Question 1

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?
A)$540.75
B)$540.80
C)$540.85
D)None of the above are correct to the nearest cent.

Accepted Answer

The answer of Felix deposited $500 into an account two...

Question 2

Ellen deposited $500 into an account and two years later she had $561.80 in the account. What interest rate was paid on Ellen's deposit?
A)4.88 percent
B)6.00 percent
C)12.36 percent
D)None of the above is correct.

Accepted Answer

The answer of Ellen deposited $500 into an account and...

Question 3

Laura says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Cassie says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.
A)Both Laura and Cassie are correct.
B)Both Laura and Cassie are incorrect.
C)Only Laura is correct.
D)Only Cassie is correct.

Accepted Answer

The answer of Laura says that the present value of...

Question 4

Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a balance of about $272.10. How many years did Clint wait to check his balance?
A)3 years
B)3.5 years
C)4 years
D)4.5 years

Accepted Answer

We can use the formula for simple interest to solve the problem:
Simple Interest = Principal x Rate x Time
We know that the principal (initial amount) is $200 and the rate is 8%. We want to find the time it takes for the balance to grow to $272.10. Let's call that time "t" (in years).

$272.10 = $200 + ($200 x 0.08 x t)
$72.10 = $16t
t = 4.50625

Rounding to the nearest half year, we get:
t = 4.5 years

So the answer is choice D, that Clint waited 4.5 years to check his balance.

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

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 6

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?
A)3 years
B)3.5 years
C)4 years
D)4.5 years

Accepted Answer

The answer of Hector puts $150 into an account when...

Question 7

Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?
A)$1,133.31
B)$1,120.00
C)$1,123.50
D)None of the above are correct to the nearest cent.

Accepted Answer

To find the answer, we can use the formula:

A=P(1+r)^n

Where:
A = amount of money in the account after n years 
P = principal (initial amount deposited) 
r = annual interest rate (as a decimal) 
n = number of years

For the first year, Veronica earned 7% interest on $1,000, so:

P = $1,000 
r = 0.07 
n = 1

A = $1,000(1+0.07)^1 = $1,070

After the first year, Veronica had $1,070 in her account.

For the second year, Veronica earned 5% interest on the new balance of $1,070, so:

P = $1,070 
r = 0.05 
n = 1

A = $1,070(1+0.05)^1 = $1,123.50

So after two years, Veronica has $1,123.50 in her account.

Therefore, the correct answer is C) $1,123.50.

Question 8

Marcia has four savings accounts. Which account has the largest balance?
A)$100 deposited 1 year ago at an 8 percent interest rate
B)$100 deposited 2 years ago at a 4 percent interest rate
C)$100 deposited 4 years ago at a 2 percent interest rate
D)$100 deposited 8 years ago at a 1 percent interest rate

Accepted Answer

The answer of Marcia has four savings accounts. Which account...

Question 9

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?
A)5 percent
B)7 percent
C)8 percent
D)10 percent

Accepted Answer

To find the interest rate, we need to use the formula: 
Interest = principal x rate x time 
where time is in years.

In this case, the principal (initial amount) is $375, the final amount (after one year) is $405, and the time is 1 year.

So we can rearrange the formula to solve for the rate: 
Rate = Interest / (principal x time)

The interest is the difference between the final amount and the initial amount: 
Interest = $405 - $375 = $30

Substituting into the formula: 
Rate = $30 / ($375 x 1) 
Rate = 0.08 = 8%

Therefore, the answer is (C) 8 percent.

Question 10

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?
A)6 percent
B)7 percent
C)8 percent
D)10 percent

Accepted Answer

We can use the formula for compound interest to solve for the interest rate:
A = P(1 + r/n)^(nt)
where A is the balance after t years, P is the starting balance, r is the 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 have:
A = $944.78
P = $750
n = 1 (interest is compounded annually)
t = 3 years

Substituting these values and solving for r, we get:
r = (A/P)^(1/nt) - 1 = ($944.78/$750)^(1/(1*3)) - 1 ≈ 0.08

So the current interest rate is approximately 8%, which corresponds to answer choice C.

