We call the process of earning interest on both the original deposit and on the earlier interest payments:

We call the process of earning interest on both the original deposit and on the earlier interest payments:

simple interest.

compounding.

future value.

discounting.

How are future values affected by changes in interest rates?

The lower the interest rate, the larger the future value will be.

The higher the interest rate, the larger the future value will be.

Future values are not affected by changes in interest rates.

One would need to know the present value in order to determine the impact.

We call the process of earning interest on both the original deposit and on the earlier interest payments:

discounting.

multiplying.

compounding.

computing.

The process of figuring out how much an amount that you expect to receive in the future is worth today is called:

discounting.

multiplying.

compounding.

computing.

Which of the following will not increase a present value?

Increase the interest rate

Decrease the number of periods

Increase the future value

None of these answers is correct

Moving cash flows from one point in time to another requires us to use:

only present value equations.

only future value equations.

both present value and future value equations.

the Rule of 72.

The Rule of 72 is a simple mathematical approximation for:

the present value required to double an investment.

the future value required to double an investment.

the payments required to double an investment.

the number of years required to double an investment.

You double your money in 5 years. The reason your return is not 20 percent per year is because:

it is probably a "fad" investment.

it does not reflect the effect of discounting.

it does not reflect the effect of the Rule of 72.

it does not reflect the effect of compounding.

What is the future value of $2,500 deposited for one year earning a 14 percent interest rate annually?

$2,550

$2,850

$2,950

$3,150

If an average home in your town currently costs $250,000, and house prices are expected to grow at an average rate of 3 percent per year, what will a house cost in 8 years?

rev: 09_10_2015_QC_CS-24375

$255,033.41

$255,043.97

$314,928.01

$316,692.52

Consider a $500 deposit earning 5 percent interest per year for five years. How much total interest is earned on the original deposit (excluding interest earned on interest)?

$13.14

$25.00

$125.00

$138.14

What is the present value of a $500 payment in one year when the discount rate is 5 percent?

$475.00

$476.19

$500.00

$525.00

Which of the following would you prefer?

$400 to be received in nine years when rates are 8 percent

$210 today

$500 to be received in 12 years when rates are 8 percent

$500 to be received in 12 years when rates are 9 percent

Ten years ago, Jane invested $1,000 and locked in a 7 percent annual interest rate for 30 years (end 20 years from now). James can made a 20-year investment today and lock in a 6 percent interest rate. How much money should he invest now in order to have the same amount of money in 20 years as Jane?

$673.75

$1,206.59

$1,967.15

$2,373.54

What is the value in year 6 of a $900 cash flow made in year 4 when the interest rates are 8 percent?

$1,044.00

$1,049.76

$1,332.00

$1,428.19

You are scheduled to receive a $750 cash flow in one year, a $1,000 cash flow in two years, and pay a $300 payment in four years. If interest rates are 6 percent per year, what is the combined present value of these cash flows?

$1,359.92

$1,413.92

$1,592.63

$1,613.02

Approximately what interest rate is needed to double an investment over eight years?

8 percent

9 percent

12 percent

100 percent

Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.

0.89 percent

1.12 percent

12.00 percent

89.00 percent

What annual rate of return is earned on a $900 investment when it grows to $2,500 in 15 years?

1.78 percent

2.78 percent

6.58 percent

7.05 percent

A $400 investment has doubled to $800 in six years because of a 12.25 percent return. How much longer will it take for the investment to reach $1100 if it continues to earn 12.25 percent?

2.56 years

2.76 years

3.46 years

5 years

Phoebe realizes that she has charged too much on her credit card and has racked up $10,000 in debt. If she can pay $300 each month and the card charges 18 percent APR (compounded monthly), how long will it take her to pay off the debt?

27.23 months

33.33 months

46.56 months

69.70 months

You wish to buy a $30,000 car. The dealer offers you a 5-year loan with a 9 percent APR. What are the monthly payments? What is the monthly payment if you paid interest only?

$622.75; $225.00

$659.41; $291.23

$701.23; $291.23

$712.03; $271.19

What is the interest rate of a 4-year, annual $1,000 annuity with present value of $3,500?

3.85 percent

5.56 percent

8.84 percent

9.70 percent

Bank A charges a 7.75 percent annual percentage rate and interest is due at the end of the year. Bank B charges a 7 percent annual percentage rate and interest must be paid monthly. What is the effective annual rate charged by each bank?

Bank A: 7.75 percent; Bank B: 7.23 percent

Bank A: 7.85 percent; Bank B: 7.23 percent

Bank A: 7.25 percent; Bank B: 7.5 percent

Bank A: 7.85 percent; Bank B: 8.15 percent

If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?

$943.40

$1,000.00

$1,040.00

$1,060.00

A perpetuity pays $50 per year and interest rates are 9 percent. How much would its value change if interest rates decreased to 6 percent?

$150.00 increase

$150.00 decrease

$277.78 increase

$277.78 decrease

You have reviewed your budget and determine that the most you can afford on a car loan is $455 per month. What is the most you can borrow if interest rates are 7 percent and you can pay the loan over four years?

$19,000.89

$19,741.29

$20,074.82

$21,671.53

What is the present value of a $500 deposit in year 1 and another $100 deposit at the end of year 4 if interest rates are 5 percent?

$480.00

$493.62

$558.46

$582.27

Given a 10 percent interest rate, compute the year 9 future value if deposits of $10,000 and $20,000 are made in years 1 and 5 respectively, and a withdrawal of $5,000 is made in year 7.

$44,667.89

$45,103.47

$46,585.66

$47,002.89

Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.

$4,334.53

$5,070.78

$5,191.68

$5,484.56

When you get your credit card bill, it will offer a minimum payment, which:

usually only pays the accrued interest and a small amount of principal.

usually only pays the principal and a small amount of accrued interest.

usually only pays the principal and no accrued interest.

usually only pays the accrued interest and no principal.

People refinance their home mortgages:

when rates fall.

when rates rise.

when rates fall and rise.

whenever they need to, independent of rates.

When computing the future value of an annuity, the higher the compound frequency:

the lower the future value will be.

the higher the future value will be.

the less likely the future value can be calculated.

the more likely the future value can be calculated.

To compute the present or future value of an annuity due, one computes the value of an ordinary annuity and then:

multiplies it by (1 + i).

divides it by (1 + i).

multiplies it by (1 - i).

divides it by (1 - i).

A perpetuity, a special form of annuity, pays cash flows:

and is not effected by interest rate changes.

that do not have time value of money implications.

continuously for one year.

periodically forever.

The present value of annuity payments made far into the future is:

worth very little today.

worth much more today.

valued as having no time value of money.

valued as worthless as their value is not determinable.

Which of the following will increase the present value of an annuity?

The number of periods decreases.

The interest rate decreases.

The amortization schedule decreases.

The effective rate is calculated over fewer years.

In order to discount multiple cash flows to the present, one would use:

the appropriate compound rate.

the appropriate discount rate.

the appropriate simple rate.

the appropriate tax rate.

Level sets of frequent, consistent cash flows are called:

loans.

budgets.

annuities.

bills.

When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.

present value

future value

time value to money

payment

                                        

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