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Exam 5: Introduction to Valuation: The Time Value of Money

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Question 41

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According to the Rule of 72, you can do which one of the following?

A) double your money in five years at 7.2 percent interest
B) double your money in 7.2 years at 8 percent interest
C) double your money in 8 years at 9 percent interest
D) triple your money in 7.2 years at 5 percent interest
E) triple your money at 10 percent interest in 7.2 years

F) A) and B)
G) B) and E)

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Question 42

Multiple Choice

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At 11 percent interest, how long would it take to quadruple your money?

A) 6.55 years
B) 6.64 years
C) 13.09 years
D) 13.28 years
E) 13.56 years

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

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Question 43

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You just received a $5,000 gift from your grandmother. You have decided to save this money so that you can gift it to your grandchildren 50 years from now. How much additional money will you have to gift to your grandchildren if you can earn an average of 8.5 percent instead of just 8 percent on your savings?

At an interest rate of 10 percent and using the Rule of 72, how long will it take to double the value of a lump sum invested today? How long will it take after that until the account grows to four times the initial investment? Given the power of compounding, shouldn't it take less time for the money to double the second time?

Interest earned on both the initial principal and the interest reinvested from prior periods is called:

A year ago, you deposited $30,000 into a retirement savings account at a fixed rate of 5.5 percent. Today, you could earn a fixed rate of 6.5 percent on a similar type account. However, your rate is fixed and cannot be adjusted. How much less could you have deposited last year if you could have earned a fixed rate of 6.5 percent and still have the same amount as you currently will when you retire 38 years from today?

Fifteen years ago, Jackson Supply set aside $130,000 in case of a financial emergency. Today, that account has increased in value to $330,592. What rate of interest is the firm earning on this money?

This morning, TL Trucking invested $80,000 to help fund a company expansion project planned for 4 years from now. How much additional money will the firm have 4 years from now if it can earn 5 percent rather than 4 percent on its savings?