Question 1

Which of the following has the highest future value?

Accepted Answer

A) $100 saved for 2 years at 10 percent interest 
B) $110 saved for 2 years at 9 percent interest 
C) $120 saved for 2 years at 8 percent interest 
D) $130 saved for 2 years at 7 percent interest

Question 2

Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?

Accepted Answer

A) $1,000  (1.06) 
B) $1,000(1.06) 
C) $1,000/(1.06) 
D) None of the above is correct.

Question 3

Suppose you put $350 into a bank account today.Interest is paid annually and the annual interest rate is 6 percent.The future value of the $350 after 4 years is

Accepted Answer

A) $414.09. 
B) $434.00. 
C) $441.87. 
D) $481.24.

Question 4

You have been promised a payment of $100,000 in the future.In which case is the present value of this future payment highest?

Accepted Answer

A) You receive the payment 2 years from now and the interest rate is 6 percent. 
B) You receive the payment 2 years from now and the interest rate is 4 percent. 
C) You receive the payment 3 years from now and the interest rate is 6 percent. 
D) You receive the payment 3 years from now and the interest rate is 4 percent.

Question 5

Nancy would like to double the money in her retirement account in five years.According to the rule of 70,what rate of interest would she need to earn to attain her objective?

Accepted Answer

A) 5 percent 
B) 7 percent 
C) 10 percent 
D) 14 percent

Question 6

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 highest annual interest rate at which you would prefer the four annual payments over the lump-sum payment?

Accepted Answer

A) 2% 
B) ​5% 
C) ​7% 
D) ​10%

Question 7

Anna deposited $10,000 into an account three years ago.The first year she earned 12 percent interest,the second year she earned 8 percent interest,and the third year she earned 4 percent interest.How much money does she have in her account today?

Accepted Answer

A) $12,579.84 
B) $12,596.80 
C) $12,597.12 
D) None of the above are correct to the nearest cent.

Question 8

The concept of present value helps explain why

Accepted Answer

A) investment decreases when the interest rate increases,and it also helps explain why the quantity of loanable funds demanded decreases when the interest rate increases. 
B) investment decreases when the interest rate increases,but it is of no help in explaining why the quantity of loanable funds demanded decreases when the interest rate increases. 
C) the quantity of loanable funds demanded decreases when the interest rate increases,but it is of no help in explaining why investment decreases when the interest rate increases. 
D) None of the above are correct;the concept of present value is of no help in explaining why either investment or the quantity of loanable funds demanded decreases when the interest rate increases.

Question 9

Happy Trails,a bicycle rental company,is considering purchasing three additional bicycles.Each bicycle would cost them $249.66.At the end of the first year the increase to their revenues would be $140 per bicycle.At the end of the second year the increase to their revenues again would be $140 per bicycle.Thereafter,there are no increases to their revenues.At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle?

Accepted Answer

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

Question 10

What is the future value of $750 one year from today if the interest rate is 2.5 percent?

Accepted Answer

A) $766.50 
B) $768.75 
C) $770.23 
D) None of the above are correct to the nearest cent.

Question 11

Two years ago Lenny put some money into an account.He earned 6 percent interest on this account and now he has about $1,000.About how much did Lenny deposit into his account two years ago?

Accepted Answer

A) about $860 
B) about $870 
C) about $880 
D) about $890

Question 12

If you put $250 into an account with a 4 percent interest rate,how many years would you have to wait to have $432.92?

Accepted Answer

A) 10 
B) 14 
C) 17 
D) 20

Question 13

Three years ago Dawn put $1,200 into an account paying 2 percent interest.How much is Dawn's account worth today?

Accepted Answer

A) $1,225.38 
B) $1,248.48 
C) $1,264.72 
D) $1,273.45

Question 14

Which of the following is the largest?

Accepted Answer

A) the future value of $250 with 3% interest for 2 years 
B) the future value of $250 at 2% interest for 3 years 
C) the present value of $250 to be paid in two years when the interest rate is 3% 
D) the present value of $250 to be paid in three years when the interest rate is 2%

Question 15

Which of the following concepts is most helpful in explaining why investment increases when the interest rate falls?

Accepted Answer

A) deadweight loss 
B) present value 
C) economic growth 
D) financial intermediation

Question 16

If the interest rate is 4%,in which of the following cases is the future value the largest?

Accepted Answer

A) An initial value of $1,000 deposited for 5 years. 
B) An initial value of $950 deposited for 6 years. 
C) An initial value of $900 deposited for 7 years. 
D) An initial value of $850 deposited for 8 years.

Question 17

Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 8 percent.The future value of the $500 after 2 years is

Accepted Answer

A) $428.67. 
B) $470.00. 
C) $580.00. 
D) $583.20.

Question 18

Suppose the interest rate is 8 percent.Consider three payment options:
1)$200 today.
2)$220 one year from today.
3)$240 two years from today.
Which of the following is correct?

Accepted Answer

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

Question 19

Al,Ralph,and Stan are all intending to retire.Each currently has $1 million in assets.Al will earn 16% interest and retire in two years.Ralph will earn 8% interest and retire in four years.Stan will earn 4% interest and retire in eight years.Who will have the largest sum when he retires?

Accepted Answer

A) Al 
B) Ralph 
C) Stan 
D) They all retire with the same amount.

Question 20

If you presently have $50,000 saved and earn 15 percent interest per year,about how many years will it take for your investment to triple?

Accepted Answer

A) 6 
B) 8 
C) 10 
D) 12

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