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Question;1. You are investing $100 today in a savings account;at your local bank. Which one of the following terms refers to the value of;this investment one year from now?;A. future value;B. present value;C. principal amounts;D. discounted value;E. invested principal;2. Tracy invested $1,000 five years ago and earns 4;percent interest on her investment. By leaving her interest earnings in her;account, she increases the amount of interest she earns each year. The way she;is handling her interest income is referred to as which one of the;following?;A. simplifying;B. compounding;C. aggregation;D. accumulation;E. discounting;3. Steve invested $100 two years ago at 10 percent;interest. The first year, he earned $10 interest on his $100 investment. He;reinvested the $10. The second year, he earned $11 interest on his $110;investment. The extra $1 he earned in interest the second year is referred to;as;A. free interest.;B. bonus income.;C. simple interest.;D. interest on interest.;E. present value interest.;4. Interest earned on both the initial principal and;the interest reinvested from prior periods is called;A. free interest.;B. dual interest.;C. simple interest.;D. interest on interest.;E. compound interest.;5. Sara invested $500 six years ago at 5 percent;interest. She spends her earnings as soon as she earns any interest so she only;receives interest on her initial $500 investment. Which type of interest is;Sara earning?;A. free interest;B. complex interest;C. simple interest;D. interest on interest;E. compound interest;6. Shelley won a lottery and will receive $1,000 a;year for the next ten years. The value of her winnings today discounted at her;discount rate is called which one of the following?;A. single amount;B. future value;C. present value;D. simple amount;E. compounded value;7. Terry is calculating the present value of a bonus;he will receive next year. The process he is using is called;A. growth analysis.;B. discounting.;C. accumulating.;D. compounding.;E. reducing.;8. Steve just computed the present value of a $10,000;bonus he will receive in the future. The interest rate he used in this process;is referred to as which one of the following?;A. current yield;B. effective rate;C. compound rate;D. simple rate;E. discount rate;9. The process of determining the present value of;future cash flows in order to know their worth today is called which one of the;following?;A. compound interest valuation;B. interest on interest computation;C. discounted cash flow valuation;D. present value interest factoring;E. complex factoring;10. Andy deposited $3,000 this morning into an account;that pays 5 percent interest, compounded annually. Barb also deposited $3,000;this morning into an account that pays 5 percent interest, compounded annually.;Andy will withdraw his interest earnings and spend it as soon as possible. Barb;will reinvest her interest earnings into her account. Given this, which one of;the following statements is true?;A. Barb will earn more interest the first year than Andy will.;B. Andy will earn more interest in year three than Barb will.;C. Barb will earn interest on interest.;D. After five years, Andy and Barb will both have earned the same amount;of interest.;E. Andy will earn compound interest.;11. Sue and Neal are twins. Sue invests $5,000 at 7;percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is;30 years old. Both investments compound interest annually. Both Sue and Neal;retire at age 60. Which one of the following statements is correct assuming;that neither Sue nor Neal has withdrawn any money from their accounts?;A. Sue will have less money when she retires than Neal.;B. Neal will earn more interest on interest than Sue.;C. Neal will earn more compound interest than Sue.;D. If both Sue and Neal wait to age 70 to retire, then they will have;equal amounts of savings.;E. Sue will have more money than Neal as long as they retire at the same;time.;12. Samantha opened a savings account this morning.;Her money will earn 5 percent interest, compounded annually. After five years;her savings account will be worth $5,600. Assume she will not make any;withdrawals. Given this, which one of the following statements is true?;A. Samantha deposited more than $5,600 this morning.;B. The present value of Samantha's account is $5,600.;C. Samantha could have deposited less money and still had $5,600 in five;years if she could have earned 5.5 percent interest.;D. Samantha would have had to deposit more money to have $5,600 in five;years if she could have earned 6 percent interest.;E. Samantha will earn an equal amount of interest every year for the next;five years.;13. This afternoon, you deposited $1,000 into a;retirement savings account. The account will compound interest at 6 percent;annually. You will not withdraw any principal or interest until you retire in;forty years. Which one of the following statements is correct?;A. The interest you earn six years from now will equal the interest you;earn ten years from now.;B. The interest amount you earn will double in value every year.;C. The total amount of interest you will earn will equal $1,000?.06? 40.;D. The present value of this investment is equal to $1,000.;E. The future value of this amount is equal to $1,000? (1 + 40).06.;14. Your grandmother has promised to give you $5,000;when you graduate from college. She is expecting you to graduate two years from;now. What happens to the present value of this gift if you delay your;graduation by one year and graduate three years from now?;A. remains constant;B. increases;C. decreases;D. becomes negative;E. cannot be determined from the information provided;15. Luis is going to receive $20,000 six years from;now. Soo Lee is going to receive $20,000 nine years from now. Which one of the;following statements is correct if both Luis and Soo Lee apply a 7 percent;discount rate to these amounts?;A. The present values of Luis and Soo Lee's monies are equal.;B. In future dollars, Soo Lee's money is worth more than Luis' money.;C. In today's dollars, Luis' money is worth more than Soo Lee's.;D. Twenty years from now, the value of Luis' money will be equal to the;value of Soo Lee's money.;E. Soo Lee's money is worth more than Luis' money given the 7 percent;discount rate.;16. Which one of the following variables is the;exponent in the present value formula?;A. present value;B. future value;C. interest rate;D. time;E. There is no exponent in the present value formula.;17. You want to have $1 million in your savings;account when you retire. You plan on investing a single lump sum today to fund;this goal. You are planning on investing in an account which will pay 7.5;percent annual interest. Which of the following will reduce the amount that you;must deposit today if you are to have your desired $1 million on the day you;retire?;I. Invest in a different account paying a higher rate of interest.;II. Invest in a different account paying a lower rate of interest.;III. Retire later.;IV. Retire sooner.;A. I only;B. II only;C. I and III only;D. I and IV only;E. II and III only;18. Which one of the following will produce the;highest present value interest factor?;A. 6 percent interest for five years;B. 6 percent interest for eight years;C. 6 percent interest for ten years;D. 8 percent interest for five years;E. 8 percent interest for ten years;19. What is the relationship between present value and;future value interest factors?;A. The present value and future value factors are equal to each other.;B. The present value factor is the exponent of the future value factor.;C. The future value factor is the exponent of the present value factor.;D. The factors are reciprocals of each other.;E. There is no relationship between these two factors.;20. Martin invested $1,000 six years ago and expected;to have $1,500 today. He has not added or withdrawn any money from this account;since his initial investment. All interest was reinvested in the account. As it;turns out, Martin only has $1,420 in his account today. Which one of the;following must be true?;A. Martin earned simple interest rather than compound interest.;B. Martin earned a lower interest rate than he expected.;C. Martin did not earn any interest on interest as he expected.;D. Martin ignored the Rule of 72 which caused his account to decrease in;value.;E. The future value interest factor turned out to be higher than Martin;expected.


Paper#44177 | Written in 18-Jul-2015

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