Question 1

Which of the following is the largest?

Accepted Answer

The answer of Which of the following is the largest?
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Question 2

Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?

Accepted Answer

The answer of Rita puts $10,000 into each of two...

Question 3

According to the rule of 70,if the interest rate is 10 percent,about how long will it take for the value of a savings account to double?

Accepted Answer

The rule of 70 is a way to estimate the number of years it takes for a quantity to double, given a constant annual growth rate. It is calculated by dividing 70 by the annual growth rate percentage. For a 10% interest rate, 70 / 10 = 7 years.

Question 4

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

Accepted Answer

When interest rates fall, the present value of future cash flows from the factory increases, making it more financially attractive to build the factory.

Question 5

According to the rule of 70,if the interest rate is 5 percent,how long will it take for the value of a savings account to double?

Accepted Answer

The answer of According to the rule of 70,if the...

Question 6

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

Accepted Answer

An increase in the interest rate makes borrowing more expensive, which leads to a decrease in the quantity of loanable funds demanded. This, in turn, reduces investment spending as firms have less access to the funds necessary for investment projects.

Question 7

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty.The first one gives her $100,000 one year from today and $100,000 two years from today.The second one gives her $132,000 one year from today and $66,000 two years from today.As her agent,you must compute the present value of each contract.Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

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The answer of A University of Iowa basketball standout is...

Question 8

Markovich Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Markovich still would be willing to build the plant?

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The answer of Markovich Corporation is considering building a new...

Question 9

Twenty years ago,Dr.Montgomery borrowed money from her parents to pay her tuition at graduate school.Now she wants to pay them back.She gives them double what they gave her.According to the rule of 70,what interest rate would have given her parents the same amount of money if they had put it in the bank rather than lending it to their daughter?

Accepted Answer

The rule of 70 is used to estimate the number of years it takes for an investment to double at a given interest rate. It states that you divide 70 by the annual interest rate to get the doubling time. Here, the doubling time is 20 years, so 70/20 = 3.5 percent.

Question 10

A car salesperson gives you four alternative ways to pay for your car.The first is to pay $18,000 today.The second is to pay $19,000 one year from today.The third is to pay $20,300 two years from today.The fourth is to pay $21,500 three years from today.If the interest rate is 6 percent,which payment option has the lowest present value and which has the highest?

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The answer of A car salesperson gives you four alternative...

Question 11

Fourteen years ago William put money in his account at First National Bank.William decides to cash in his account and is told that his money has quadrupled.According to the rule of 70,what rate of interest did Alfred earn?

Accepted Answer

Using the rule of 70, we can calculate the approximate interest rate as follows:
70 / number of years = percentage growth rate
70 / 14 = 5
This means that William's money grew by around 5% per year. However, since we know that his money quadrupled (i.e., grew by a factor of 4), we can calculate the exact growth rate as follows:
4 = 1 + (growth rate)^14 (where "^" means "to the power of")
3 = (growth rate)^14
14th root of 3 = growth rate
Approximately, growth rate = 1.098
100 x (1.098 - 1) = 9.8
So the exact interest rate that William earned was around 9.8%, which is closest to option C) 10 percent.

Question 12

Sari puts $100 into an account with an interest rate of 10 percent.According to the rule of 70,about how much does she have at the end of 21 years?

Accepted Answer

The rule of 70 is a way to estimate the number of years it takes for an investment to double in value at a given annual rate of return by dividing 70 by the interest rate. With a 10 percent interest rate, it takes about 7 years for the investment to double (70/10 = 7). In 21 years, the investment doubles 3 times (21/7 = 3). Starting with $100, after the first 7 years it doubles to $200, after 14 years it doubles again to $400, and after 21 years it doubles once more to $800.

Question 13

The concept of present value helps explain why

Accepted Answer

Present value is the idea that a dollar earned in the future is worth less than a dollar earned today due to the opportunity cost of not having the money available to invest now. As interest rates increase, the present value of future earnings decreases, making investments less attractive. Similarly, borrowers demand fewer loanable funds as the cost of borrowing (interest rate) increases, as they would have to pay back more in the future due to the decreased present value of future money. Therefore, choice A is the best answer.

Question 14

The rule of 70 can be stated as follows: A variable with a growth rate of X percent per year

Accepted Answer

The rule of 70 states that to find the number of years it takes for a variable to double, one can divide the number 70 by the variable's annual growth rate. Therefore, the correct choice is A, which states that the variable doubles every 70/X years.

Question 15

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Accepted Answer

When the interest rate falls, the present value of future returns on investment increases, making investment more attractive. Thus, the concept of present value is most helpful in explaining why investment increases when the interest rate falls.

Question 16

Other things the same,an increase in the interest rate makes the quantity of loanable funds supplied

Accepted Answer

An increase in interest rates makes savings more attractive to individuals and investors, leading to an increase in the quantity of loanable funds supplied. However, higher interest rates increase the cost of borrowing, which reduces the demand for loanable funds and investment spending. Therefore, the increase in the quantity of loanable funds supplied is offset by a decrease in investment spending, resulting in a rise in the quantity of loanable funds supplied and a fall in investment spending.

Question 17

If the interest rate is r percent,then the rule of 70 says that your savings will double about every

Accepted Answer

The rule of 70 is a way to estimate the number of years it takes for an investment to double at a given annual interest rate. It is calculated by dividing 70 by the interest rate (r) expressed as a percentage.

Question 18

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to earn to attain her objective?

Accepted Answer

The answer of Nancy would like to double the money...

Question 19

Allen Steel Company is considering whether to build a new mill.If the interest rate rises,

Accepted Answer

When the interest rate rises, the present value of future returns from the mill will decrease. This is because higher interest rates increase the discount rate applied to future cash flows, leading to a lower present value. As a result, Allen Steel Company is less likely to decide in favor of building the mill as the returns from the investment would be worth less in today's dollars.

Question 20

Yoyo's Frozen Yogurt,Inc.is thinking of building a new warehouse.They believe that this will give them $50,000 of additional revenue at the end of one year,$60,000 additional revenue at the end of two years,and $70,000 in additional revenue at the end of three years.If the interest rate is 5 percent,Yoyo would be willing to pay

Accepted Answer

To determine the present value of the additional revenue generated by the new warehouse, we need to discount the future cash flows back to the present using the interest rate of 5%.

Using 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:

PV(1 year) = $50,000 / (1 + 0.05)^1 = $47,619.05
PV(2 years) = $60,000 / (1 + 0.05)^2 = $52,154.19
PV(3 years) = $70,000 / (1 + 0.05)^3 = $56,678.28

The total present value of the additional revenue is therefore:

PV = $47,619.05 + $52,154.19 + $56,678.28 = $156,451.52

Yoyo's maximum willingness to pay should be the present value of the additional revenue. Since $156,451.52 is below $160,000 and above $150,000, the best choice is C) $160,000, but not $170,000.

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