Question 1

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?
A) $1,050.00
B) $1,045.35
C) $1,000.00
D) $945.35

Accepted Answer

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

Question 2

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?
A) 5 years
B) 6 years
C) 7 years
D) 8 years

Accepted Answer

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

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?
A) Al
B) Ralph
C) Stan
D) They all retire with the same amount.

Accepted Answer

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

Question 4

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?
A) $25,962
B) $27,297
C) $30,188
D) None of the above are correct to the nearest dollar.

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 5

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 what is the current interest rate?
A) 6 percent
B) 7 percent
C) 8 percent
D) 9 percent

Accepted Answer

The answer of Your accountant tells you that if you...

Question 6

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?
A) $22,880.00
B) $23,200.00
C) $23,232.00
D) $23,328.00

Accepted Answer

The answer of Imagine that two years ago you inherited...

Question 7

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? A) $1,000 (1.06) B) $1,000^(1.06) C) $1,000/(1.06) D) None of the above is correct.

Accepted Answer

The correct expression for finding the present value of a future payment is to divide the future value by (1+i), where i is the interest rate. Therefore, the expression would be $1,000/(1.06), which equals $943.40. Option A is incorrect because it would give us the future value of $1,060, which is not what we are looking for. Option B is not a valid expression.

Question 8

George 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 he open his account?
A) 4 years
B) 5 years
C) 6 years
D) 7 years

Accepted Answer

The answer of George has $300 in a bank account....

Question 9

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?
A) the two-year account at 9 percent
B) the three-year account at 6 percent
C) the six-year account at 3 percent
D) The accounts are all worth the same.

Accepted Answer

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

Question 10

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?
A) $66,225.25
B) $67,556.42
C) $68,058.32
D) $71,428.57

Accepted Answer

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

Question 11

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?
A) about $860
B) about $870
C) about $880
D) about $890

Accepted Answer

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

Question 12

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?
A) 5 percent
B) 6 percent
C) 7 percent
D) 8 percent

Accepted Answer

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

Question 13

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 $998.25 in your account. If your accountant is correct, what is the current interest rate?
A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent

Accepted Answer

We can use the formula for compound interest:

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

where:
A = the amount after t years
P = the principal (starting balance)
r = the annual interest rate (unknown)
n = the number of times the interest is compounded per year (assuming once a year)
t = the number of years

Plugging in the given values, we have:

998.25 = 750(1 + r/1)^(1*3)

Simplifying:

1.331 = 1 + 3r

3r = 0.331

r = 0.1103 or 11.03%

Therefore, the current interest rate is 11 percent (Choice C). However, this is not one of the answer choices given. The closest answer is B, which is 10 percent. This is a reasonable estimate since the actual rate is only slightly higher than 10 percent.

Question 14

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?
A) 5 percent
B) 6 percent
C) 7 percent
D) 8 percent

Accepted Answer

To solve this problem, we can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the ending balance, P is the principal (starting balance), r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years. In this case, we know A = $983.58, P = $500, n = 1 (compounded annually), and t = 10.

Substituting those values into the formula, we get:

$983.58 = $500(1 + r/1)^(1*10)

Simplifying, we get:

1.96716 = (1 + r)

Taking the square root of both sides, we get:

1.4018 = 1 + r

Subtracting 1 from both sides, we get:

0.4018 = r

Multiplying by 100 to convert to a percentage, we get:

40.18% = r

Since none of the answer choices match this value exactly, we need to estimate. Answer choice C, 7 percent, is closest to our calculated interest rate of 40.18%. Therefore, the best choice is:

Answer: C

Question 15

Brittany wants to have about $500,000 when she retires in 10 years. She has $200,000 to deposit now. At which of the following interest rates would her deposit come closest to $500,000 after 10 years?
A) 9.6 percent
B) 9.8 percent
C) 10 percent
D) 10.2 percent

Accepted Answer

The answer of Brittany wants to have about $500,000 when...

Question 16

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?
A) the first one
B) the second one
C) the third one
D) They all have the same balance.

Accepted Answer

The account with 20 percent interest for five years will have experienced the largest growth in balance, but because it only accrued interest for five years it will have the lowest balance out of the three.

Question 17

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?
A) $12,579.84
B) $12,596.80
C) $12,597.12
D) None of the above are correct to the nearest cent.

Accepted Answer

The answer of Anna deposited $10,000 into an account three...

Question 18

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38. What rate of interest did Robert earn?
A) 4.5 percent
B) 5.5 percent
C) 6.5 percent
D) 8.0 percent

Accepted Answer

We can use the formula for compound interest: A=P(1+r/n)^(n*t), where A is the ending balance, P is the principal, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years. Plugging in the given values, we get:
16695.38=15000(1+r/2)^(2*1)
Simplifying this equation, we get:
1.11302=(1+r/2)^2
Taking the square root of both sides, we get:
1.0546=1+r/2
Subtracting 1 from both sides and multiplying by 2, we get:
0.1092=r
Converting this decimal to a percentage, we get:
10.92%
Therefore, the rate of interest Robert earned is 5.46%, which is closest to choice B (5.5%).

Question 19

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?
A) $302.50
B) $306.23
C) $308.67
D) $309.39

Accepted Answer

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

Question 20

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?
A) $210
B) $220
C) $240
D) $250

Accepted Answer

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

Quiz 9: The Basic Tools of Finance

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?

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?

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?

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?

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 what is the current interest rate?

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?

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?

George 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 he open his account?

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?

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?

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?

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 $998.25 in your account. If your accountant is correct, what is the current interest rate?

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?

Brittany wants to have about $500,000 when she retires in 10 years. She has $200,000 to deposit now. At which of the following interest rates would her deposit come closest to $500,000 after 10 years?

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?

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38. What rate of interest did Robert earn?

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?

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?