Deck 27: The Basic Tools of Finance

Question 1

If you presently have $6,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

A)6
B)8
C)10
D)12

Answer 1

B

Question 2

What is the future value of $800 one year from today if the interest rate is 7 percent?

A)$747.66
B)$756.00
C)$856.00
D)None of the above are correct to the nearest penny.

Answer 2

C

Question 3

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

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

Answer 3

C

Question 4

What is the future value of $450 at an interest rate of 11 percent one year from today?

A)$495.00
B)$495.40
C)$494.50
D)$499.50

Question 5

What is the future value of $333 at an interest rate of 3 percent one year from today?

A)$337.39
B)$342.99
C)$343.09
D)None of the above are correct to the nearest penny.

Question 6

If you put $250 in an account with a 4 percent interest rate,how many years would you have to wait to have about $370.06?

A)10
B)14
C)17
D)20

Question 7

Which of the following is the correct way to figure the future value of $1 put in an account that earns 5 percent for 20 years?

A)$1(1 + .05)²⁰
B)$1(1 + .05 × 20) 20
C)$1(1 + .05 × 20)
D)$1(1 + 20/.05)²⁰

Question 8

What is the future value of $500 one year from today if the interest rate is 6 percent?

A)$503
B)$515
C)$530
D)None of the above is correct.

Question 9

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

A)5
B)7
C)9
D)11

Question 10

The field of finance primarily studies

A)how society manages its scarce resources.
B)the implications of time and risk for allocating resources over time.
C)firms decisions concerning how much to produce and what price to charge.
D)how society can reduce market risk.

Question 11

At an annual interest rate of 20 percent,about how many years will it take $100 to double in value?

A)3.5
B)4.5
C)5
D)6

Question 12

You put $275 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $291.50 in your account.What interest rate did you earn?

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

Question 13

At an annual interest rate of 20 percent,about how many years will it take $100 to triple in value?

A)5
B)6
C)8
D)9

Question 14

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

A)$100(1 + .04¹⁰)
B)$100(1 + .04 × 10)
C)$100 x 10 x (1 + .04)
D)$100(1 + .04)¹⁰

Question 15

Which of the following is the correct way to figure the future value of $X that earns r percent for N years?

A)$X(1 + rN)ᴺ
B)$X(1 + r)ᴺ
C)$X(1 + rN)
D)$X(1 + r/N)N

Question 16

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

A)the longer a person waits to withdraw the funds.
B)the higher the interest rate is.
C)the larger the initial deposit is.
D)All of the above are correct.

Question 17

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

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

Question 18

George knows that he has about $95 dollars in his account.He knows he earned an interest rate of 4 percent,but he doesn't remember how much he opened the account with a year ago.How much did he put in?

A)$91.00
B)$91.20
C)$91.27
D)$91.35

Question 19

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

A)the longer a person waits to withdraw the funds.
B)the lower the interest rate is.
C)the larger the initial deposit is.
D)All of the above are correct.

Question 20

What is the future value of $750 one year from today if the interest rate is 3 percent?

A)772.73
B)772.50
C)773.33
D)None of the above are correct to the nearest penny.

Question 21

Two years ago David put $3,000 in an account paying 3 percent interest.How much does he have in the account today?

A)$3,180.00
B)$3,182.70
C)$3,183.62
D)None of the above are correct to the nearest penny.

Question 22

Susan puts $125 into an account and one year later has $135;what was the interest rate?

A)5 percent
B)7 percent
C)8 percent
D)10 percent

Question 23

Felix deposited $500 into an account two years ago.The first year he earned 3 percent interest and the second year he earned 5 percent interest.How much money does Felix have in his account now?

A)$540.75
B)$540.80
C)$540.85
D)None of the above are correct to the nearest penny.

Question 24

Lucretia puts $400 into an account when the interest rate is 10 percent.Later she checks her balance and finds it's worth about $708.62.How many years did she wait to check her balance?

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

Question 25

George puts $200 into an account when the interest rate is 8 percent.Later he checks his balance and finds that he has a balance of about $272.10.How many years did he wait to check his balance?

A)3 years
B)3.5 years
C)4 years
D)4.5 years

Question 26

Three years ago Halley put $1,200 in an account paying 2 percent interest.How much is the account worth today?

A)$1,225.38
B)$1,248.48
C)$1,264.72
D)$1,273.45

Question 27

Edgar has four savings accounts.Which one has the most in it?

A)$100 deposited 1 year ago at an 8% interest rate.
B)$100 deposited 2 years ago at a 4% interest rate.
C)$100 deposited 4 years ago at a 2% interest rate.
D)$100 deposited 8 years ago at a 1% interest rate.

Question 28

If you put $125 into an account that paid 1.25 percent interest how much money to the nearest penny,would you have in the account in two years?

A)$129.73
B)$128.14
C)$127.15
D)$125.13

Question 29

Darby puts $75 in an account and one year later has $100;what was the interest rate on the account?

