Question 1

You decide you want your child to be a millionaire.You have a son today and you deposit $10,000 in an investment account that earns 7% per year.The money in the account will be distributed to your son whenever the total reaches $1,500,000.How old will your son be when he gets the money (rounded to the nearest year)?

Accepted Answer

A)  82 years 
B)  74 years 
C)  60 years 
D)  49 years

Question 2

You deposit $5,000 per year at the end of each of the next 25 years into an account that pays 8% compounded annually.How much could you withdraw at the end of each of the 20 years following your last deposit if all withdrawals are the same dollar amount? (The twenty-fifth and last deposit is made at the beginning of the 20-year period.The first withdrawal is made at the end of the first year in the 20-year period.)

Accepted Answer

A)  $18,276 
B)  $27,832 
C)  $37,230 
D)  $43,289

Question 3

To compound $100 quarterly for 20 years at 8%,we must use

Accepted Answer

A)  40 periods at 4%. 
B)  5 periods at 12%. 
C)  10 periods at 4%. 
D)  80 periods at 2%.

Question 4

The future value of a 10-year ordinary annuity is twice as much as the future value of an otherwise identical 5-year annuity.

Accepted Answer

A) True 
 B)False

Exam 5: The Time Value of Money

To compound $100 quarterly for 20 years at 8%,we must use

The future value of a 10-year ordinary annuity is twice as much as the future value of an otherwise identical 5-year annuity.