Question 1

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest.At the end of the 3 years you have $4,229.70.What number of dollars,X,did you deposit?
A)$3,680.00
B)$3,712.77
C)$3,750.00
D)$3,772.57

Accepted Answer

The correct answer is A.The formula for the future value of a certificate of deposit is:FV = PV * (1 + r)^nwhere:FV is the future valuePV is the present valuer is the annual interest raten is the number of yearsIn this case, we have:FV = $4,229.70r = 4.75% = 0.0475n = 3Substituting these values into the formula, we get:$4,229.70 = PV * (1 + 0.0475)^3$4,229.70 = PV * 1.154634PV = $4,229.70 / 1.154634PV = $3,680.00Therefore, the number of dollars deposited was $3,680.00.

Question 2

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"
A)Abraham Lincoln
B)Thomas Edison
C)Benjamin Franklin
D)Albert Einstein

Accepted Answer

Albert Einstein referred to compounding as "the greatest mathematical discovery of all time."

Question 3

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $5,000 to save for two years?
A)an interest rate of 5 percent,with the bank charging you a $50 processing fee at the time you open your account
B)an interest rate of 4 percent,with the bank giving you a $65 bonus at the time you open your account
C)an interest rate of 3.5 percent,with the bank giving you a $100 bonus to open your account
D)an interest rate of 4.5 percent,with no processing fee and no bonus

Accepted Answer

Option B provides a 4% interest rate and a $65 bonus, which results in a higher total amount after two years compared to the other options when considering both interest and bonuses/fees.

Question 4

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%? A)$2,000/1.06 B)$1000/(1.06)² C)$1000/(1 + 0.06²) D)None of the above are correct.

Accepted Answer

The present value of a future payment is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. Here, FV = $1,000, r = 0.06, and n = 2, so the correct formula is $1000/(1.06)^2.

Question 5

The future value of $500 saved for two years at an interest rate of 5% is
A)$550.25.
B)$550.00.
C)$551.25.
D)None of the above are correct.

Accepted Answer

The formula for future value with compounded interest is:

FV = PV*(1+r)^n

Where: 
PV = Present Value ($500 in this case)
r = interest rate per period (5% per year, so 2.5% per 6-month period)
n= number of periods (2 years, so 4 6-month periods)

Plugging in the values: 
FV = 500*(1+0.025)^4 
FV = $551.25

Therefore, the answer is C, $551.25.

Question 6

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years? A)$2,000(1.06) B)$1,000 + $(1.06)² C)$1,000(1.06)² D)None of the above are correct.

Accepted Answer

To find the value of the investment after two years with an interest rate of 6%, we can use the formula:

Value after two years = Initial investment x (1 + interest rate)^time

Plugging in the values, we get:

Value after two years = $1,000 x (1 + 0.06)^2 = $1,000 x 1.1236 = $1,123.60

Therefore, the best choice is C: $1,000(1.06)^2.

Question 7

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest,and at the end of the N years you have $4,082.59.What is the number of years,N?
A)4
B)5
C)6
D)7

Accepted Answer

The answer of You deposit $3,000 into an N-year certificate...

Question 8

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?
A)an interest rate of 5 percent,with the bank charging you a $15 processing fee at the time you open your account
B)an interest rate of 3.5 percent,with the bank giving you a $35 bonus to open your account
C)an interest rate of 4 percent,with the bank giving you a $20 bonus at the time you open your account
D)an interest rate of 4.5 percent,with no processing fee and no bonus

Accepted Answer

The answer of On the Internet you find the following...

Question 9

You receive $500 today which you plan to save for two years.Also,in two years you will be given another $500.If the interest rate is 5 percent,what is the present value of the payment of $500 today and the $500 in two years? A)$500(1.05)² + $500/(1.05)² B)$500(1.05)² + $500 C)$500 + $500/(1.05)² D)$500 + $500

Accepted Answer

The present value of $500 today is $500, and the present value of $500 received in two years is $500 discounted back two years at 5%, which is $500/(1.05)^2.

Question 10

Using the rule of 70,about how much would $100 be worth after 50 years if the interest rate were 7 percent?
A)$400
B)$800
C)$1,600
D)$3,200

Accepted Answer

The rule of 70 estimates that an investment will double in value every 70 divided by the interest rate years. At 7% interest, the investment doubles approximately every 10 years (70/7). In 50 years, the investment will double 5 times: $100 → $200 → $400 → $800 → $1,600 → $3,200.

Question 11

In answering which of the following questions would you find it necessary to calculate a present value?
A)Should Jane put $1,000 today into a 5-year certificate of deposit that pays 4 percent annual interest?
B)Should ABC Corporation buy a factory today for $2 million,knowing that the factory will yield the corporation $3 million after 5 years?
C)If Jill puts $5,000 today into a bank account that pays 3 percent interest,then how much will she have in the account after 2 years?
D)You would find it necessary to calculate a present value in order to answer all of these questions.

Accepted Answer

To determine if the $3 million received in the future is worth the $2 million investment today, you need to calculate the present value of the $3 million.

Question 12

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?
A)$972.00
B)$973.44
C)$974.19
D)None of the above is correct.

