Question 1

Compound value = $ amount divided by table factor.

Accepted Answer

A) True 
 B)False  False

Question 2

The effective rate (APY) is:

Accepted Answer

A) The nominal rate 
B) The stated rate 
C) The true semiannual rate 
D) The true annual rate 
E) None of these 
A) The nominal rate 
B) The stated rate 
C) The true semiannual rate 
D) The true annual rate 
E) None of these D

Question 3

Compounding looks into the present when we know what we have in the future.

Accepted Answer

A) True 
 B)False  False

Question 4

Gracie Shay wants to buy a new Hummer in five years. Gracie estimates the cost of the Hummer will be $28,000. If she invests $12,000 now at a rate of 6% compounded semiannually, she:

Accepted Answer

A) Will have enough money 
B) Will have exactly $16,000 
C) Will have $18,000 
D) Will have $16,126.80 
E) None of these 
A) Will have enough money 
B) Will have exactly $16,000 
C) Will have $18,000 
D) Will have $16,126.80 
E) None of these

Question 5

Compounding always requires the use of tables.

Accepted Answer

A) True 
 B)False

Question 6

A table factor of .7312 from a present value table of $1 means that a certain rate of interest for a certain period of time will equal:

Accepted Answer

A) $1 
B) Over $1 
C) Less than $1 
D) Never equal 
E) None of these 
A) $1 
B) Over $1 
C) Less than $1 
D) Never equal 
E) None of these

Question 7

The rate for a table lookup on a $4,000, 12% investment compounded quarterly for four years is 4%.

Accepted Answer

A) True 
 B)False

Question 8

Merle Fonda opened a new savings account. She deposited $40,000 at 10% compounded semiannually. At the start of the fourth year, Merle deposits an additional $20,000 that is also compounded semiannually at 10%. At the end of six years, the balance in Merle's account is (use the tables in the handbook):

Accepted Answer

A) $73,604.00 
B) $53,604.00 
C) $80,406.00 
D) $98,636.72 
E) None of these 
A) $73,604.00 
B) $53,604.00 
C) $80,406.00 
D) $98,636.72 
E) None of these

Question 9

In the table of present value of one dollar, all table factors are less than $1.

Accepted Answer

A) True 
 B)False

Question 10

$14,182 is the present value of $21,000 that earns at a bank 12% compounded quarterly for four years. (Use table in handbook.)

Accepted Answer

A) True 
 B)False

Question 11

Present value does not:

Accepted Answer

A) Know future amount 
B) Know the present dollar amount 
C) Find present dollar amount 
D) Use tables 
E) None of these 
A) Know future amount 
B) Know the present dollar amount 
C) Find present dollar amount 
D) Use tables 
E) None of these

Question 12

The rate used in the table for calculating compound interest is found by:

Accepted Answer

A) Annual rate × number of periods 
B) Annual rate × number of times compounded per year 
C) Annual rate divided by number of times compounded per year 
D) Annual rate divided semiannually 
E) None of these 
A) Annual rate × number of periods 
B) Annual rate × number of times compounded per year 
C) Annual rate divided by number of times compounded per year 
D) Annual rate divided semiannually 
E) None of these

Question 13

Katie Hector wants to purchase a condo in Oxford, MS, in 20 years. The cost of the condo is expected to be $180,000. Assuming she can earn 6% annually, what should Katie deposit today?

Accepted Answer

A) $126,900 
B) $56,124 
C) $89,400 
D) $180,000 
E) None of these 
A) $126,900 
B) $56,124 
C) $89,400 
D) $180,000 
E) None of these

Question 14

Trisha Long wants to buy a boat in five years. She estimates the boat will cost $15,000 at that time. What must Trisha deposit today in an account earning 5% annually to have enough to buy the boat in five years?

Accepted Answer

A) $12,328.50 
B) $11,527.50 
C) $11,752.50 
D) $11,077.50 
E) None of these 
A) $12,328.50 
B) $11,527.50 
C) $11,752.50 
D) $11,077.50 
E) None of these

Question 15

The effective rate (APY) can be calculated by the interest for one year divided by the principal.

Accepted Answer

A) True 
 B)False

Question 16

Compounding:

Accepted Answer

A) Calculates interest periodically 
B) Looks into the present when the future is known 
C) Is done only on an annual basis 
D) Results in less interest than simple interest 
E) None of these 
A) Calculates interest periodically 
B) Looks into the present when the future is known 
C) Is done only on an annual basis 
D) Results in less interest than simple interest 
E) None of these

Question 17

The rate to be used in compounding is found by taking the annual rate divided by the number of times compounded per day.

Accepted Answer

A) True 
 B)False

Question 18

Interest calculated on a balance every three months is said to be compounded quarterly.

Accepted Answer

A) True 
 B)False

Question 19

The compound table can be used to prove a present value calculation.

Accepted Answer

A) True 
 B)False

Question 20

Interest = principal × rate divided by the time.

Accepted Answer

A) True 
 B)False

Exam 12: Compound Interest and Present Value

Compound value = $ amount divided by table factor.

The effective rate (APY) is:

Compounding looks into the present when we know what we have in the future.

Gracie Shay wants to buy a new Hummer in five years. Gracie estimates the cost of the Hummer will be $28,000. If she invests $12,000 now at a rate of 6% compounded semiannually, she:

Compounding always requires the use of tables.

A table factor of .7312 from a present value table of $1 means that a certain rate of interest for a certain period of time will equal:

The rate for a table lookup on a $4,000, 12% investment compounded quarterly for four years is 4%.

In the table of present value of one dollar, all table factors are less than $1.

$14,182 is the present value of $21,000 that earns at a bank 12% compounded quarterly for four years. (Use table in handbook.)

Present value does not:

The rate used in the table for calculating compound interest is found by:

Katie Hector wants to purchase a condo in Oxford, MS, in 20 years. The cost of the condo is expected to be $180,000. Assuming she can earn 6% annually, what should Katie deposit today?

Trisha Long wants to buy a boat in five years. She estimates the boat will cost $15,000 at that time. What must Trisha deposit today in an account earning 5% annually to have enough to buy the boat in five years?

The effective rate (APY) can be calculated by the interest for one year divided by the principal.

Compounding:

The rate to be used in compounding is found by taking the annual rate divided by the number of times compounded per day.

Interest calculated on a balance every three months is said to be compounded quarterly.

The compound table can be used to prove a present value calculation.

Interest = principal × rate divided by the time.

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