1

Match the formula description to the correct formula.

1. Future value of an n-period investment
2. Future value with compounding more frequent than annually
3. Future value with continuous compounding
4. Present value of a n-period investment
5. Approximate time for the present value to double
6. a.PV x e^{(ix n)}
7. b.PV x (1 + i / m)^{(m x n)}
8. c.PV x (1 + i)ⁿ
9. d.72 / i
10. e.FV_n/ (1+ i)ⁿ

QUESTION 2

One way to visualize cash flows, interestrates, and time that is very helpful is to put this information on a:

1. timeline.
2. space ship.
3. discountdoublecheck.
4. longitudinalstudy.

QUESTION 3

The type of interestthat does NOT take into account compounding is called:

1. compoundinterest.
2. simpleinterest.
3. usury interest.
4. riba.

QUESTION 4

Future value measures:

1. what one or more cash flows are worth at the end of a specified period.
2. what one or more cash flows that is to be received in the future will be worth today.
3. the value of an investment after subtracting interest earned on it for one or more periods.
4. the value of an investment's worth today.

QUESTION 5

The process of converting an amount given at the present time into a future value is called:

1. annualizing.
2. discounting.
3. compounding.
4. capital budgeting.

QUESTION 6

Which of the following investments will have the highest future value?

1. $1,000 invested at an annual interest rate of 5% for 5 years
2. $1,000 invested at an annual interest rate of 5% for 10 years
3. $1,000 invested at an annual interest rate of 10% for 5 years
4. $1,000 invested at an annual interest rate of 10% for 10 years

QUESTION 7

Which of the following investments will result in the highest future value?

1. $1,000investedat10%compoundedannuallyfor5 years.
2. $1,000investedat10%compounded quarterlyfor5 years.
3. $1,000investedat10%compounded monthlyfor5 years.
4. $1,000investedat10%compounded continuouslyfor5 years.

QUESTION 8

The process of converting an amount in the future to the present time is called:

1. annualizing.
2. discounting.
3. compounding.
4. capital budgeting.

QUESTION 9

All else equal, when the discount rate:

1. decreases, the present value of the future cash flow does not change.
2. decreases, the present value of any future cash flow increases.
3. increases, the present value of any future cash flow increases.
4. increases, the present value of any future cash flow does not change.

QUESTION 10

Whoisthemathematiciancreditedwith discoveringthenumbere=2.71828?

1. JamesEdgeworth
2. Eve Plumb
3. Emilio Estevez
4. Leonhard Euler

QUESTION 11

Kate Eden received a graduation present of $2,000 that she is planning on investing in a mutual fund that earns 8.5 percent each year.How much money can she collect in 3 years?

QUESTION 12

Your bank pays 5 percent interest semiannually on your savings account.The current balance in the account is $3,000.How much money will you have at the end of four years?

QUESTION 13

Santiago Hernandez is planning to invest $25,000 in a money market account for two years.The account pays interest of 6.0 percent compounded on a monthly basis.How much money will Santiago Hernandez have at the end of two years?

QUESTION 14

You invest $1,500 in a mutual fund today that pays 9 percent interest every year.How long will it take to double your money in years?

QUESTION 15

What is the future value of $10,000 invested at 10% for 10 years with continuous compounding?

QUESTION 16

You bought a corporate bond for$863.75today.In five years the bond will mature and you will receive$1,000.What is the rate of return on this bond?

QUESTION 17

What is the present value of a $10,000 investment received in five years at 10 percent compounded semiannually?

QUESTION 18

What is the present value of $10,000 received in five years at 10 percent compounded monthly?

QUESTION 19

What is the present value of $10,000 received in five years at 10 percent compounded continuously?

QUESTION 20

SamBraxton, the number one draft pick of the Phoenix Cardinals(NFL), and his agent are evaluating the following contract option.The contract provides for a series of annual payments over the next three years.What is the present value of these payments if Sam's required rate of return is 10 percent? (Hint: discount each cash flow to the present and then sum.)

1. Year 1: $1,000,000
2. Year 2: $1,250,000
3. Year 3: $1,500,000