Question 1

Compounding with Different Interest Rates A deposit of $1000 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) $1082.15
B) $1230.00
C) $1248.05
D) $3030.00

Accepted Answer

To find the future value, we need to use the formula FV = PV x (1 + r)^n, where PV is the present value (in this case $1000), r is the interest rate in decimal form, and n is the period of time. Using this formula, we get:

- Year 1: FV = 1000 x (1 + 0.08)^1 = $1080
- Year 2: FV = 1080 x (1 + 0.07)^1 = $1155.60
- Year 3: FV = 1155.6 x (1 + 0.08)^1 = $1248.05

Therefore, the answer is C ($1248.05).

Question 2

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

Question 3

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

The present value formula is: 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 values given:
PV = 200/(1+0.08)^3
PV = 200/1.2597
PV = $158.77

Therefore, the answer is B.

Question 4

Rule of 72 Approximately how many years does it take to double a $600 investment when interest rates are 6% per year?
A) .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 5

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 find the present value, we need to discount the payment by the interest rate. Using the formula for present value with only one payment, we get: PV = FV / (1 + r), where PV is the present value, FV is the future value, and r is the interest rate. Plugging in the values, we get: PV = $250 / (1 + 0.06)^1 = $235.85 (rounded to the nearest cent). Therefore, the best choice is B, as it is the closest to the calculated present value.

Question 6

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 7

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

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%
B) 1.12%
C) 12.00%
D) 89.00%

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

Interest-on-Interest Consider a $500 deposit earning 5 percent interest per year for 5 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 total simple interest earned on the original deposit is calculated using the formula: Interest = Principal x Rate x Time. Here, it is $500 x 0.05 x 5 = $125.00.

Question 11

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

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), we get an approximate interest rate of 9%.

Question 12

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

Accepted Answer

According to the rule of 72, dividing the number 72 by the number of years it takes for an investment to double gives an approximate interest rate needed. In this case, dividing 72 by 4 equals 18%. Therefore, Choice B is the correct answer.

Question 13

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, we use the formula PV = FV / (1 + r), where PV is the present value, FV is the future value, and r is the discount rate. Plugging in the values, we get PV = 500 / (1 + 0.05) = $476.19.

Question 14

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

To find the future value with compound interest, we need to use the formula:

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 years.

For the first year, we have:
PV = $700
r = 0.10
n = 1

FV1 = 700 * (1 + 0.10)^1 = $770

For the second year, we have:
PV = $770 (this is the new present value from the first year)
r = 0.07
n = 1

FV2 = 770 * (1 + 0.07)^1 = $823.90

Therefore, the answer is C, $823.90.

Question 15

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

Accepted Answer

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

Question 16

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 answer of Compounding with Different Interest Rates A deposit...

Question 17

Rule of 72 Approximately how many years does it take to double a $500 investment when interest rates are 4% per year?
A) .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 the investment at a given annual interest rate. By dividing 72 by the interest rate (4%), you get 18 years.

Question 18

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

Accepted Answer

The rule of 72 states that to find the number of years required to double your money at a given interest rate, you divide the interest rate into 72. So, to double the investment over 6 years, the interest rate needed would be 72/6=12%. Therefore, the correct answer is B) 12%.

Question 19

Interest-on-Interest Consider a $1,000 deposit earning 7 percent interest per year for 4 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 total interest earned on the original deposit (excluding interest earned on interest) can be calculated as follows:

Year 1: $1,000 x 0.07 = $70 
Year 2: $1,000 x 0.07 = $70 
Year 3: $1,000 x 0.07 = $70 
Year 4: $1,000 x 0.07 = $70

Adding up the interest earned in each year, we get:

$70 + $70 + $70 + $70 = $280

Therefore, the correct answer is choice C.

Question 20

Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for 5 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

To calculate the total interest earned on the original deposit (excluding interest earned on interest), we can use the simple interest formula:

Interest = Principal x Rate x Time

The principal is $2,000 and the rate is 6 percent (expressed as a decimal, 0.06). We need to calculate the interest earned for 5 years, so the time is 5.

Interest = $2,000 x 0.06 x 5
Interest = $600

Therefore, the total interest earned on the original deposit (excluding interest earned on interest) is $600, which corresponds to choice C.

Quiz 4: Time Value of Money 1: Analyzing Single Cash Flows

Compounding with Different Interest Rates A deposit of $1000 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?

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

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

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

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 how many years does it take to double a $300 investment when interest rates are 8% per year?

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

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

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

Rule of 72 Approximately what interest rate is needed to double an investment over 8 years?

Rule of 72 Approximately what interest rate is needed to double an investment over 4 years?

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

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 $500 deposit when $650 is paid back in one year.

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?

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

Rule of 72 Approximately what interest rate is needed to double an investment over 6 years?

Interest-on-Interest Consider a $1,000 deposit earning 7 percent interest per year for 4 years. How much total interest is earned on the original deposit (excluding interest earned on interest) ?

Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for 5 years. How much total interest is earned on the original deposit (excluding interest earned on interest) ?