1. The interest rate used to compute the future value of a future cash flow is called the:

1. prime rate.
2. simple rate.
3. discount rate.
4. compound rate.

2. Which one of the following statements is correct, all else held constant?

1. There is an inverse relationship between the present value and the future value.

1. The future value increases as the time period increases.

1. The interest rate is directly related to the present value.

1. The present value increases as the time period increases.

3. Given an interest rate of 0%, the future value of a lump sum invested today will always:

1. remain constant, regardless of the investment time period.
2. decrease if the investment time period is shortened.
3. decrease if the investment time period is lengthened.
4. be equal to $0.

4. Which of the following will increase the future value of a lump sum investment made today assuming that all interest is reinvested (compounding interest)? Assume the interest rate is a positive value.

I. Increase in the interest rate

II. Increase in the lump sum amount

III. Increase in the investment time period

IV. Decrease in the investment time period

1. I and III only
2. I and IV only
3. I, II, and III only
4. II and III only

5. Which one of the following is a correct statement, all else held constant?

1. The present value is inversely related to the future value.
2. The future value is inversely related to the period of time.
3. The present value is positively related to the discount rate.
4. The future value is positively related to the interest rate.

6. Your savings account is currently worth $5,000. The account pays 5.5% interest compounded annually. How much will it be worth 3 years from now?

1. $5,543.6
2. $5,871.2
3. $5,978.9
4. $5,998.2

7. David wants to have $25,000 three years from now to buy a new car. He wants to make one deposit today to fund this expenditure. How much does he have to deposit if he can earn 3.6% per year on his savings?

1. $19,908.2
2. $20,255.2
3. $22,483.3
4. $25,211.4

8. What is the future value of $10,000 invested at 12%, compounded monthly for 5 years? ______

1. $15,000
2. $16,875
3. $17,674
4. $18,167

9. You have just received a prize worth $10,000. You deposited your winnings into an account which pays 6% annual interest compounded monthly. How long will you have to wait until your winnings are worth $25,000?______

1. 12.5
2. 13.3
3. 14.6
4. 15.3

10. You have $1,000 today and want to double your money in 10 years. What interest rate must you earn (compounded yearly)? ________

1. 7.18%
2. 8.05%
3. 9.20%
4. 10.53%