Question 1

Future value focuses on the valuation of cash flows received over time, while present value focuses on the valuation of cash flows received at a point in time.

Accepted Answer

A) True 
 B)False

Question 2

Berrian invested $5,000 in an account earning 10 percent for one year. If he had left his investment in that account for another two years, he would expect the total interest earned over the three years to be higher by exactly $1,000.

Accepted Answer

A) True 
 B)False

Question 3

Interest rate: Ray has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment?

Accepted Answer

A)  9.3% 
B)  8.7% 
C)  11.1% 
D)  10.4%

Question 4

Multiple compounding periods (FV): Your mother is trying to choose one of the following bank term deposits to invest $10,000. Which one will have the highest future value if she plans to invest for three years?

Accepted Answer

A)  3.5% compounded daily 
B)  3.25% compounded monthly 
C)  3.4% compounded quarterly 
D)  3.75% compounded annually.

Question 5

Compounding: Chung Lee wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years?

Accepted Answer

A)  $695.98 
B)  $65.98 
C)  $630.00 
D)  $160.63

Question 6

Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.)

Accepted Answer

A)  $16,935 
B)  $26,454 
C)  $16,670 
D)  $19,444

Question 7

Compounding: Richard Delgado invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest-on-interest be after two years?

Accepted Answer

A)  $1,218.63 
B)  $1,150.00 
C)  $33.06 
D)  $68.63

Question 8

The present value technique uses compounding to find the present value of each cash flow at the beginning of the project.

Accepted Answer

A) True 
 B)False

Question 9

The Rule of 72 allows one to calculate the return earned on an investment over six years.

Accepted Answer

A) True 
 B)False

Question 10

Interest rate: Sofie wants to invest $25,000 in a spa that her sister is starting. She will triple her investment in six years. What is the rate of return that Sofie is being promised? (Rounded to the nearest per cent.)

Accepted Answer

A)  18% 
B)  20% 
C)  12% 
D)  25%

Question 11

Multiple compounding (PV): Darius Miller is seeking to accumulate $50,000 in six years to invest in a real estate venture. He can earn 6.35 percent annual interest with monthly compounding in a private investment. How much will he have invest today to reach his goal? (Round to the nearest dollar.)

Accepted Answer

A)  $37,527 
B)  $47,015 
C)  $34,193 
D)  $31,648

Exam 5: The Time Value of Money

Future value focuses on the valuation of cash flows received over time, while present value focuses on the valuation of cash flows received at a point in time.

Berrian invested $5,000 in an account earning 10 percent for one year. If he had left his investment in that account for another two years, he would expect the total interest earned over the three years to be higher by exactly $1,000.

Interest rate: Ray has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment?

Multiple compounding periods (FV) : Your mother is trying to choose one of the following bank term deposits to invest $10,000. Which one will have the highest future value if she plans to invest for three years?

Compounding: Chung Lee wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years?

Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.)

Compounding: Richard Delgado invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest-on-interest be after two years?

The present value technique uses compounding to find the present value of each cash flow at the beginning of the project.

The Rule of 72 allows one to calculate the return earned on an investment over six years.

Interest rate: Sofie wants to invest $25,000 in a spa that her sister is starting. She will triple her investment in six years. What is the rate of return that Sofie is being promised? (Rounded to the nearest per cent.)

Multiple compounding (PV) : Darius Miller is seeking to accumulate $50,000 in six years to invest in a real estate venture. He can earn 6.35 percent annual interest with monthly compounding in a private investment. How much will he have invest today to reach his goal? (Round to the nearest dollar.)