Question 1

This morning,TL Trucking invested $75,000 to help fund a company expansion project planned for 4 years from now.How much additional money will the firm have 4 years from now if it can earn 5 percent rather than 4 percent on its savings?

Accepted Answer

A) $2,940.09 
B) $3,423.58 
C) $4,008.17 
D) $4,219.68 
E) $4,711.08

Question 2

Samantha opened a savings account this morning.Her money will earn 5 percent interest,compounded annually.After five years,her savings account will be worth $5,600.Assume she will not make any withdrawals.Given this,which one of the following statements is true?

Accepted Answer

A) Samantha deposited more than $5,600 this morning. 
B) The present value of Samantha's account is $5,600. 
C) Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest. 
D) Samantha would have had to deposit more money to have $5,600 in five years if she could have earned 6 percent interest. 
E) Samantha will earn an equal amount of interest every year for the next five years.

Question 3

You have just received notification that you have won the $1.4 million first prize in the Centennial Lottery.However,the prize will be awarded on your 100th birthday,78 years from now.The appropriate discount rate is 8 percent.What is the present value of your winnings?

Accepted Answer

A) $3,288.16 
B) $3,459.99 
C) $5,309.91 
D) $13,333.33 
E) $25,000.00

Question 4

You're trying to save to buy a new $160,000 Ferrari.You have $58,000 today that can be invested at your bank.The bank pays 6 percent annual interest on its accounts.How many years will it be before you have enough to buy the car? Assume the price of the car remains constant.

Accepted Answer

A) 16.67 years 
B) 17.04 years 
C) 17.41 years 
D) 17.87 years 
E) 18.02 years

Question 5

What is the future value of $6,200 invested for 23 years at 9.25 percent compounded annually?

Accepted Answer

A) $22,483.60 
B) $27,890.87 
C) $38,991.07 
D) $41,009.13 
E) $47,433.47

Question 6

You are scheduled to receive $30,000 in two years.When you receive it,you will invest it for 5 more years,at 6 percent per year.How much money will you have 7 years from now?

Accepted Answer

A) $38,909.19 
B) $39,381.16 
C) $40,146.77 
D) $47,209.19 
E) $51,414.73

Question 7

You just received a $3,000 gift from your grandmother.You have decided to save this money so that you can gift it to your grandchildren 50 years from now.How much additional money will you have to gift to your grandchildren if you can earn an average of 8.5 percent instead of just 8 percent on your savings?

Accepted Answer

A) $17,318.09 
B) $22,464.79 
C) $25,211.16 
D) $28,811.99 
E) $36,554.11

Question 8

At 8 percent interest,how long would it take to quadruple your money?

Accepted Answer

A) 16.55 years 
B) 16.64 years 
C) 17.09 years 
D) 18.01 years 
E) 18.56 years

Question 9

Which one of the following variables is the exponent in the present value formula?

Accepted Answer

A) present value. 
B) future value. 
C) interest rate. 
D) time. 
E) There is no exponent in the present value formula.

Question 10

Suppose that the first comic book of a classic series was sold in 1954.In 2000,the estimated price for this comic book in good condition was about $340,000.This represented a return of 27 percent per year.For this to be true,what was the original price of the comic book in 1954?

Accepted Answer

A) $5.00 
B) $5.28 
C) $5.50 
D) $5.71 
E) $6.00

Question 11

Today,you earn a salary of $36,000.What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent?

Accepted Answer

A) $55,032.54 
B) $57,414.06 
C) $58,235.24 
D) $59,122.08 
E) $59,360.45

Question 12

Suppose you are committed to owning a $140,000 Ferrari.You believe your mutual fund can achieve an annual rate of return of 8 percent and you want to buy the car in 7 years.How much must you invest today to fund this purchase assuming the price of the car remains constant?

Accepted Answer

A) $74,208.16 
B) $81,688.66 
C) $87,911.08 
D) $98,019.82 
E) $99,446.60

Question 13

You have just made a $1,500 contribution to your individual retirement account.Assume you earn a 12 percent rate of return and make no additional contributions.How much more will your account be worth when you retire in 25 years than it would be if you waited another 10 years before making this contribution?

Accepted Answer

A) $8,306.16 
B) $9,658.77 
C) $16,311.18 
D) $16,907.17 
E) $17,289.75

Question 14

Andy deposited $3,000 this morning into an account that pays 5 percent interest,compounded annually.Barb also deposited $3,000 this morning into an account that pays 5 percent interest,compounded annually.Andy will withdraw his interest earnings and spend it as soon as possible.Barb will reinvest her interest earnings into her account.Given this,which one of the following statements is true?

Accepted Answer

A) Barb will earn more interest the first year than Andy will. 
B) Andy will earn more interest in year three than Barb will. 
C) Barb will earn interest on interest. 
D) After five years, Andy and Barb will both have earned the same amount of interest. 
E) Andy will earn compound interest.

Question 15

A year ago,you deposited $40,000 into a retirement savings account at a fixed rate of 5.5 percent.Today,you could earn a fixed rate of 6.5 percent on a similar type account.However,your rate is fixed and cannot be adjusted.How much less could you have deposited last year if you could have earned a fixed rate of 6.5 percent and still have the same amount as you currently will when you retire 38 years from today?

Accepted Answer

A) $10,118.42 less 
B) $10,333.33 less 
C) $11,417.09 less 
D) $12,274.12 less 
E) $12,313.30 less

Question 16

Theo needs $40,000 as a down payment for a house 6 years from now.He earns 2.5 percent on his savings.Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum.How much additional money must he deposit if he waits for one year rather than making the deposit today?

Accepted Answer

A) $778.98 
B) $811.13 
C) $862.30 
D) $948.03 
E) $1,020.18

Question 17

Your older sister deposited $5,000 today at 8.5 percent interest for 5 years.You would like to have just as much money at the end of the next 5 years as your sister will have.However,you can only earn 7 percent interest.How much more money must you deposit today than your sister did if you are to have the same amount at the end of the 5 years?

Accepted Answer

A) $321.19 
B) $360.43 
C) $387.78 
D) $401.21 
E) $413.39

Question 18

Alex invested $10,500 in an account that pays 6 percent simple interest.How much money will he have at the end of four years?

Accepted Answer

A) $12,650 
B) $12,967 
C) $13,020 
D) $13,256 
E) $13,500

Question 19

You hope to buy your dream car four years from now.Today,that car costs $82,500.You expect the price to increase by an average of 4.8 percent per year over the next four years.How much will your dream car cost by the time you are ready to buy it?

Accepted Answer

A) $98,340.00 
B) $98,666.67 
C) $99,517.41 
D) $99,818.02 
E) $100,023.16

Question 20

You want to have $25,000 saved 6 years from now to buy a house.How much less do you have to deposit today to reach this goal if you can earn 5.5 percent rather than 5 percent on your savings? Today's deposit is the only deposit you will make to this savings account.

Accepted Answer

A) $524.24 
B) $691.18 
C) $724.60 
D) $745.11 
E) $819.02

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