Question 1

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Accepted Answer

The bond's future value is $10,000, and its present value is $5,980.17. To find the interest rate, we use the formula for compound interest: FV = PV * (1 + r)^n. Solving for r gives an interest rate of approximately 10.83%. You would buy the bond if the interest rate is no greater than this rate.

Question 2

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Accepted Answer

The correct way to compute the future value of an investment using compound interest is by using the formula $P(1 + r)^n$, where $P$ is the principal amount, $r$ is the annual interest rate, and $n$ is the number of years. Choice D correctly represents this formula as $100(1 + .04)^{10}$, indicating $100 invested at 4% interest compounded annually for 10 years.

Question 3

A judge requires Hoa to make a payment to Jordan. The judge says that Hoa can pay her either $10,000 today or $11,500 two years from today. Of the following interest rates, which is the highest one at which Hoa would be better off paying the money today?

Accepted Answer

At an interest rate higher than 7%, the future value of $10,000 today would exceed $11,500 in two years, making it more expensive for Hoa to wait and pay later. At exactly 7%, the future value of $10,000 after two years, using the formula FV = PV(1 + r)^n, where FV is the future value, PV is the present value, r is the annual interest rate, and n is the number of years, would be $10,000 * (1 + 0.07)^2 = $10,000 * 1.1449 = $11,449, which is slightly less than $11,500. Therefore, at 7%, it's almost indifferent, but at any rate higher than 7%, it would cost more to wait.

Question 4

Which of the following changes would increase the present value of a future payment?

Accepted Answer

The present value of a future payment is inversely related to the interest rate. A decrease in the interest rate increases the present value of the future payment because the money to be received in the future is discounted at a lower rate, making it worth more in today's terms.

Question 5

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

Accepted Answer

The correct expression for finding the present value of a future payment involves dividing the future amount by the factor (1 + interest rate) raised to the power of the number of periods. Therefore, $500/(1.06)^2 is the correct expression, which matches option A.

Question 6

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

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 annual rate of interest (10%), we get 7.2, which approximates to about 7 years.

Question 7

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 8

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Accepted Answer

The answer of You have a choice among three options....

Question 9

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Accepted Answer

The answer of When you were 10 years old, your...

Question 10

Suppose you win a small lottery and you are given the following choice: You can (1) receive an immediate payment of $10,000 or (2) three annual payments, each in the amount of $3,600, with the first payment coming one year from now, the second two years from now, and the third three years from now. You would choose to take the three annual payments if the interest rate is

Accepted Answer

The answer of Suppose you win a small lottery and...

Question 11

Suppose the interest rate is 5 percent. Consider four payment options: Option A: $500 today.
Option B: $515 one year from today.
Option C: $615 two years from today.
Option D: $690 three years from today.
​
Which of the payments has the highest present value today?

Accepted Answer

The answer of Suppose the interest rate is 5 percent....

Question 12

Alivia deposited $3,000 into an account two years ago. The first year she earned 6 percent interest; the second year she earned 5 percent. How much money does Alivia have in her account today?

Accepted Answer

Alivia earned 6% interest the first year, so her account grew to $3,000 * 1.06 = $3,180. The second year, she earned 5% interest on this amount, so her account grew to $3,180 * 1.05 = $3,339.

Question 13

Cameron puts $300 into an account when the interest rate is 3 percent. Later he checks his balance and finds he has about $347.78. How long did Cameron wait to check his balance?

Accepted Answer

Using the formula for compound interest, A = P(1 + r)^t, where A is the amount, P is the principal, r is the interest rate, and t is the time in years, we can solve for t. Plugging in the values: 347.78 = 300(1 + 0.03)^t, we find that t is approximately 5 years.

Question 14

Tyler put $430 in the bank one year ago and forgot about it. Today, the bank sent Tyler a statement indicating that he now has $442.90 in his account. What interest rate did Tyler earn?

Accepted Answer

Tyler earned a $12.90 interest on his $430 deposit. To find the interest rate, divide the interest earned by the original amount and multiply by 100. So, ($12.90 / $430) * 100 = 3%.

