Question 1

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

Accepted Answer

A) 8 
B) 10 
C) 12 
D) 14 
A) 8 
B) 10 
C) 12 
D) 14 C

Question 2

In which of the following instances is the present value of the future payment the largest?

Accepted Answer

A) You will receive $1,000 in 5 years and the annual interest rate is 5 percent. 
B) You will receive $1,000 in 10 years and the annual interest rate is 3 percent. 
C) You will receive $2,000 in 10 years and the annual interest rate is 10 percent. 
D) You will receive $2,400 in 15 years and the annual interest rate is 8 percent. 
A) You will receive $1,000 in 5 years and the annual interest rate is 5 percent. 
B) You will receive $1,000 in 10 years and the annual interest rate is 3 percent. 
C) You will receive $2,000 in 10 years and the annual interest rate is 10 percent. 
D) You will receive $2,400 in 15 years and the annual interest rate is 8 percent. A

Question 3

Suppose the interest rate is 5 percent.Which of the following payment options has the highest present value today?

Accepted Answer

A) $550 one year from today. 
B) $580 two years from today. 
C) $600 three years from today. 
D) $615 four years from today. 
A) $550 one year from today. 
B) $580 two years from today. 
C) $600 three years from today. 
D) $615 four years from today. B

Question 4

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

A) $1,200.00 
B) $1,111.77 
C) $983.58 
D) $859.09 
A) $1,200.00 
B) $1,111.77 
C) $983.58 
D) $859.09

Question 5

James offers you $1,000 today or $X in 7 years.If the interest rate is 4.5 percent,then you would prefer to take the $1,000 today if and only if

Accepted Answer

A) X < 1,045.00. 
B) X < 1,188.89. 
C) X < 1,266.67. 
D) X < 1,360.86. 
A) X < 1,045.00. 
B) X < 1,188.89. 
C) X < 1,266.67. 
D) X < 1,360.86.

Question 6

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

Accepted Answer

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. 
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.

Question 7

What is the present value of a payment of $100 to be made one year from today if the interest rate is 6 percent?

Accepted Answer

A) $105.26 
B) $105.00 
C) $97.24 
D) $94.34 
A) $105.26 
B) $105.00 
C) $97.24 
D) $94.34

Question 8

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

A) no less than 9.48 percent. 
B) no greater than 9.48 percent. 
C) no less than 10.83 percent. 
D) no greater than 10.83 percent. 
A) no less than 9.48 percent. 
B) no greater than 9.48 percent. 
C) no less than 10.83 percent. 
D) no greater than 10.83 percent.

Question 9

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

Accepted Answer

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. 
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.

Question 10

Other things the same,an increase in the interest rate makes the quantity of loanable funds supplied

Accepted Answer

A) rise,and investment spending rise. 
B) rise,and investment spending fall. 
C) fall,and investment spending rise. 
D) fall,and investment spending fall. 
A) rise,and investment spending rise. 
B) rise,and investment spending fall. 
C) fall,and investment spending rise. 
D) fall,and investment spending fall.

Question 11

Vince says that the present value of $500 to be received one year from today if the interest rate is 8 percent is more than the present value of $500 to be received two years from today if the interest rate is 4 percent.Terri says that $500 saved for two years at an interest rate of 3 percent has a larger future value than $500 saved for one years at an interest rate of 6 percent.

Accepted Answer

A) Both Vince and Terri are correct. 
B) Only Vince is correct. 
C) Only Terri is correct. 
D) Neither Vince nor Terri is correct. 
A) Both Vince and Terri are correct. 
B) Only Vince is correct. 
C) Only Terri is correct. 
D) Neither Vince nor Terri is correct.

Question 12

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Accepted Answer

A) no less than 4.53 percent. 
B) no greater than 4.53 percent. 
C) no less than 5.81 percent. 
D) no greater than 5.81 percent. 
A) no less than 4.53 percent. 
B) no greater than 4.53 percent. 
C) no less than 5.81 percent. 
D) no greater than 5.81 percent.

Question 13

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

A) 2 percent,but not if the interest rate is 3 percent. 
B) 3 percent,but not if the interest rate is 4 percent. 
C) 4 percent,but not if the interest rate is 5 percent. 
D) 5 percent,but not if the interest rate is 6 percent. 
A) 2 percent,but not if the interest rate is 3 percent. 
B) 3 percent,but not if the interest rate is 4 percent. 
C) 4 percent,but not if the interest rate is 5 percent. 
D) 5 percent,but not if the interest rate is 6 percent.

Question 14

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

Accepted Answer

A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent 
A) 5 percent 
B) 6 percent 
C) 7 percent 
D) 8 percent

Question 15

Which of the following is correct if the interest rate is 6 percent?

