Question 1

What is the rate needed (compounded annually) for $95,000 to mature to $250,000 in 25 years?

Accepted Answer

The answer of What is the rate needed (compounded annually)...

Question 2

Provide a definition of simple interest.

Accepted Answer

The answer of Provide a definition of simple interest....

Question 3

Chia Burgers began operations by opening 115 restaurants in Western Canada at the end of its first year of operations. By the end of year 2, an additional 5 restaurants were opened. By the end of year 3, there were 130 restaurants operational. At the end of year 5, there were 138 total restaurants.

If the number of eating establishments is expected to grow in year 6 at the same rate as the percentage increase in year 5, how many new eating establishments will be added in year 6?

Accepted Answer

A)  5 
B)  6 
C)  7 
D)  8 
E)  9

Question 4

$15,000 is invested into a plan earning 5% compounded quarterly for the first ten years. What will the rate of interest have to be for the next ten years (compounded monthly) for the value to reach $40,000?

Accepted Answer

The answer of $15,000 is invested into a plan earning...

Question 5

You own a stamp collection that is currently valued at $24,500. If the value increases by 5.5% annually, how much will the collection be worth when you retire 40 years from now?

Accepted Answer

A)  $204,113.07 
B)  $204,981.16 
C)  $205,155.45 
D)  $206,666.67 
E)  $208,576.07

Question 6

The Blackwell Co. expects to receive $135,000 from an insurance settlement four years from now. If the company can earn 11% on its investments, what is the value of the insurance settlement worth today?

Accepted Answer

A)  $85,368.94 
B)  $87,693.43 
C)  $88,928.68 
D)  $130,161.39 
E)  $140,018.48

Question 7

Compounding is the process of finding the present value of some future amount.

Accepted Answer

A) True 
 B)False

Question 8

Sampson, Inc. invested $1.325 million in a project that earned an 8.25% rate of return. Sampson sold their investment for $3,713,459. How much sooner could Sampson have sold the company if they only wanted $3 million from the project?

Accepted Answer

A)  2.69 years 
B)  3.33 years 
C)  5.17 years 
D)  6.67 years 
E)  10.31 years

Question 9

You hope to buy your dream house six years from now. Today your dream house costs $189,900. You expect housing prices to rise by an average of 4.5% per year over the next six years. How much will your dream house cost by the time you are ready to buy it?

Accepted Answer

A)  $240,284.08 
B)  $246,019.67 
C)  $246,396.67 
D)  $246,831.94 
E)  $247,299.20

Question 10

You have just landed your first job. Part of the offer includes a $4,000 new employee bonus which is intended to cover your relocation costs. You have determined that you can move yourself for $1,000. Thus, you have decided to open an Individual Retirement Account with the remaining $3,000. How much more will this investment be worth 35 years from now if you can earn an average rate of return of 9.5% rather than 9%?

Accepted Answer

A)  $10,639.32 
B)  $10,676.16 
C)  $11,207.91 
D)  $11,341.41 
E)  $11,454.54

Question 11

Alpha, Inc. is saving money to build a new factory. Six years ago they set aside $250,000 for this purpose. Today, that account is worth $306,958. What rate of interest is Alpha earning on this money?

Accepted Answer

A)  3.43% 
B)  3.45% 
C)  3.48% 
D)  3.52% 
E)  3.55%

Question 12

Lisa deposited $500 in a savings account this morning. The account pays 2.5% simple interest. If Lisa leaves this money in the account for five years, how much total interest will she earn?

Accepted Answer

A)  $10.75 
B)  $12.50 
C)  $53.75 
D)  $62.50 
E)  $67.25

Question 13

Stephen has $2,400 to invest. Which one of the following investment options will produce the largest future value for him?

Accepted Answer

A)  7% simple interest for 10 years 
B)  7%, compounded annually for 10 years 
C)  7%, compounded monthly for 12 years 
D)  7%, compounded annually for 12 years 
E)  7, simple interest for 12 years

Question 14

Interest earned on the reinvestment of previous interest payments is called _____ interest.

Accepted Answer

A)  Free. 
B)  Annual. 
C)  Simple. 
D)  Interest on. 
E)  Intermediary.

Question 15

Your goal is to have $50,000 in cash to build a new home twelve years from now. Your plan is to make one deposit today to fund this goal. How much more will you have to deposit today to fund this goal if you can only earn 4% on your savings rather than 5%?

Accepted Answer

A)  $3,104.11 
B)  $3,188.87 
C)  $3,218.07 
D)  $3,273.16 
E)  $3,387.98

Question 16

Twelve years ago, Jake invested $2,000. Six years ago, Tami invested $4,000. Today, both Jake's and Tami's investments are each worth $9,700. Assume that both Jake and Tami continue to earn their respective rates of return. Which one of the following statements is correct concerning these investments?

Accepted Answer

A)  Three years from today, Jake's investment will be worth more than Tami's. 
B)  One year ago, Tami's investment was worth more than Jake's. 
C)  Jake has earned a higher rate of return than Tami. 
D)  Tami has earned an average annual interest rate of 15.91%. 
E)  Jake has earned an average annual interest rate of 15.47%.

Question 17

When you retire thirty years from now, you want to have $750,000. You think you can earn an average of 9% on your money. To meet this goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today. How much more will you have to deposit as a lump sum if you wait for five years before making the deposit?

Accepted Answer

A)  $28,788.03 
B)  $29,414.14 
C)  $30,447.52 
D)  $36,118.09 
E)  $38,278.27

Question 18

Compound interest means that you earn:

Accepted Answer

A)  Interest only on the initial amount invested. 
B)  Interest on the initial principal only. 
C)  Interest on both the principal and prior reinvested interest. 
D)  A decreasing amount of interest each year. 
E)  The same amount of interest each year.

Question 19

How long will it take for money to double at a rate of 6% compounded monthly?

Accepted Answer

The answer of How long will it take for money...

Question 20

Koji invested $3,300 at 7.75% interest. After a period of time he withdrew $9,383.31. How long did Koji have his money invested?

Accepted Answer

A)  13 years 
B)  14 years 
C)  15 years 
D)  16 years 
E)  17 years

Exam 5: Introduction to Valuation: the Time Value of Money