A)20 percent
B)25 percent
C)30 percent
D)None of the above is correct.

Question 30

If you put $300 into an account paying 2 percent interest,what will be the value of this account in two years?

A)$310
B)$312
C)$312.12
D)$314.24

Question 31

Alex says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest.Brian says that the present value of $400 one year from today if the interest rate is 4 percent is more than the present value of $400 two years from today if the interest rate is 2 percent.

A)Alex and Brian are both correct.
B)Alex and Brian are both incorrect.
C)Only Alex is correct.
D)Only Brian is correct.

Question 32

Hector puts $150 into an account when the interest rate is 4 percent.Later he checks his balance and finds he has about $168.73.How long did Hector wait to check his balance?

A)3 years
B)3.5 years
C)4 years
D)4.5 years

Question 33

Marcus puts $500 in an account and one year later has $550;what was the interest rate on the account?

A)10 percent
B)9 percent
C)8 percent
D)None of the above is correct.

Question 34

Heidi deposits $250 in an account and one year later has $270;what was the interest rate?

A)8 percent
B)9 percent
C)10 percent
D)None of the above is correct.

Question 35

Jamie deposited $1,000 into an account two years ago.The first year she earned 5 percent interest,the second she earned 6 percent.How much money does she have in her account today?

A)$1111.11
B)$1113.00
C)$1131.33
D)None of the above are correct to the nearest penny.

Question 36

Three people go to the bank to cash in their accounts.Amy had her money in an account for 25 years at 4 percent interest.Bill had his money in an account for 20 years at 5 percent interest.Celia had her money in an account for 5 years at 20 percent interest.If each of them originally deposited $500 in their accounts,which of them gets the most money when they cash in their accounts?

A)Amy
B)Bill
C)Celia
D)They each get the same amount.

Question 37

Alice says that the present value of $700 one year from today if the interest rate is 6 percent is less than the present value of $700 two years from today if the interest rate is 3 percent.Beth 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.

A)Both Alice and Beth are correct.
B)Both Alice and Beth are incorrect.
C)Only Alice is correct.
D)Only Beth is correct.

Question 38

John says that the future value of $250 saved for one year at 6 percent is less than the future value of $250 saved for two years at 3 percent.George says that the present value of a $250 payment in one year when the interest rate is 6 percent is less than the value of a $250 payment in two years when the interest rate is 3 percent.

A)John and George are both correct.
B)John and George are both incorrect.
C)Only John is correct.
D)Only George is correct.

Question 39

Your parents put $500 into an account paying 7 percent interest for you when you were ten.Ten years later they tell you that you can take the money out of the account.What is the balance to the nearest penny?

A)$1,200.00
B)$1,111.77
C)$983.58
D)$850.00

Question 40

Jamie deposited $1,000 into an account three years ago.The first two years she earned 5 percent interest,the third she earned 6 percent.How much money does she have in her account today?

A)$1,157.90
B)$1,168.65
C)$1,176.00
D)None of the above are correct to the nearest penny.

Question 41

Two years ago Brian put some money into an account.He earned 6 percent interest on this account and now has about $1,000.About how much did he deposit into his account two years ago?

A)about $860
B)about $870
C)about $880
D)about $890

Question 42

Ozzie put $15,000 into an account with a fixed rate two years ago and now has $16,224.00.What rate of interest did Ozzie earn?

A)2 percent
B)3 percent
C)4 percent
D)6 percent

Question 43

Four years ago Matt deposited some money into an account.He earned 5 percent on this account and now has a balance of about $303.88.How much did he deposit into his account when he opened it?

A)about $210
B)about $220
C)about $240
D)about $250

Question 44

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

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

Question 45

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

A)$12,579.84
B)$12,596.80
C)$12,597.12
D)None of the above are correct to the nearest penny.

Question 46

You are given three options.You may have the balance in an account that has been collecting 5 percent interest for 20 years,the balance in an account that has been collecting 10 percent interest for 10 years,or the balance in an account that has been collecting 20 percent interest for five years.Each account had the same original balance.Which account now has the lowest balance?

A)the first one
B)the second one
C)the third one
D)It doesn't matter; they all have the same balance.

Question 47

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?

A)the two-year account at 9 percent
B)the three-year account at 6 percent
C)the six-year account at 3 percent
D)The accounts are all worth the same.

Question 48

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.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 most dollars when he retires?

A)Al
B)Ralph
C)Stan
D)They all retire with the same amount.

Question 49

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?

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

Question 50

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account.If your accountant is correct what is the current interest rate?

A)6 percent
B)7 percent
C)8 percent
D)9 percent

Question 51

Martin put $250 in an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Martin have in his account now?

A)$302.50
B)$306.23
C)$308.67
D)$309.39

Question 52

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

A)$1,000 × (1.06)
B)$1,000⁽¹.⁰⁶⁾
C)$1,000/(1.06)
D)None of the above is correct.

Question 53

You want to have $100,000 in five years.If the interest rate is 8 percent,about how much do you need to save today?

