1. An investment will pay $200,$600 and $600 at the end of years 1,2 and 3 respectively. If the interest rate is 12%, what is the present value of this series of payments?

Select one:

a. $1083.96

b. $1500

c. $1013.05

d. $1159.84

2. Jane plans to deposit $5000 each year in her savings account for 5 years starting today. If she can earn 4% interest annually how much will she have after 5 years?

Select one:

a. $28,165 $28165

b. $27082

c. 6083

d. 22259

3. The process of finding present values is frequently called

Select one:

a. annualizing

b. compounding

c. discounting

d. leasing

4)You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases.

Select one:

a. it will be worth less

b. it will be worth more

c. it will not change

d. none of the above

5)Calculate the amount today that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.

Select one:

a. $695

b. $710

c. $755

d. $734

e. $1,100

6)How long will it take $1000 to double at an interest rate of 5%?

Select one:

a. 14 years

b. 15 years

c. 5 years

d. 10 years

7)What is the rate of return on an investment if you lend $1,000 and are repaid $1,254.70 two years later?

Select one:

a. 12%

b. 25%

c. 6%

d. 18%

e. 4%

8)You know you will need $25,000 at the end of 5 years. How much would you have to deposit annually, starting at the end of the first year, into an account earning 10% to accumulate the needed amount?

Select one:

a. $3,980

b. $4,095

c. $4,435

d. $4,973

e. $5,886

9)Ralph has decided to put $2,400 a year (at the end of each year) into an IRA over his 40 year working life and then retire. What will Ralph have at retirement if the account earns 10 percent compounded annually?

Select one:

a. $394,786

b. $ 23,470

c. $1,062,223

d. $810,917

10)You plan to borrow $45,000 at a 7.5% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2?

Select one:

a. $2,931.11

b. $3,110.56

c. $3,080.65

d. $2,990.92

e. $2,273.10

11)If $10,000 per year is deposited at 8% starting today and at the beginning of each of the next five years (6 deposits), the amount on deposit will be.

Select one:

a. $46,229

b. $73,359

c. $79,228

d. $49,927

12)More frequent compounding results in ____ future values and ____ present values than less frequent compounding at the same nominal interest rate.

Select one:

a. higher, higher

b. lower, higher

c. higher, lower

d. lower, lower

13)The higher the rate of interest:

Select one:

a. the larger the present value of a future sum of money

b. the smaller the future value of an amount invested today

c. the smaller the present value of a future sum of money

d. all of the above

14)David paid $5625 for a perpetuity with payments of $450 per year. His rate of return is

Select one:

a. 8%

b. .8%

c. 12.5%

d. 1.25%

15)Which of the following is true of a 4 year annuity of $500 per year at 7%?

Select one:

a. The present value will be higher is this is an annuity due.

b. The future value will be higher if this is an ordinary annuity

c. The present value and the future value will be higher if this is an ordinary annuity

d. The payments come on period earlier with an ordinary annuity than with the annuity due