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Given an interest rate of zero percent, the future value of a lump sum invested today will always:


A) remain constant, regardless of the investment time period.
B) decrease if the investment time period is shortened.
C) decrease if the investment time period is lengthened.
D) be equal to $0.
E) be infinite in value.

F) None of the above
G) B) and C)

Correct Answer

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Your parents spent $7,800 to buy 200 shares of stock in a new company 12 years ago.The stock has appreciated 14.6 percent per year on average.What is the current value of those 200 shares?


A) $36,408.70
B) $40,023.03
C) $39,580.92
D) $40,515.08
E) $37,449.92

F) A) and D)
G) B) and D)

Correct Answer

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Precision Engineering invested $95,000 at 5.5 percent interest, compounded annually for 2 years.How much interest did the company earn over this period of time?


A) $95,000
B) $10,737.38
C) $10,450.00
D) $2,612.50
E) $10,931.36

F) All of the above
G) C) and D)

Correct Answer

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By definition, a bank that pays simple interest on a savings account will pay interest:


A) only at the beginning of the investment period.
B) on interest.
C) only on the principal amount originally invested.
D) on both the principal amount and the reinvested interest.
E) only if all previous interest payments are reinvested.

F) A) and E)
G) D) and E)

Correct Answer

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Lisa has $1,000 in cash today.Which one of the following investment options is most apt to double her money?


A) 6 percent interest for 3 years
B) 12 percent interest for 5 years
C) 7 percent interest for 9 years
D) 8 percent interest for 9 years
E) 6 percent interest for 10 years

F) B) and D)
G) D) and E)

Correct Answer

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Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future.Which one of the following statements is correct?


A) The period of time she has to wait until she reaches her goal is unaffected by the compounding of interest.
B) The lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal.
C) She will have to wait longer if she earns 6 percent compound interest instead of 6 percent simple interest.
D) The length of time she has to wait to reach her goal is directly related to the interest rate she earns.
E) The period of time she has to wait decreases as the amount she invests increases.

F) All of the above
G) C) and D)

Correct Answer

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Your grandparents just gave you a gift of $3,000.You are investing this money for 10 years at 3 percent simple interest.How much money will you have at the end of the 6 years?


A) $3.090
B) $3,270
C) $3,450
D) $3,900
E) $4,031.75

F) B) and D)
G) A) and C)

Correct Answer

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You are due to receive a lump-sum payment of $1,650 in five years.Assuming a discount rate of 3.5 percent interest, what would be the value of the payment in Year 3?


A) $1,488.21
B) $1,540.29
C) $1594.20
D) $1,389.26
E) $1,296.89

F) A) and E)
G) A) and D)

Correct Answer

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Starlite Industries will need $2.2 million 4.5 years from now to replace some equipment.Currently, the firm has some extra cash and would like to establish a savings account for this purpose.The account pays 3.6 percent interest, compounded annually.How much money must the company deposit today to fully fund the equipment purchase?


A) $1,679,947.20
B) $1,798,407.21
C) $1,350,868.47
D) $1,876,306.49
E) $1,412,308.18

F) All of the above
G) A) and D)

Correct Answer

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You're trying to save to buy a new car valued at $42,650.You have $40,000 today that can be invested at your bank.The bank pays 4.2 percent annual interest on its accounts.How long will it be before you have enough to buy the car for cash? Assume the price of the car remains constant.


A) 1.17 years
B) 2.12 years
C) 1.06 years
D) 1.61 years
E) 1.56 years

F) All of the above
G) A) and C)

Correct Answer

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You have $2,000 today in your savings account.How long must you wait for your savings to be worth $4,500 if you are earning 1.25 percent interest, compounded annually?


A) 89.66 years
B) 62.78 years
C) 70.92 years
D) 67.98 years
E) 65.28 years

F) C) and D)
G) B) and C)

Correct Answer

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The interest rate used to compute the present value of a future cash flow is called the:


A) prime rate.
B) current rate.
C) discount rate.
D) compound rate.
E) simple rate.

F) C) and D)
G) None of the above

Correct Answer

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Theodoro has just received an insurance settlement of $18,500.She wants to save this money until her daughter goes to college.If she can earn an average of 5.2 percent, compounded annually, how much will she have saved when her daughter enters college 9 years from now?


A) $29,662.53
B) $30,485.41
C) $30,931.28
D) $29,431.45
E) $29,195.33

F) A) and B)
G) None of the above

Correct Answer

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How long will it take to double your savings if you earn 6.4 percent interest, compounded annually?


A) 11.89 years
B) 12.02 years
C) 11.39 years
D) 11.17 years
E) 10.58 years

F) B) and E)
G) All of the above

Correct Answer

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You want to have $32,000 for a down payment on a house 5 years from now.If you can earn 4.3 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal?


A) $25,925.58
B) $28,179.77
C) $21,639.73
D) $21,970.21
E) $24,625.44

F) B) and D)
G) B) and C)

Correct Answer

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Twelve years from now, you will be inheriting $60,000 What is this inheritance worth to you today if you can earn 6.0 percent interest, compounded annually?


A) $29,818.16
B) $29,945,94
C) $58,419.0550,112.92
D) $61,798.4750,100.00
E) $53,003.15

F) All of the above
G) A) and E)

Correct Answer

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Ben invested $7,500 twenty years ago with an insurance company that has paid him 6 percent simple interest on his funds.Charles invested $7,500 twenty years ago in a fund that has paid him 6 percent interest, compounded annually.How much more interest has Charles earned than Ben over the past 20 years?


A) $0
B) $6,827.04
C) $7,553.52
D) $7,109.16
E) $8,266.49

F) None of the above
G) B) and C)

Correct Answer

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You are due to receive a lump-sum payment of $2,350 in seven years.Assuming a discount rate of 2.5 percent interest, what would be the value of the payment in Year 4?


A) $1,976.97
B) $2,182.21
C) $2,128.98
D) $2,236.76
E) $2,292.68

F) B) and D)
G) D) and E)

Correct Answer

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The relationship between the present value and the investment time period is best described as:


A) direct.
B) inverse.
C) unrelated.
D) ambiguous.
E) parallel.

F) B) and E)
G) None of the above

Correct Answer

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Assume the total cost of a college education will be $325,000 when your child enters college in 16 years.You presently have $40,000 to invest and do not plan to invest anything further.What annual rate of interest must you earn on your investment to cover the entire cost of your child's college education?


A) 12.65 percent
B) 10.40 percent
C) 13.99 percent
D) 14.62 percent
E) 11.08 percent

F) A) and B)
G) A) and C)

Correct Answer

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