Deck 13: Trade-Offs Involving Time and Risk and Open Economy Macroeconomics

Question 1

Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually.

-Refer to the scenario above. What will be the future value of the deposit after 2 years?

A) $8,761.20
B) $8,990.40
C) $9,000
D) $9331.20

Answer 1

$9331.20

Question 2

Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually.

-Refer to the scenario above. What will be the future value of the deposit after 3 years?

A) $9,822.63
B) $9,964.21
C) $10,077.70
D) $10,220.98

Answer 2

$10,077.70

Question 3

Wendy and John each deposit $2,000 in a bank account at different rates of interest. Wendy receives interest on her deposit at an annual rate of 6 percent, while John receives interest at an annual rate of 9 percent.

-Refer to the scenario above. What will be the future value of Wendy's deposit after 1 year?

A) $2,110
B) $2,120
C) $2,360
D) $2,400

Answer 3

$2,120

Question 4

Wendy and John each deposit $2,000 in a bank account at different rates of interest. Wendy receives interest on her deposit at an annual rate of 6 percent, while John receives interest at an annual rate of 9 percent.

-Refer to the scenario above. What will be the future value of John's deposit after 1 year?

A) $2,120
B) $2,180
C) $2,320
D) $2,460

Question 5

Wendy and John each deposit $2,000 in a bank account at different rates of interest. Wendy receives interest on her deposit at an annual rate of 6 percent, while John receives interest at an annual rate of 9 percent.

-Refer to the scenario above. What will be the future value of Wendy's deposit after 3 years?

A) $2,150.91
B) $2,278.64
C) $2,382.03
D) $2,764.12

Question 6

Wendy and John each deposit $2,000 in a bank account at different rates of interest. Wendy receives interest on her deposit at an annual rate of 6 percent, while John receives interest at an annual rate of 9 percent.

-Refer to the scenario above. What will be the future value of John's deposit after 3 years?

A) $2,590.06
B) $2,660.32
C) $2,708.08
D) $2,990.54

Question 7

Wendy and John each deposit $2,000 in a bank account at different rates of interest. Wendy receives interest on her deposit at an annual rate of 6 percent, while John receives interest at an annual rate of 9 percent.

-Refer to the scenario above. What will be the difference between the future values of John's deposit and Wendy's deposit after 3 years?

A) $56.04
B) $112.26
C) $208.03
D) $439.15

Question 8

Consider the following two options. You can either invest $30,000 in a bank that offers you an interest rate of 6 percent compounded annually for 30 years, or you can lend $30,000 to your friend for 30 years at an interest rate of 10 percent compounded annually.

-Refer to the scenario above. If you invest your money in the bank, you will receive ________ on maturity.

A) $172,304.74
B) $898,797.66
C) $3,521,725.58
D) $4,020,025.01

Question 9

Consider the following two options. You can either invest $30,000 in a bank that offers you an interest rate of 6 percent compounded annually for 30 years, or you can lend $30,000 to your friend for 30 years at an interest rate of 10 percent compounded annually.

-Refer to the scenario above. If you lend $30,000 to your friend for 30 years, you will receive ________When she repays the amount after 30 years.

A) $552,604.62
B) $523,482.07
C) $1,521,725.58
D) $3,620,025.01

Question 10

What is the present value of $10,000 to be received after 1 year if the current annual rate of interest is 6 percent?

A) $8,644.26
B) $8,922.34
C) $9,433.96
D) $10,000

Question 11

What is the present value of $50,000 to be received after 1 year if the market rate of interest is 8 percent per year?

A) $44,110.98
B) $44,322.87
C) $46,296.30
D) $48,376.21

Question 12

What is the discounted value of $60,000 to be received after 6 years if the ongoing rate of interest is 6 percent per year?

A) $41,212.84
B) $42,297.63
C) $44,666.95
D) $51,220.64

Question 13

Tom has two investment options. He can either invest $3,000 in a friend?s project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friend?s project, he will receive $3,400 after 5 years.

-Refer to the scenario above. What is the present value of $3,400 to be received after 5 years?

A) $2,300.78
B) $2,540.68
C) $3,200.22
D) $3,526.44

Question 14

Tom has two investment options. He can either invest $3,000 in a friend?s project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friend?s project, he will receive $3,400 after 5 years.

-Refer to the scenario above. What will be the balance in Tom's account after 5 years if he deposits $3,000 in the bank?

A) $3,222.64
B) $3,400
C) $4,014.68
D) $4,111.78

Question 15

Tom has two investment options. He can either invest $3,000 in a friend?s project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friend?s project, he will receive $3,400 after 5 years.

-Refer to the scenario above. What is the net present value of his friend's project?

A) -$459.32
B) -$666.21
C) $534.66
D) $616.21

Question 16

An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.

-Refer to the scenario above. What is the present value of Option A?

A) $2,464.11
B) $2,385.07
C) $2,463.66
D) $4,898.46

Question 17

An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.

-Refer to the scenario above. What is the present value of Option B?

A) $2,463.66
B) $3,267.99
C) $4,157.46
D) $5,800.79

Question 18

An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.

-Refer to the scenario above. What is the present value of Option C?

A) $2,763.64
B) $3,662.44
C) $4,516.80
D) $5,800.79

Question 19

An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.

-Refer to the scenario above. If the investor plans to invest a sum of $4,000, the net present value of Option A is ________.

A) -$1,535.89
B) -$1,614.93
C) $898.46
D) $1,535.89

Question 20

An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.

-Refer to the scenario above. If the investor plans to invest a sum of $4,000, the net present value of Option B is ________.

A) -$1,536.34
B) -$2,322.12
C) $157.46
D) $1,800.79

Question 21

An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.

-Refer to the scenario above. If the investor plans to invest a sum of $4,000, the net present value of Option C is ________.

A) -$1,236.36
B) -$337.56
C) $516.80
D) $1,800.79

Question 22

An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year.

-Refer to the scenario above. What is the sum of the present values of the returns from this investment?

A) $12,887.64
B) $14,634.90
C) $19,524.69
D) $29,524.19

Question 23

An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year.

-Refer to the scenario above. What is the net present value of the investment?

A) -$7,112.36
B) -$5,365.10
C) -$475.31
D) $9,524.19

Question 24

A box has three green balls, six blue balls, and nine red balls.

-Refer to the scenario above. What is the probability of picking a green ball from the box?

A) 12.83 percent
B) 16.67 percent
C) 24.75 percent
D) 32.35 percent

Question 25

A box has three green balls, six blue balls, and nine red balls.

-Refer to the scenario above. What is the probability of picking a blue ball from the box?

A) 16.66 percent
B) 33.33 percent
C) 49.99 percent
D) 54.44 percent.

Question 26

A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300.

-Refer to the scenario above. What is the expected value of the game?

A) -$15.64
B) $27
C) -$33.33
D) $35.75

Question 27

Jerry is interested in purchasing a washing machine. The price of the machine is $500, and it comes with a 1-year warranty. The probability that the machine will break down is 20 percent every year. If the machine breaks down in the second year and Jerry holds a warranty, he receives a new washing machine worth $400 that year. If the machine breaks down after 3 years and he holds a warranty, he receives a new machine that is worth $300 after the third year. The price of a warranty for 3 years is $150. The market interest rate is 5 percent. Is buying the warranty a good investment for Jerry? Explain your answer. Show all the necessary calculations.

Question 28

Suppose India borrows $10,000 from the United States at the beginning of 2016. The flexible exchange rate is 50 Indian rupees per dollar.

-Refer to the scenario above. The amount of the loan in rupees is ________.

A) 50
B) 10,000
C) 30,000
D) 500,000