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7) What is the future value (FV) of $50,000 in thirty years, assuming the interest rate is
12% per year?
A) $32,500.00
B) $1,273,296.69
C) $1,348,196.50
D) $1,497,996.11
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
8) What is the future value (FV) of $50,000 in thirty years, assuming the interest rate is 6%
per year?
A) $32,500.00
B) $244,098.38
C) $258,457.10
D) $287,174.56
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
9) What is the future value (FV) of $20,000 in four years, assuming the interest rate is 4%
per year?
A) $15,208.16
B) $19,887.59
C) $23,397.17
D) $25,736.89
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
39
10) If $17,000 is invested at 10% per year, in approximately how many years will the
investment double?
A) 7.3 years
B) 8.4 years
C) 11.0 years
D) 14.6 years
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
11) If money is invested at 8% per year, after approximately how many years will the
interest earned be equal to the original investment?
A) 7 years
B) 8 years
C) 9 years
D) 11 years
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
12) Jef has the opportunity to receive lump-sum payments either now or in the future.
Which of the following opportunities is the best, given that the interest rate is 4% per year?
A) one that pays $900 now
B) one that pays $1080 in two years
C) one that pays $1350 in ive years
D) one that pays $1620 in ten years
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
40
13) Sara wants to have $600,000 in her savings account when she retires. How much must
she put in the account now, if the account pays a ixed interest rate of 8%, to ensure that
she has $600,000 in 20 years?
A) $128,729
B) $180,221
C) $231,712
D) $139,541
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
14) On the day Harry was born, his parents put $1200 into an investment account that
promises to pay a ixed interest rate of 6 percent per year. How much money will Harry
have in this account when he turns 21?
A) $3263
B) $4079
C) $8158
D) $3766
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
15) Which of the following statements is FALSE about valuing cash at diferent points in
time?
A) The process of moving forward along the timeline to determine a cash low's value in the
future is known as compounding.
B) The efect of earning interest on interest is known as compound interest.
C) It is only possible to compare or combine values at the same point in time.
D) A dollar in the future is worth more than a dollar today.
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
41
16) Which of the following statements is FALSE about valuing cash at diferent points in
time?
A) Finding the present value (PV) and compounding are the same.
B) A dollar today and a dollar in one year are not equivalent.
C) If you want to compare or combine cash lows that occur at diferent points in time, you
irst need to convert the cash lows into the same units or move them to the same point in
time.
D) The equivalent value of two cash lows at two diferent points in time is sometimes
referred to as the time value of money.
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
17) Consider the following timeline:
If the current market rate of interest is 8%, then the present value (PV) of this timeline as
of year 0 is closest to ________.
A) $502
B) $653
C) $600
D) $1004
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
42
18) Consider the following timeline:
If the current market rate of interest is 13%, then the value of the cash lows in year 0 and
year 2 as of year 1 is closest to ________.
A) $167.35
B) -$98.7
C) $98.7
D) -$70
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
43
19) Consider the following timeline:
If the current market rate of interest is 7%, then the value as of year 1 is closest to
________.
A) $0
B) $1000
C) $570
D) $68
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
20) To compute the future value of a cash low, you must ________.
A) discount it
B) compound it
C) double it
D) arbitrage it
AACSB Objective: Analytic Skills
Author: WC
Question Status: New
44
21) An investment will pay you $120 in one year and $200 in two years. If the interest rate
is 4%, what is the present value of these cash lows?
A) $304.91
B) $307.69
C) $300.29
D) $320.00
AACSB Objective: Analytic Skills
Author: WC
Question Status: New
22) If an analyst incorrectly adds cash lows occurring at diferent points in time, what is
the implied assumption in the process?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
23) Why should interest rates be generally positive?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
45
