1- What is the future value of a $100 lump sum invested for five years in an account paying 10 percent interest?

$156.59

$159.43

$161.05

$165.74

$171.67

2- Which of the following statements about opportunity costs is false?

a- The opportunity cost rate to be applied to any investment is the rate of return that could be earned on alternative investments of similar risk.

b-	In general, higher-risk investments should have higher opportunity costs than lower-risk investments.

c- Opportunity cost rates are normally obtained by examining the returns on securities investments.

d- The opportunity cost rate typically is applied in discounting situations (as opposed to compounding).

e-

Say you just inherited $10,000. Because this money cost you nothing, it has an opportunity cost rate of zero.

3- Assume you win the lottery and have a choice to receive your winnings in one of two ways. Option 1 is payments of $50,000 per year for each of the next five years. Option 2 is a single payment of $200,000 immediately. Which of the following statements is most correct?

Option 1 is preferable to Option 2.

Option 2 is preferable to Option 1.

Option 1 and Option 2 are equivalent.

The value of Option 1 is greater than the value of Option 2 because the total cash flow is greater.

There is not enough information to answer this question.

4- As the discount rate applied to a future value lump sum increases, the present value

stays the same

increases by some amount

doubles

decreases

There is not enough information to answer this question.

5- If a bank pays quarterly compounding on its savings accounts, the stated (nominal) rate will be greater than the effective annual rate.

True

False

6- A primary determinant of the opportunity cost rate is the riskiness of the cash flows being discounted.

True

False

7- If interest rates are positive, the present and future values of an annuity due will always be higher than the present and future values of an ordinary annuity.

True

False