into an account three...

Question 17

On May 25,1980 three pals graduated from high school,pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2010 they withdrew all the money from the account.To the nearest dollar,how much did they withdraw?

Accepted Answer

To find the amount of money in the account after 30 years, we use the formula for compound interest:

A = P(1 + r/n)^(nt)

where A is the amount of money in the account after t years, P is the initial amount invested, r is the annual interest rate (as a decimal), n is the number of times the interest is compounded per year, and t is the number of years the money is invested.

In this case, P = $3,000, r = 0.08, n = 1 (compounded annually), and t = 30. Plugging in these values, we get:

A = $3,000(1 + 0.08/1)^(1*30) = $30,188.

To the nearest dollar, the pals withdrew $30,188 from the account. Therefore, the best choice is C.

Question 18

Zoey wants to have about $750,000 when she retires in 10 years.She has $300,000 to deposit now.At which of the following interest rates would Zoey's deposit come closest to $750,000 after 10 years?

Accepted Answer

The answer of Zoey wants to have about $750,000 when...

Question 19

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Accepted Answer

The answer of Four years ago Ollie deposited some money...

Question 20

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Accepted Answer

The correct answer is A because:Anna earned 12% interest the first year, which is $10,000 x 0.12 = $1,200. This brings her balance to $11,200. The second year, she earned 8% interest, which is $11,200 x 0.08 = $896. This brings her balance to $12,096. The third year, she earned 4% interest, which is $12,096 x 0.04 = $483.84. This brings her balance to $12,579.84.

Quiz 14: The Basic Tools of Finance: Present Value Measuring the Time Value of Money