Question 11

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

This problem can be solved using the formula for compound interest: A = P(1+r)^n, where A is the future value, P is the principal or starting balance, r is the interest rate, and n is the number of compounding periods. In this case, we know that P = $500, A = $983.58, and n = 10 years, so we can solve for r:

$983.58 = $500(1+r)^10
1.96716 = (1+r)^10
10 log(1+r) = log(1.96716)
log(1+r) = 0.08505
1+r = 10^0.08505
r = 10^0.08505 - 1
r = 0.07, or 7%

Therefore, the current rate of interest is 7 percent.

Question 12

Jarrod says that the future value of $250 saved for one year at 6 percent interest is less than the future value of $250 saved for two years at 3 percent interest. Simon says that the present value of a $250 payment to be received in one year when the interest rate is 6 percent is less than the value of a $250 payment to be received in two years when the interest rate is 3 percent.
A)Jarrod and Simon are both correct.
B)Jarrod and Simon are both incorrect.
C)Only Jarrod is correct.
D)Only Simon is correct.

Accepted Answer

The answer of Jarrod says that the future value of...

Question 13

Three people go to the bank to cash in their accounts. Amy had her money in an account for 25 years at 4 percent interest. Bill had his money in an account for 20 years at 5 percent interest. Celia had her money in an account for 5 years at 20 percent interest. If each of them originally deposited $500 in their accounts, which of them gets the most money when they cash in their accounts?
A)Amy
B)Bill
C)Celia
D)They each get the same amount.

Accepted Answer

The answer of Three people go to the bank to...

Question 14

Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance?
A)5 years
B)6 years
C)7 years
D)8 years

Accepted Answer

The answer of Lucretia puts $400 into an account when...

Question 15

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 16

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?
A)4.5 percent
B)5.4 percent
C)6.2 percent
D)8.0 percent

Accepted Answer

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

Question 17

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?
A)$1,157.90
B)$1,168.65
C)$1,176.00
D)None of the above are correct to the nearest cent.

Accepted Answer

To calculate the interest earned over the first two years, we need to use simple interest formula:

Interest = (Principal * Rate * Time)/100

For first two years, Principal (P) = $1,000, Rate of Interest (R) = 5% per annum, Time (T) = 2 years

Interest for first two years = (1000 * 5 * 2)/100 = $100

Now, the total amount after two years (Principal + Interest) becomes the Principal for the third year.

Principal for the third year = $1,000 + $100 = $1,100

For the third year, Principal (P) = $1,100, Rate of Interest (R) = 6% per annum, Time (T) = 1 year

Interest for third year = (1100 * 6 * 1)/100 = $66

Total amount after third year = $1,100 + $66 = $1,166

Therefore, Jorge has $1,166 in his account today. The closest option is B) $1,168.65.

Question 18

Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest. Lefty says that the present value of $400 to be received one year from today if the interest rate is 4 percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.
A)Braden and Lefty are both correct.
B)Braden and Lefty are both incorrect.
C)Only Braden is correct.
D)Only Lefty is correct.

Accepted Answer

Braden is correct because the formula for future value is FV = PV(1 + r)^t, where PV is the present value, r is the interest rate, and t is the number of years. So, if you plug in the numbers for Braden's scenario, you get FV = 400(1 + 0.04)^1 = $416, and for Lefty's scenario, you get FV = 400(1 + 0.02)^2 = $408.16, which means Braden's investment has a higher future value.
However, Lefty is also correct because the formula for present value is PV = FV/(1 + r)^t, where FV is the future value, r is the interest rate, and t is the number of years. So, if you plug in the numbers for Lefty's scenario, you get PV = 400/(1 + 0.04)^1 = $384.62, and for Braden's scenario, you get PV = 400/(1 + 0.02)^2 = $392.16, which means Lefty's investment has a higher present value.

Question 19

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?
A)20 percent
B)25 percent
C)28 percent
D)None of the above is correct.

Accepted Answer

The answer of Bert put $75 into an account and...

Question 20

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...

Quiz 27: Tools of Finance

Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?

Ellen deposited $500 into an account and two years later she had $561.80 in the account. What interest rate was paid on Ellen's deposit?

Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a balance of about $272.10. How many years did Clint wait to check his balance?

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?

Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?

Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?

Marcia has four savings accounts. Which account has the largest balance?

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?

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?

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?

Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance?

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 $16,917.66. What rate of interest did Robert earn?

Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year he earned 6 percent interest. How much money does Jorge have in his account today?

Bert put $75 into an account and one year later had $100. What interest rate was paid on Bert's deposit?

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?