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Suppose the interest rate is 10 percent.Which of the following payments has the largest present value?


A) You receive $90.91 two years from today.
B) You receive $82.64 one year from today.
C) You receive $75.13 today.
D) All of these payments have the same present value to the nearest cent.

E) B) and D)
F) C) and D)

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Black Oil Company considered building a service station in a new location.The owners and their accountants decided that this was the profitable thing to do.However,soon after they made this decision,both the interest rate and the cost of building the station changed.In which case do these changes both make it less likely that they will now build the station?


A) Interest rates rise and the cost of building the station rises.
B) Interest rates rise and the cost of building the station falls.
C) Interest rates fall and the cost of building the station rises.
D) Interest rates fall and the cost of building the station falls.

E) B) and C)
F) A) and D)

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Of the following interest rates,which is the highest one at which the present value of $200 ten years from today is greater than $150?


A) 2 percent
B) 4 percent
C) 6 percent
D) 8 percent

E) A) and D)
F) B) and C)

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Marcia has four savings accounts.Which account has the largest balance?


A) $100 deposited 1 year ago at an 8 percent interest rate
B) $100 deposited 2 years ago at a 4 percent interest rate
C) $100 deposited 4 years ago at a 2 percent interest rate
D) $100 deposited 8 years ago at a 1 percent interest rate

E) B) and C)
F) A) and D)

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You are expecting to receive $750 at some time in the future.Which of the following would unambiguously decrease the present value of this future payment?


A) Interest rates rise and you get the payment sooner.
B) Interest rates rise and you have to wait longer for the payment.
C) Interest rates fall and you get the payment sooner.
D) Interest rates fall and you have to wait longer to get the payment.

E) A) and B)
F) All of the above

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Suppose you put $500 into a bank account today.Interest is paid annually and the annual interest rate is 5.5 percent.The future value of the $500 is


A) $637.50 after 5 years and $822.09 after 10 years.
B) $637.50 after 5 years and $775.00 after 10 years.
C) $653.48 after 5 years and $854.07 after 10 years.
D) $688.36 after 5 years and $915.56 after 10 years.

E) None of the above
F) A) and B)

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Suppose you are deciding whether to buy a particular bond.If you buy the bond and hold it for 4 years,then at that time you will receive a payment of $10,000.If the interest rate is 6 percent,you will buy the bond if its price today is no greater than


A) $8,225.06.
B) $7,920.94.
C) $7,672.58.
D) $6,998.98.

E) B) and C)
F) C) and D)

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According to the rule of 70,if a person's saving doubles in 10 years,what interest rate were they earning?


A) 3.5
B) 7
C) 14
D) None of the above is correct.

E) All of the above
F) B) and D)

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Bert put $75 into an account and one year later had $100.What interest rate was paid on Bert's deposit?


A) 20 percent
B) 25 percent
C) 28 percent
D) None of the above is correct.

E) B) and C)
F) A) and D)

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Suppose Emilio offers you $500 today or $X in 10 years.If the interest rate is 6 percent,then at what value of X would you be indifferent between the two options?


A) X = 809.33
B) X = 855.56
C) X = 895.42
D) X = 916.74

E) B) and D)
F) B) and C)

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The price of a bond is equal to the sum of the present values of its future payments.Suppose a certain bond pays $50 one year from today and $1,050 two years from today.What is the price of the bond if the interest rate is 5 percent?


A) $1,050.00
B) $1,045.35
C) $1,000.00
D) $945.35

E) A) and D)
F) All of the above

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Twenty years ago,Dr.Montgomery borrowed money from her parents to pay her tuition at graduate school.Now she wants to pay them back.She gives them double what they gave her.According to the rule of 70,what interest rate would have given her parents the same amount of money if they had put it in the bank rather than lending it to their daughter?


A) 3.5 percent
B) 4.5 percent
C) 5 percent
D) 7 percent

E) B) and C)
F) None of the above

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Assuming the interest rate is 5 percent,which of the following has the greatest present value?


A) $240 paid in three years
B) $225 paid in two years
C) $210 paid in one year
D) $200 today

E) A) and B)
F) All of the above

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Albert Einstein once referred to compounding as


A) "an obsession among economists that defies explanation."
B) "the greatest mathematical discovery of all time."
C) his own discovery.
D) John Maynard Keynes's greatest contribution.

E) B) and D)
F) A) and B)

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What is the present value of a payment of $100 to be made one year from today?


A) $100*(1 + r)
B) $100/(1 + r)
C) $100 - $100 What is the present value of a payment of $100 to be made one year from today? A) $100*(1 + r)  B) $100/(1 + r)  C) $100 - $100   r D) $100 - (1 + r) /$100 r
D) $100 - (1 + r) /$100

E) A) and B)
F) A) and C)

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Three people go to the bank to cash in their accounts.Amy had her money in an account for 25 years at 4 percent interest.Bill had his money in an account for 20 years at 5 percent interest.Celia had her money in an account for 5 years at 20 percent interest.If each of them originally deposited $500 in their accounts,which of them gets the most money when they cash in their accounts?


A) Amy
B) Bill
C) Celia
D) They each get the same amount.

E) A) and B)
F) B) and D)

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A judge requires Harry to make a payment to Sally.The judge says that Harry can pay her either $10,000 today or $11,000 two years from today.Of the following interest rates,which is the lowest one at which Harry would be better off paying $11,000 two years from today?


A) 2 percent
B) 3 percent
C) 4 percent
D) 5 percent

E) None of the above
F) B) and C)

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Rita puts $10,000 into each of two different assets.The first asset pays 10 percent interest and the second pays 5 percent.According to the rule of 70,what is the approximate difference in the value of the two assets after 14 years?


A) $12,000
B) $14,000
C) $15,500
D) $20,000

E) None of the above
F) A) and C)

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Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?


A) $500/(1.06) 2
B) $500 - 500(1.06) 2
C) $500/(1.02) 6
D) None of the above is correct.

E) C) and D)
F) B) and C)

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The present value of a future payment to be received in three years is $1,000.If the interest rate is 5%,what is the amount that will be paid in three years?


A) $1,150.00
B) $1,157.63
C) $1,215.51
D) $1,250.00

E) All of the above
F) C) and D)

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