Question 1

Your bank offers a savings account that pays 3.5% interest, compounded annually.How much will $500 invested today be worth at the end of 25 years?

Accepted Answer

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Question 2

JG Asset Services is recommending that you invest $1, 500 in a 5-year certificate of deposit (CD)that pays 3.5% interest, compounded annually.How much will you have when the CD matures?

Accepted Answer

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Question 3

Cochrane Associate's net sales last year were $525 million.If sales grow at 7.5% per year, how large (in millions)will they be 8 years later?

Accepted Answer

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Question 4

How much would $1, growing at 3.5% per year, be worth after 75 years?

Accepted Answer

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Question 5

Cyberhost Corporation's sales were $225 million last year.If sales grow at 6% per year, how large (in millions)will they be 5 years later?

Accepted Answer

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Question 6

Your bank offers a savings account that pays 3.5% interest, compounded annually.If you invest $1, 000 in the account, then how much will it be worth at the end of 25 years?

Accepted Answer

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Question 7

Suppose a State of New Mexico bond will pay $1, 000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

Accepted Answer

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Question 8

Ellen now has $125.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Accepted Answer

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Question 9

How much would $100, growing at 5% per year, be worth after 75 years?

Accepted Answer

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Question 10

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 11

You are considering two equally risky annuities, each of which pays $15, 000 per year for 20 years.Investment ORD is an ordinary (or deferred)annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

Accepted Answer

An annuity due has payments at the beginning of each period, so its present value and future value are both higher than those of an ordinary annuity, where payments are made at the end of each period.

Question 12

You are considering two equally risky annuities, each of which pays $25, 000 per year for 10 years.Investment ORD is an ordinary (or deferred)annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

Accepted Answer

An annuity due has payments at the beginning of each period, so its present value is higher than that of an ordinary annuity, where payments are at the end of each period. Therefore, a rational investor would pay more for an annuity due.

Question 13

How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

Accepted Answer

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Question 14

Suppose a State of North Carolina bond will pay $1, 000 ten years from now.If the going interest rate on these 10-year bonds is 5.5%, how much is the bond worth today?

Accepted Answer

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Question 15

Which of the following bank accounts has the highest effective annual return?

Accepted Answer

By inspection, we can see that a dominates b and c, and that d dominates e because, with the same interest rate, the account with the most frequent compounding has the highest EFF%.Thus, the correct answer must be either a or d.Moreover, we can see by inspection that since a and d have the same compounding frequency yet a has the higher nominal rate, a must have the higher EFF%.You could also prove that a is the correct choice by calculating the EFF%s:
a.8.328% = (1 + 0.08/365)365-1
b.8.300% = (1 + 0.08/12)12-1
c.8.000% = (1 + 0.08/1)1-1
d.7.250% = (1 + 0.07/365)365-1
e.7.229% = (1 + 0.07/12)12-1

Question 16

Which of the following bank accounts has the lowest effective annual return?

Accepted Answer

By inspection, we can see that c must have a lower EFF% than either a or b because they all pay the same nominal rate but c is compounded least frequently.Similarly, d and e pay the same rate, but e is compounded less frequently, hence e must have the lower EFF%.So, the correct answer must be either c or e.It is not obvious which of these two has the lower EFF%, so we must do a quick calculation to determine the correct response.As the following calculations show, e is the correct answer.
a.8.328% = (1 + 0.08/365)365-1
b.8.300% = (1 + 0.08/12)12-1
c.8.000% = (1 + 0.08/1)1-1
d.7.250% = (1 + 0.07/365)365-1
e.7.229% = (1 + 0.07/12)12-1

Question 17

Your bank offers a 10-year certificate of deposit (CD)that pays 6.5% interest, compounded annually.If you invest $2, 000 in the CD, how much will you have when it matures?

Accepted Answer

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Question 18

You plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?

Accepted Answer

By inspection, we can see that e dominates b, c, and d because, with the same interest rate, the account with the most frequent compounding has the highest EFF%.Thus, the correct answer must be either a or e.However, we cannot tell by inspection whether a or e provides the higher EFF%.We know that with one compounding period an EFF% is 6.1%, so we can calculate e's EFF%.It is 6.183%, so e is the correct answer.
a.(1 + 0.061/12)12-1 = 6.100%
e.(1 + 0.06/365)365-1 = 6.183%

Question 19

How much would $20, 000 due in 50 years be worth today if the discount rate were 7.5%?

Accepted Answer

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Question 20

Which of the following statements is CORRECT?

Accepted Answer

To solve for the internal rate of return (I), you need to find the rate that equates the present value of positive cash flows to the absolute value of the present value of negative cash flows. This process often involves trial and error, which is facilitated by computers or financial calculators.

Quiz 4: Time value of money

Your bank offers a savings account that pays 3.5% interest, compounded annually.How much will $500 invested today be worth at the end of 25 years?

JG Asset Services is recommending that you invest $1, 500 in a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually.How much will you have when the CD matures?

Cochrane Associate's net sales last year were $525 million.If sales grow at 7.5% per year, how large (in millions) will they be 8 years later?

How much would $1, growing at 3.5% per year, be worth after 75 years?

Cyberhost Corporation's sales were $225 million last year.If sales grow at 6% per year, how large (in millions) will they be 5 years later?

Your bank offers a savings account that pays 3.5% interest, compounded annually.If you invest $1, 000 in the account, then how much will it be worth at the end of 25 years?

Suppose a State of New Mexico bond will pay $1, 000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

Ellen now has $125.How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

How much would $100, growing at 5% per year, be worth after 75 years?

Which of the following statements is CORRECT?

You are considering two equally risky annuities, each of which pays $15, 000 per year for 20 years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

You are considering two equally risky annuities, each of which pays $25, 000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

Suppose a State of North Carolina bond will pay $1, 000 ten years from now.If the going interest rate on these 10-year bonds is 5.5%, how much is the bond worth today?

Which of the following bank accounts has the highest effective annual return?

Which of the following bank accounts has the lowest effective annual return?

Your bank offers a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually.If you invest $2, 000 in the CD, how much will you have when it matures?

You plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?

How much would $20, 000 due in 50 years be worth today if the discount rate were 7.5%?

Which of the following statements is CORRECT?