Question 1

Melissa offers you $1,000 today or $1,500 in 5 years.You would prefer to take the $1,500 in 5 years if the interest rate is

Accepted Answer

A) 8 percent. 
B) 9 percent. 
C) 10 percent. 
D) All of the above are correct.

Question 2

Tim put $275 in the bank one year ago and forgot about it.Today,the bank sent Tim a statement indicating that he now has $294.25 in his account.What interest rate did Tim earn?

Accepted Answer

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

Question 3

Imagine that someone offers you $100 today or $200 in 10 years.You would prefer to take the $100 today if the interest rate is

Accepted Answer

A) 4 percent. 
B) 6 percent. 
C) 8 percent. 
D) All of the above are correct.

Question 4

Toni deposited $250 into an account and one year later she had $272.50 in the account.What interest rate was paid on Toni's deposit?

Accepted Answer

A) 8 percent 
B) 9 percent 
C) 10 percent 
D) None of the above is correct.

Question 5

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,917.66.What rate of interest did Robert earn?

Accepted Answer

A) 4.5 percent 
B) 5.4 percent 
C) 6.2 percent 
D) 8.0 percent

Question 6

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?

Accepted Answer

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

Question 7

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

Accepted Answer

A) $2,000(1.06) 
B) $1,000 + $(1.06)2 
C) $1,000(1.06)2 
D) None of the above are correct.

Question 8

Sometimes On Time (SOT)Airlines is considering buying a new jet.SOT would be more likely to buy a new jet if there were either

Accepted Answer

A) a decrease in the price of a new jet or a decrease in the interest rate. 
B) a decrease in the price of a new jet or an increase in the interest rate. 
C) an increase in the price of a new jet or a decrease in the interest rate. 
D) an increase in the price of a new jet or an increase in the interest rate.

Question 9

Lucretia puts $400 into an account when the interest rate is 10 percent.Later she checks her balance and finds it's worth about $708.62.How many years did she wait to check her balance?

Accepted Answer

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

Question 10

A company that produces wallpaper is considering buying some new equipment that it expects will increase future profits.If the interest rate falls,then the present value of these future earnings

Accepted Answer

A) rises.The company is more likely to buy the equipment. 
B) rises.The company is less likely to buy the equipment. 
C) falls.The company is more likely to buy the equipment. 
D) falls.The company is less likely to buy the equipment.

Question 11

What is the future value of $375 at an interest rate of 3 percent one year from today?

Accepted Answer

A) $371.75 
B) $386.25 
C) $393.33 
D) None of the above are correct to the nearest cent.

Question 12

On May 25,1980 three pals graduated from high school,pooled together $3,000 and put the money into an account promising to pay 8% for the next 30 years.On May 25,2010 they withdrew all the money from the account.To the nearest dollar,how much did they withdraw?

Accepted Answer

A) $25,962 
B) $27,297 
C) $30,188 
D) None of the above are correct to the nearest dollar.

Question 13

You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?

Accepted Answer

A) The interest rate on the loan from Bank A is higher than the interest rate on the loan from Bank B. 
B) The interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank B. 
C) The interest rates on the two loans are the same. 
D) There is not enough information to determine which loan has the higher interest rate.

Question 14

Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years at 2 percent interest.Lefty says that the present value of $400 to be received one year from today if the interest rate is 4 percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.

Accepted Answer

A) Braden and Lefty are both correct. 
B) Braden and Lefty are both incorrect. 
C) Only Braden is correct. 
D) Only Lefty is correct.

Question 15

Suppose you have a choice between receiving a lump-sum payment of $10,000 today or four annual payments of $2,750 (with the first payment today).Of the following,which is the lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?

Accepted Answer

A) 2% 
B) ​5% 
C) ​7% 
D) ​10%

Question 16

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 17

At which interest rate is the present value of $80.25 one year from today equal to $75 today?

Accepted Answer

A) 4 percent 
B) 5 percent 
C) 6 percent 
D) 7 percent

Question 18

You deposit X dollars into a 3-year certificate of deposit that pays 4.75 percent annual interest.At the end of the 3 years you have $4,229.70.What number of dollars,X,did you deposit?

Accepted Answer

A) $3,680.00 
B) $3,712.77 
C) $3,750.00 
D) $3,772.57

Question 19

Felix deposited $500 into an account two years ago.The first year he earned 3 percent interest and the second year he earned 5 percent interest.How much money does Felix have in his account now?

Accepted Answer

A) $540.75 
B) $540.80 
C) $540.85 
D) None of the above are correct to the nearest cent.

Question 20

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $2,000 to save for two years?

Accepted Answer

A) an interest rate of 5 percent,with the bank charging you a $15 processing fee at the time you open your account 
B) an interest rate of 3.5 percent,with the bank giving you a $35 bonus to open your account 
C) an interest rate of 4 percent,with the bank giving you a $20 bonus at the time you open your account 
D) an interest rate of 4.5 percent,with no processing fee and no bonus

Exam 14: The Basic Tools of Finance: Present Value Measuring the Time Value of Money