Question 1

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of

Accepted Answer

A) $110.00 two years from today. 
B) $112.49 three years from today. 
C) $116.00 four years from today. 
D) $123.67 five years from today.

Question 2

Xavier puts $7,000 into each of two different assets. The first asset pays 14 percent interest and the second pays 7 percent. According to the rule of 70, what is the approximate difference in the value of the two assets after 10 years?

Accepted Answer

A) $3,500 
B) $7,700 
C) $11,900 
D) $14,000

Question 3

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

Accepted Answer

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

Question 4

According to the Rule of 70, it takes 70 years for a sum of money to double in value when the interest rate is 5 percent.​

Accepted Answer

A) True 
 B)False

Question 5

If the interest rate is 8 percent, then the present value of $1,000 to be received in 4 years is $735.03.

Accepted Answer

A) True 
 B)False

Question 6

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

Accepted Answer

A) $500(1 + r) + $10,500/(1 + r)2 
B) $500/(1 + r) + $10,500/(1 + r)2 
C) $11,000/(1 + r)2 
D) $500(1 + r) + $10,500(1 + r)2

Question 7

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

Question 8

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

Accepted Answer

A) the less a person waits to withdraw the funds. 
B) the smaller the risk is. 
C) the lower the interest rate is. 
D) the larger the initial deposit is.

Question 9

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

Accepted Answer

The answer of A company has an investment project that...

Question 10

If the interest rate is 8 percent, then what is the present value of $5,000 to be received in ten years?

Accepted Answer

The answer of If the interest rate is 8 percent,...

Question 11

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

Accepted Answer

A) True 
 B)False

Question 12

Sari puts $100 into an account with an interest rate of 10 percent. According to the rule of 70, about how much does she have at the end of 21 years?

Accepted Answer

A) $210 
B) $300 
C) $800 
D) $1,010

Question 13

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

Accepted Answer

A) True 
 B)False

Question 14

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.​

Accepted Answer

A) True 
 B)False

Question 15

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

Accepted Answer

The answer of Suppose you place $1,000 into a savings...

Question 16

A person's subjective measure of well-being or satisfaction is called aversion.

Accepted Answer

A) True 
 B)False

Question 17

A company that can build a project that will cost $50,000, but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

Accepted Answer

A) True 
 B)False

Question 18

According to the efficient markets hypothesis, stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

Accepted Answer

A) True 
 B)False

Exam 27: Tools of Finance

If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of

Xavier puts $7,000 into each of two different assets. The first asset pays 14 percent interest and the second pays 7 percent. According to the rule of 70, what is the approximate difference in the value of the two assets after 10 years?

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

According to the Rule of 70, it takes 70 years for a sum of money to double in value when the interest rate is 5 percent.​

If the interest rate is 8 percent, then the present value of $1,000 to be received in 4 years is $735.03.

A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?

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?

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

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

If the interest rate is 8 percent, then what is the present value of $5,000 to be received in ten years?

The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum.

Sari puts $100 into an account with an interest rate of 10 percent. According to the rule of 70, about how much does she have at the end of 21 years?

ZZL Corporation has the opportunity to undertake an investment project that will cost $20,000 today. If the interest rate is 20 percent and if the project will yield the company $30,000 in 3 years, then ZZL will undertake the project.

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.​

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

A person's subjective measure of well-being or satisfaction is called aversion.

A company that can build a project that will cost $50,000, but returns $52,000 in one year would make a good decision by turning this project down if the interest rate were 3 percent.

According to the efficient markets hypothesis, stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year.

According to the Rule of 70, it takes 70 years for a sum of money to double in value when the interest rate is 5 percent.

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.