Question 15

Riley 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. Anh 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.

Accepted Answer

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

Question 16

Assuming the interest rate is 6 percent, which of the following has the greatest present value?

Accepted Answer

The answer of Assuming the interest rate is 6 percent,...

Question 17

The future value of a deposit in a savings account will be larger

Accepted Answer

The future value of a deposit in a savings account increases with the size of the initial deposit because the amount of interest earned is directly proportional to the amount of money deposited.

Question 18

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in his retirement account. 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...

Question 19

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Accepted Answer

The correct answer is found by calculating the present value of the $10,000 to be received in 4 years at a 6 percent annual discount rate. The formula for present value is $PV = \frac{FV}{(1 + r)^n}$, where $PV$ is the present value, $FV$ is the future value, $r$ is the annual interest rate, and $n$ is the number of years. Plugging in the given values, $PV = \frac{10,000}{(1 + 0.06)^4}$, which calculates to approximately $7,920.94. This means you would buy the bond if its price today is no greater than $7,920.94.

Question 20

Fatima knows that she has about $122 in her bank account. She knows she earned an interest rate of 3 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Accepted Answer

Fatima's current balance is $122 after earning 3% interest for a year. To find the initial amount, divide the final amount by 1 plus the interest rate (expressed as a decimal). So, $122 / (1 + 0.03) = $118.45.

Quiz 27: Tools of Finance

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

A judge requires Hoa to make a payment to Jordan. The judge says that Hoa can pay her either $10,000 today or $11,500 two years from today. Of the following interest rates, which is the highest one at which Hoa would be better off paying the money today?

Which of the following changes would increase the present value of a future payment?

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Suppose the interest rate is 5 percent. Consider four payment options: Option A: $500 today. Option B: $515 one year from today. Option C: $615 two years from today. Option D: $690 three years from today. Which of the payments has the highest present value today?

Alivia deposited $3,000 into an account two years ago. The first year she earned 6 percent interest; the second year she earned 5 percent. How much money does Alivia have in her account today?

Cameron puts $300 into an account when the interest rate is 3 percent. Later he checks his balance and finds he has about $347.78. How long did Cameron wait to check his balance?

Tyler put $430 in the bank one year ago and forgot about it. Today, the bank sent Tyler a statement indicating that he now has $442.90 in his account. What interest rate did Tyler earn?

Assuming the interest rate is 6 percent, which of the following has the greatest present value?

The future value of a deposit in a savings account will be larger

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Fatima knows that she has about $122 in her bank account. She knows she earned an interest rate of 3 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Quiz 27: Tools of Finance

Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

A judge requires Hoa to make a payment to Jordan. The judge says that Hoa can pay her either $10,000 today or $11,500 two years from today. Of the following interest rates, which is the highest one at which Hoa would be better off paying the money today?

Which of the following changes would increase the present value of a future payment?

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

Suppose the interest rate is 5 percent. Consider four payment options: Option A: $500 today. Option B: $515 one year from today. Option C: $615 two years from today. Option D: $690 three years from today. ​ Which of the payments has the highest present value today?

Alivia deposited $3,000 into an account two years ago. The first year she earned 6 percent interest; the second year she earned 5 percent. How much money does Alivia have in her account today?

Cameron puts $300 into an account when the interest rate is 3 percent. Later he checks his balance and finds he has about $347.78. How long did Cameron wait to check his balance?

Tyler put $430 in the bank one year ago and forgot about it. Today, the bank sent Tyler a statement indicating that he now has $442.90 in his account. What interest rate did Tyler earn?

Assuming the interest rate is 6 percent, which of the following has the greatest present value?

The future value of a deposit in a savings account will be larger

Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater than

Fatima knows that she has about $122 in her bank account. She knows she earned an interest rate of 3 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?

Suppose the interest rate is 5 percent. Consider four payment options: Option A: $500 today. Option B: $515 one year from today. Option C: $615 two years from today. Option D: $690 three years from today. Which of the payments has the highest present value today?