Accepted Answer

A) $215 to be received a year from today has a present value of over $200;$420 a year from now has a present value over $400. 
B) $215 to be received a year from today has a present value of over $200;$420 a year from now has a present value under $400. 
C) $215 to be received a year from today has a present value of under $200;$420 a year from now has a present value over $400. 
D) $215 to be received a year from today has a present value of under $200;$420 a year from now has a present value under $400. 
A) $215 to be received a year from today has a present value of over $200;$420 a year from now has a present value over $400. 
B) $215 to be received a year from today has a present value of over $200;$420 a year from now has a present value under $400. 
C) $215 to be received a year from today has a present value of under $200;$420 a year from now has a present value over $400. 
D) $215 to be received a year from today has a present value of under $200;$420 a year from now has a present value under $400.

Question 16

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

Accepted Answer

A) a decrease in the size of the payment 
B) an increase in the time until the payment is made 
C) an increase in the interest rate 
D) All of the above are correct. 
A) a decrease in the size of the payment 
B) an increase in the time until the payment is made 
C) an increase in the interest rate 
D) All of the above are correct.

Question 17

One way to characterize the difference between compounding and discounting is to say that

Accepted Answer

A) compounding involves the assumption that the interest rate is zero,whereas discounting does not involve that assumption. 
B) discounting involves the assumption that the interest rate is zero,whereas compounding does not involve that assumption. 
C) the process of compounding produces a future value,whereas the process of discounting produces a present value. 
D) the process of compounding produces a present value,whereas the process of discounting produces a future value. 
A) compounding involves the assumption that the interest rate is zero,whereas discounting does not involve that assumption. 
B) discounting involves the assumption that the interest rate is zero,whereas compounding does not involve that assumption. 
C) the process of compounding produces a future value,whereas the process of discounting produces a present value. 
D) the process of compounding produces a present value,whereas the process of discounting produces a future value.

Question 18

The present value of a payment to be made in the future falls as

Accepted Answer

A) the interest rate rises and the time until the payment is made increases. 
B) the interest rate rises and the time until the payment is made decreases. 
C) the interest rate falls and the time until the payment is made increases. 
D) the interest rate falls and the time until the payment is made decreases. 
A) the interest rate rises and the time until the payment is made increases. 
B) the interest rate rises and the time until the payment is made decreases. 
C) the interest rate falls and the time until the payment is made increases. 
D) the interest rate falls and the time until the payment is made decreases.

Question 19

You have been promised a payment of $250,000 in the future.In which case is the present value of this payment highest?

Accepted Answer

A) You receive the payment 3 years from now and the interest rate is 8 percent. 
B) You receive the payment 3 years from now and the interest rate is 6 percent. 
C) You receive the payment 2 years from now and the interest rate is 8 percent. 
D) You receive the payment 2 years from now and the interest rate is 6 percent. 
A) You receive the payment 3 years from now and the interest rate is 8 percent. 
B) You receive the payment 3 years from now and the interest rate is 6 percent. 
C) You receive the payment 2 years from now and the interest rate is 8 percent. 
D) You receive the payment 2 years from now and the interest rate is 6 percent.

Question 20

Suppose you put $10,000 into a bank account today that pays interest annually at an annual rate of 0.5%.What is the future value of the $10,000 after 10 years?​

Accepted Answer

A) ​$10,050.00 
B) ​$10,511.40 
C) ​$10,573.26 
D) ​$16,288.95 
A) ​$10,050.00 
B) ​$10,511.40 
C) ​$10,573.26 
D) ​$16,288.95

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

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

In which of the following instances is the present value of the future payment the largest?

Suppose the interest rate is 5 percent.Which of the following payment options has the highest present value today?

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?

James offers you $1,000 today or $X in 7 years.If the interest rate is 4.5 percent,then you would prefer to take the $1,000 today if and only if

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

What is the present value of a payment of $100 to be made one year from today if the interest rate is 6 percent?

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

Other things the same,an increase in the interest rate makes the quantity of loanable funds supplied

A manufacturing company is thinking about building a new factory.The factory,if built,will yield the company $300 million in 7 years,and it would cost $220 million today to build.The company will decide to build the factory if the interest rate is

Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund,then in three years your $20,000 will grow to $23,152.50.What rate of interest does your financial advisor expect you to earn?

Which of the following is correct if the interest rate is 6 percent?

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

One way to characterize the difference between compounding and discounting is to say that

The present value of a payment to be made in the future falls as

You have been promised a payment of $250,000 in the future.In which case is the present value of this payment highest?

Suppose you put $10,000 into a bank account today that pays interest annually at an annual rate of 0.5%.What is the future value of the $10,000 after 10 years?​

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B

Measuring a Nations Income

Suppose you put $10,000 into a bank account today that pays interest annually at an annual rate of 0.5%.What is the future value of the $10,000 after 10 years?