Search
Create
Log in
Sign up
Log in
Sign up
Get ahead with a $300 test prep scholarship
| Enter to win by Tuesday 9/24
Learn more
Ch. 5 M/C
STUDY
Flashcards
Learn
Write
Spell
Test
PLAY
Match
Gravity
Terms in this set (23)
You deposit $2,000 in a savings account that pays 10 percent interest, compounded annually. How much will your account be worth in 15 years?
a. $2,030.21
b. $5,000.00
c. $8,091.12
d. $8,354.50
e. $9,020.10
D
You deposit $1,000 in a savings account that pays 9 percent interest, compounded annually. How much will your account be worth in 6 years?
a. $1,054.00
b. $1,199.00
c. $1,677.10
d. $1,689.48
e. $7,523.33
C
You can earn 8 percent interest, compounded annually. How much must you deposit today to withdraw $10,000 in 6 years?
a. $5,402.69
b. $6,301.70
c. $6,756.76
d. $8,432.10
e. $9,259.26
B
You can earn 15 percent interest, compounded annually. How much must you deposit today to withdraw $4,000 in 10 years?
a. $525.11
b. $842.51
c. $869.57
d. $957.57
e. $988.74
E
In 1958 the average tuition for one year at an Ivy League school was $1,800. Thirty years later, in 1988, the average cost was $13,700. What was the growth rate in tuition over the 30-year period?
a. 12%
b. 9%
c. 6%
d. 7%
e. 8%
D
Suppose you invested $1,000 in stocks 10 years ago. If your account is now worth $2,839.42, what rate of return did your stocks earn?
a. 15%
b. 14%
c. 13%
d. 12%
e. 11%
E
You are currently investing your money in a bank account which has a nominal annual rate of 7.23 percent, compounded annually. How many years will it take for you to double your money?
a. 8.67 years
b. 9.15 years
c. 9.50 years
d. 9.93 years
e. 10.25 years
D
You are currently investing your money in a bank account which has a nominal annual rate of 8 percent, compounded annually. If you invest $2,000 today, how many years will it take for your account to grow to $10,000?
a. 22.91 years
b. 20.91 years
c. 18.91 years
d. 16.91 years
e. 14.91 years
B
. You deposited $1,000 in a savings account that pays 8 percent interest, com¬pounded quarterly, planning to use it to finish your last year in college. Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue in school, so you close out your account. How much money will you receive?
a. $1,171
b. $1,126
c. $1,082
d. $1,163
e. $1,008
B
What is the future value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
a. $ 670.44
b. $ 842.91
c. $1,169.56
d. $1,522.64
e. $1,348.48
E
What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
a. $ 670.43
b. $ 842.91
c. $1,169.56
d. $1,348.48
e. $1,522.64
A
You have the opportunity to buy a perpetuity which pays $1,000 annually. Your required rate of return on this investment is 15 percent. You should be essentially indifferent to buying or not buying the investment if it were offered at a price of
a. $5,000.00
b. $6,000.00
c. $6,666.67
d. $7,500.00
e. $8,728.50
C
If a 5-year ordinary annuity has a present value of $1,000, and if the interest rate is 10 percent, what is the amount of each annuity payment?
a. $240.42
b. $263.80
c. $300.20
d. $315.38
e. $346.87
B
If $100 is placed in an account that earns a nominal 4 percent, compounded quarterly, what will it be worth in 5 years?
a. $122.02
b. $105.10
c. $135.41
d. $120.90
e. $117.48
A
Gomez Electronics needs to arrange financing for its expansion program. Bank A offers to lend Gomez the required funds on a loan where interest must be paid monthly, and the quoted rate is 8 percent. Bank B will charge 9 percent, with interest due at the end of the year. What is the difference in the effective annual rates charged by the two banks?
a. 0.25%
b. 0.50%
c. 0.70%
d. 1.00%
e. 1.25%
C
You recently received a letter from Cut-to-the-Chase National Bank that offers you a new credit card that has no annual fee. It states that the annual percentage rate (APR) is 18 percent on outstanding balances. What is the effective annual interest rate? (Hint: Remember these companies bill you monthly.)
a. 18.81%
b. 19.56%
c. 19.25%
d. 20.00%
e. 18.00%
B
Which of the following investments has the highest effective return (EAR)? (Assume that all CDs are of equal risk.)
a. A bank CD which pays 10 percent interest quarterly.
b. A bank CD which pays 10 percent monthly.
c. A bank CD which pays 10.2 percent annually.
d. A bank CD which pays 10 percent semiannually.
e. A bank CD which pays 9.6 percent daily (on a 365-day basis).
B
Which one of the following investments provides the highest effective return?
a. An investment which has a 9.9 percent nominal rate and quarterly annual compounding.
b. An investment which has a 9.7 percent nominal rate and daily (365) compounding.
c. An investment which has a 10.2 percent nominal rate and annual com-pounding.
d. An investment which has a 10 percent nominal rate and semiannual com-pounding.
e. An investment which has a 9.6 percent nominal rate and monthly com-pounding.
A
Which of the following investments would provide an investor the highest effective annual return?
a. An investment which has a 9 percent nominal rate with semiannual com-pounding.
b. An investment which has a 9 percent nominal rate with quarterly com-pounding.
c. An investment which has a 9.2 percent nominal rate with annual com-pounding.
d. An investment which has an 8.9 percent nominal rate with monthly com-pounding.
e. An investment which has an 8.9 percent nominal rate with quarterly compounding.
B
Suppose you pay 15% as a nominal annual rate on your credit card. If you make monthly payments with monthly compounding, what is your effective annual rate?
a. 1.25%
b. 15.00%
c. 16.08%
d. 18.80%
e. 19.24%
C
Assume you are to receive a 20-year annuity with annual payments of $50. The first payment will be received at the end of Year 1, and the last payment will be received at the end of Year 20. You will invest each payment in an account that pays 10 percent. What will be the value in your account at the end of Year 30?
a. $6,354.81
b. $7,427.83
c. $7,922.33
d. $8,591.00
e. $6,752.46
B
Your uncle has agreed to deposit $3,000 in your brokerage account at the beginning of each of the next five years (t = 0, t = 1, t = 2, t = 3 and t = 4). You estimate that you can earn 9 percent a year on your investments. How much will you have in your account four years from now (at t = 4)? (Assume that no money is withdrawn from the account until
t = 4.)
a. $13,719.39
b. $17,954.13
c. $19,570.00
d. $21,430.45
e. $22,436.12
B
You just put $1,000 in a bank account which pays 6 percent nominal annual interest, compounded monthly. How much will you have in your account after 3 years?
a. $1,006.00
b. $1,056.45
c. $1,180.32
d. $1,191.00
e. $1,196.68
E
;