Question 1

What effective annual rate of return (EAR) would Rayne need to earn if she deposits $1,000 per month into an account beginning one month from today in order to have a total of $1,000,000 in 30 years?

Accepted Answer

A)  5.98% 
B)  6.55% 
C)  4.87% 
D)  6.14%

Question 2

During her four years at college, Hayley received the following amounts of money at the end of each year from her grandmother. She deposited her money in a savings account paying 6 percent rate of interest. How much money will Hayley have on graduation day?

Accepted Answer

The answer of During her four years at college, Hayley...

Question 3

Calculate the future value of $10,000 received today and deposited for six years in an account which pays interest of 12 percent compounded quarterly.

Accepted Answer

The answer of Calculate the future value of $10,000 received...

Question 4

Gina has planned to start her college education four years from now. To pay for her college education, she has decided to save $1,000 a quarter for the next four years in a bank account paying 12 percent interest. How much will she have at the end of the fourth year?

Accepted Answer

A)  $ 1,574 
B)  $19,116 
C)  $20,157 
D)  $16,000

Question 5

For a given positive interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.

Accepted Answer

A) True 
 B)False

Question 6

What is the rate of return on an investment of $124,090 if the company expects to receive $10,000 per year for the next 30 years?

Accepted Answer

A)  7 percent 
B)  4 percent 
C)  6 percent 
D)  5.5 percent

Question 7

A ski chalet at Peak n' Peak now costs $250,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Chris and Julie retire from successful investment banking careers. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?

Accepted Answer

A)  $ 8,333 
B)  $13,572 
C)  $25,005 
D)  $22,109

Question 8

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate.

Accepted Answer

A)  effective 
B)  nominal 
C)  discounted 
D)  continuous

Question 9

Nico is the new assistant branch manager of a larger Florida-based bank and the branch manager has asked him a question to test his knowledge. The question he asked is which rate should the bank advertise on monthly-compounded loans, the nominal annual percentage rate or the effective annual percentage rate? Which rate should the bank advertise on quarterly-compounded savings accounts? Explain. As a consumer, which would you prefer to see and why?

Accepted Answer

The answer of Nico is the new assistant branch manager...

Question 10

The future value of $100 received today and deposited at 6 percent for four years is ________.

Accepted Answer

A)  $126 
B)  $ 79 
C)  $124 
D)  $116

Question 11

If a United States Savings bond can be purchased for $29.50 and has a maturity value of $100 at the end of 25 years, what is the annual rate of return on the bond?

Accepted Answer

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

Question 12

The future value of a dollar ________ as the interest rate increases and ________ the further in the future an initial deposit is to be received.

Accepted Answer

A)  decreases; decreases 
B)  decreases; increases 
C)  increases; increases 
D)  increases; decreases

Question 13

Colin has inherited $6,000 from the death of Grandma Anna. He would like to use this money to buy his mom Hayley a new scooter costing $7,000, two years from now. Will Colin have enough money to buy the gift if he deposits his money in an account paying 8 percent compounded semiannually?

Accepted Answer

The answer of Colin has inherited $6,000 from the death...

Exam 5: Time Value of Money