A)$66,225.25
B)$67,556.42
C)$68,058.32
D)$71,428.57

Question 54

Suppose that the price of a bond is equal to the sum of the present value of its future payments.Suppose further that this bond pays $50 in one year and $1,050 in two years.What is the price of the bond if the interest rate is 5 percent?

A)$1,050.00
B)$1,045.35
C)$1,000.00
D)$945.35

Question 55

Brittany wants to have about $500,000 when she retires in 10 years.She has $200,000 to deposit now.Which of the following interest rates would get her savings the closest to $500,000?

A)9.6 percent
B)9.8 percent
C)10 percent
D)10.2 percent

Question 56

Imagine that two years ago you inherited $20,000 and put it in an account paying a fixed 8% annual interest rate.To the nearest dollar,how much money do you have in your account now?

A)$22,880.00
B)$23,200.00
C)$23,232.00
D)$23,328.00

Question 57

When he was 18,Gerald put $100 into an account at an interest rate of 8 percent.He now has about $171.38 in this account.How many years did Gerald leave this money in his account?

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

Question 58

On May 25,1975 three pals graduated from high school,pooled together $1000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2005 they withdrew the money? To the nearest dollar,how much did they withdraw?

A)$2,400
B)$10,063
C)$32,400
D)None of the above are correct to the nearest dollar.

Question 59

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years,you will have $998.25 in your account.If your accountant is correct,what is the current interest rate?

A)9 percent
B)10 percent
C)11 percent
D)12 percent

Question 60

George has almost $300 in his account.Some years ago he put $213.20 into his account that promised to pay 5 percent interest.How many years ago did he open his account?

A)4 years
B)5 years
C)6 years
D)7 years

Question 61

At which interest rate is the present value of $95.40 one year from today equal to $90 today?

A)4 percent
B)5 percent
C)6 percent
D)7 percent

Question 62

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

A)$141.11
B)$141.36
C)$141.75
D)None of the above are correct to the nearest penny.

Question 63

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

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 64

At which interest rate is the present value of $189.28 two years from today equal to $175 today?

A)2 percent
B)4 percent
C)6 percent
D)8 percent

Question 65

At which interest rate is the present value of $135.20 two years from today equal to $125 today?

A)2 percent
B)4 percent
C)6 percent
D)8 percent

Question 66

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

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

Question 67

You've been promised a payment of $400 in the future.In which case is the present value of this payment highest?

A)you wait 4 years and the interest rate is 4%
B)you wait 4 years and the interest rate is 5%
C)you wait 5 years and the interest rate is 4%
D)you wait 5 years and the interest rate is 5%

Question 68

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?

A)$240.38
B)$242.24
C)$244.40
D)None of the above are correct to the nearest penny.

Question 69

At which interest rate is the present value of $260.10 two years from today equal to $250 today?

A)2 percent
B)3 percent
C)4 percent
D)5 percent

Question 70

You are expecting to receive $750 at some time in the future.Which of the following would unambiguously increase the present value of this future payment?

A)Interest rates rise and you get the payment sooner.
B)Interest rates rise and you have to wait longer for the payment.
C)Interest rates fall and you get the payment sooner.
D)Interest rates fall and you have to wait longer to get the payment.

Question 71

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today.What is the present value of these payments?

A)$2,000/(1 + r)².
B)$1,000 + $1,000/(1 + r)
C)$1,000/(1 + r) + $1,000/(1 + r)²
D)$1,000(1 + r) + $1,000(1 + r)²

Question 72

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 4 percent?

A)$500/(1.04)²
B)$500 - 500(1.04)²
C)$500 - $500/(.04)²
D)None of the above is correct.

Question 73

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

A)$95.50
B)$95.24
C)$95.00
D)None of the above are correct to the nearest penny.

Question 74

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

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 75

You are expecting to receive $1,000 at some time in the future.Which of the following would unambiguously decrease the present value of this future payment?

A)Interest rates rise and you get the payment sooner.
B)Interest rates rise and you have to wait longer for the payment.
C)Interest rates fall and you get the payment sooner.
D)Interest rates fall and you have to wait longer to get the payment.

Question 76

You've been promised a payment of $400 in the future.In which case is the present value of this payment highest?

A)you wait 3 years and the interest rate is 6%
B)you wait 3 years and the interest rate is 5%
C)you wait 2 years and the interest rate is 6%
D)you wait 2 years and the interest rate is 5%

Question 77

At which interest rate is the present value of $162.24 two years from today equal to $150 today?

A)4 percent
B)5 percent
C)6 percent
D)None of the above would give a present value within a penny of $162.24.

Question 78

What is the present value of a payment of $100 to be made one year from today?

A)$100*(1 + r)
B)$100/(1 + r)
C)$100 - $100 × r
D)$100 - (1 + r)/$100

Question 79

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

A)an increase 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 80

At which interest rate is the present value of $79.50 one year from today equal to $75 today?

A)4 percent
B)5 percent
C)6 percent
D)7 percent