1. What is the total amount accumulated after five years if someone invests $1,000 today with a simple annual interest rate of 8 percent? How about with a compound annual interest rate of 8 percent?

a. $600, $680

b. $1,400, $1,469

c. $1,469, $1,400

d. $5,400, $1,016

2. An investment of $5,000 invested for three years has an expected future value of $6,100. The simple annual interest rate is closest to ______ and the compound annual interest rate is closest to ______.

a. 6.01%; 6.41%

b. 7.33%; 6.85%

c. 6.85%; 7.33%

d. 6.41%; 6.01%

3. At the end of 2009, Malcolm invested $10,000 in two bank accounts. The expected value of each bank account for the years 2009 to 2020 are represented in the following graph. In the graph, “Series 1” represents an account paying ______ interest, while “Series 2” represents an account paying ______ interest.

a. Simple; compound
b. Compound; simple
c. Simple; simple
d. Compound; compound

4. Which of the following has the largest future value if $1,000 is invested today?
a. Five years with a simple annual interest rate of 10%
b. 10 years with a simple annual interest rate of 8%
c. Eight years with a compound annual interest rate of 8%
d. Eight years with a compound annual interest rate of 7%

Interest rates in the following questions are compound rates unless otherwise stated.

5. Suppose an investor wants to have $15 million to retire 25 years from now. How much would she have to invest today if her annual rate of return is equal to 5 percent?
a. $6,666,666.67
b. $4,429,541.58
c. $600,000
d. $21,345

6. Which of the following is false?
a. The longer the time period, the smaller the present value, given a $100 future value and holding the interest rate constant.
b. The greater the interest rate, the greater the present value, given a $100 future value and holding the time period constant.
c. A future dollar is always less valuable than a dollar today if interest rates are positive.
d. The discount factor is the reciprocal of the compound factor.

7. Maggie deposits $10,000 today and is promised a return of $17,000 in eight years. What is the implied annual rate of return?
a. 6.86%
b. 7.06%
c. 5.99%
d. 6.07%

8. How long will it take Mike to triple his investment if he can earn an annual rate of return of 9%?
a. 15.5 years
b. 13.9 years
c. 12.7 years
d. 10years

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Account Balances $100,000 $80,000 S60,000 $40,000 S20,000 S0 2008 2010 2012 2014 2016 2018 2020 Series 1 -_ Series 2