Question 1

Suppose the interest rate is 8 percent.Consider three payment options.
1)$300 today.
2)$330 one year from today.
3)$360 two years from today.
Which of the following is correct?

Accepted Answer

A) 1 has the highest present value and 2 has the lowest. 
B) 2 has the highest present value and 3 has the lowest. 
C) 3 has the highest present value and 1 has the lowest. 
D) None of the above is correct.

Question 2

Markovich Corporation is considering building a new plant.It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today.Of the interest rates below,which is the highest interest rate at which Markovich still would be willing to build the plant?

Accepted Answer

A) 3 percent 
B) 3.5 percent 
C) 4 percent 
D) 4.5 percent

Question 3

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty.The first one gives her $100,000 one year from today and $100,000 two years from today.The second one gives her $132,000 one year from today and $66,000 two years from today.As her agent,you must compute the present value of each contract.Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

Accepted Answer

A) 7 percent 
B) 8 percent 
C) 9 percent 
D) 10 percent

Question 4

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

Accepted Answer

A) $141.11 
B) $141.36 
C) $141.75 
D) None of the above are correct to the nearest cent.

Question 5

A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $12,000 two years from today.Of the following interest rates,which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A) 4 percent 
B) 6 percent 
C) 9 percent 
D) 11 percent

Question 6

Tonya put $250 into an account three years ago.The first year he earned 6 percent interest,the second year 7 percent,and the third year 8 percent.About how about much does Tonya have in her account now?

Accepted Answer

A) $302.50 
B) $306.23 
C) $308.67 
D) $309.39

Question 7

Hector puts $150 into an account when the interest rate is 4 percent.Later he checks his balance and finds he has about $168.73.How long did Hector wait to check his balance?

Accepted Answer

A) 3 years 
B) 3.5 years 
C) 4 years 
D) 4.5 years

Question 8

You are given three options.You may have the balance in an account that has been collecting 5 percent interest for 20 years,the balance in an account that has been collecting 10 percent interest for 10 years,or the balance in an account that has been collecting 20 percent interest for five years.Each account had the same original balance.Which account now has the lowest balance?

Accepted Answer

A) the first one 
B) the second one 
C) the third one 
D) They all have the same balance.

Question 9

A car salesperson gives you four alternative ways to pay for your car.The first is to pay $18,000 today.The second is to pay $19,000 one year from today.The third is to pay $20,300 two years from today.The fourth is to pay $21,500 three years from today.If the interest rate is 6 percent,which payment option has the lowest present value and which has the highest?

Accepted Answer

A) The first is lowest;the second is highest. 
B) The second is lowest;the third is highest. 
C) The third is lowest;the fourth is highest. 
D) The fourth is lowest;the first is highest.

Question 10

You put $75 in the bank one year ago and forgot about it.The bank sends you a notice that you now have $81 in your account.What interest rate did you earn?

Accepted Answer

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

Question 11

Allen Steel Company is considering whether to build a new mill.If the interest rate rises,

Accepted Answer

A) the present value of the returns from the mill will fall,so Allen will be less likely to build the mill. 
B) the present value of the returns from the mill will fall,so Allen will be more likely to build the mill. 
C) the present value of the returns from the mill will rise,so Allen will be less likely to build the mill. 
D) the present value of the returns from the mill will rise,so Allen will be more likely to build the mill.

Question 12

Suppose the interest rate is 7 percent.Consider four payment options:
Option A: $500 today.
Option B: $550 one year from today.
Option C: $575 two years from today.
Option D: $600 three years from today.
-Which of the payments has the lowest present value today?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 13

Ellen deposited $500 into an account and two years later she had $561.80 in the account.What interest rate was paid on Ellen's deposit?

Accepted Answer

A) 4.88 percent 
B) 6.00 percent 
C) 12.36 percent 
D) None of the above is correct.

Question 14

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Accepted Answer

A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 5 percent

Question 15

Four years ago Ollie deposited some money into an account.He earned 5 percent interest on this account and now it has a balance of $303.88.About how much money did Ollie deposit into his account when he opened it?

Accepted Answer

A) $210 
B) $220 
C) $240 
D) $250

Question 16

Sage decides to cash in all his savings to open a recording studio.He has three accounts to cash in.The first earned 9 percent for two years.The second earned 6 percent for three years.And the last earned 3 percent for six years.Supposing he started with $5,000 in each account,from which account will he get the most cash?

Accepted Answer

A) the two-year account at 9 percent 
B) the three-year account at 6 percent 
C) the six-year account at 3 percent 
D) The accounts are all worth the same.

Question 17

Suppose the parents of a child born in the year 2000 had invested $5,000 at a 10% interest rate to be paid out to the child when she turns 21 years old.Approximately how many times will the investment double by the time it is paid out to the child?

Accepted Answer

A) 2 times 
B) 3 times 
C) 4 times 
D) 8 times

Question 18

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

Accepted Answer

A) $100(1 + .0410) 
B) $100(1 + .04  10) 
C) $100 × 10  (1 + .04) 
D) $100(1 + .04)10

Question 19

A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today.What is the present value of these payments?

Accepted Answer

A) $2,000/(1 + r)2. 
B) $1,000 + $1,000/(1 + r) 
C) $1,000/(1 + r)+ $1,000/(1 + r)2 
D) $1,000(1 + r)+ $1,000(1 + r)2

Question 20

Two years ago Darryl put $3,000 into an account paying 3 percent interest.How much does he have in the account today?

Accepted Answer

A) $3,180.00 
B) $3,182.70 
C) $3,183.62 
D) None of the above are correct to the nearest cent.

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

Suppose the interest rate is 8 percent.Consider three payment options. 1) $300 today. 2) $330 one year from today. 3) $360 two years from today. Which of the following is correct?