Accepted Answer

Using the formula for compound interest, we have:

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

where 
A is the amount at the end of the time period
P is the principal amount (initial investment)
r is the annual interest rate
n is the number of times the interest is compounded per year
t is the time period in years

Substituting the given values, we get:

A = 900(1 + 0.04/12)^(12*2)
A = $973.44 (rounded to two decimal places)

Therefore, the correct answer is B.

Question 13

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?
A)$2205
B)$2200
C)$1818.18
D)$1814.06

Accepted Answer

The present value of a future payment is calculated using the formula:PV = FV / (1 + r)^nwhere:PV is the present valueFV is the future valuer is the interest raten is the number of yearsIn this case, the future value is $2,000, the interest rate is 5%, and the number of years is 2. Plugging these values into the formula, we get:PV = 2000 / (1 + 0.05)^2PV = 2000 / 1.1025PV = $1814.06Therefore, the present value of the payment is $1814.06.

Question 14

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?
A)3.5
B)7
C)14
D)None of the above is correct.

Accepted Answer

The rule of 70 is a way to estimate the number of years it takes for a quantity to double, given a fixed annual rate of growth. It states that you divide 70 by the annual growth rate to get the doubling time. If savings double in 10 years, the interest rate is 70/10 = 7%.

Question 15

Albert Einstein once referred to compounding as
A)"an obsession among economists that defies explanation."
B)"the greatest mathematical discovery of all time."
C)his own discovery.
D)John Maynard Keynes's greatest contribution.

Accepted Answer

In his book "The Theory of Interest," Einstein called compounding "the greatest mathematical discovery of all time."

Question 16

Will is risk averse and has $1,000 with which to make a financial investment.He has three options.Option A is a risk-free government bond that pays 5 percent interest each year for two years.Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.Option C is a high-risk stock that is expected to be worth about $1,200 in four years.Will should choose
A)option A.
B)option B.
C)option C.
D)either option A or option B because Will is indifferent between those two options and they are superior to option C.

Accepted Answer

Since Will is risk averse, option A is the best choice for him as it is a risk-free government bond that offers a fixed return of 5 percent interest each year for two years. Option B and C both involve some level of risk, and even though option C has a higher expected return, it is also riskier as it is a high-risk stock that takes four years to reach its expected value. Therefore, option A offers the best balance between return and risk for Will's risk aversion.

Question 17

You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago.If,instead of being careless with the $1 in change,this person had deposited it into a bank and earned 2 percent interest every year for 140 years,how much would be in the account today according to the rule of 70?
A)$4
B)$8
C)$16
D)$32

Accepted Answer

The answer of You are tearing down a building and...

Question 18

Which of the following has the highest future value?
A)$100 saved for 2 years at 10 percent interest
B)$110 saved for 2 years at 9 percent interest
C)$120 saved for 2 years at 8 percent interest
D)$130 saved for 2 years at 7 percent interest

Accepted Answer

The answer of Which of the following has the highest...

Question 19

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?
A)The interest rate on the loan from Bank A is higher than the interest rate on the loan from Bank B.
B)The interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank B.
C)The interest rates on the two loans are the same.
D)There is not enough information to determine which loan has the higher interest rate.

Accepted Answer

To compare the interest rates on the loans, we need to calculate the annual percentage rate (APR) for each loan.
- For the loan from Bank A: the interest earned is $60 ($1,060 - $1,000). To find the APR, we divide the interest by the principal, multiply by 100, and divide by the time (in years). So, APR = ($60/$1,000) x 100 / 1 = 6%
- For the loan from Bank B: the interest earned is $100 ($1,600 - $1,500). To find the APR, we use the same formula: APR = ($100/$1,500) x 100 / 1 = 6.67%
Therefore, the interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank B. So, the correct choice is B.

Question 20

In answering which of the following questions would you find it necessary to calculate a future value?
A)If Jill puts $5,000 today into a bank account that pays 3 percent interest,then how much will she have in the account after 2 years?
B)Should ABC Corporation buy a factory today for $2 million,knowing that the factory will yield the corporation $3 million after 5 years?
C)As the winner of a lottery,should Michael choose an immediate payment of $250,000 or should he choose annual payments of $30,000 for each of the next 10 years?
D)You would find it necessary to calculate a future value in order to answer all of these questions.

Accepted Answer

To determine how much Jill will have in her account after 2 years, we need to calculate the future value of her initial investment of $5,000 with interest at 3 percent for 2 years.

Quiz 14: The Basic Tools of Finance: Present Value Measuring the Time Value of Money

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest.At the end of the 3 years you have $4,229.70.What number of dollars,X,did you deposit?

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $5,000 to save for two years?

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

The future value of $500 saved for two years at an interest rate of 5% is

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

You deposit $3,000 into an N-year certificate of deposit that pays 4.5 percent annual interest,and at the end of the N years you have $4,082.59.What is the number of years,N?

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

You receive $500 today which you plan to save for two years.Also,in two years you will be given another $500.If the interest rate is 5 percent,what is the present value of the payment of $500 today and the $500 in two years?

Using the rule of 70,about how much would $100 be worth after 50 years if the interest rate were 7 percent?

In answering which of the following questions would you find it necessary to calculate a present value?

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?

What is the present value of a payment of $2,000 to be received two years from today if the interest rate is 5%?

According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?

Albert Einstein once referred to compounding as

Which of the following has the highest future value?

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

In answering which of the following questions would you find it necessary to calculate a future value?