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1. Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 3 percent. The
future value of the $500 after 1 year is
a.
$485.44.
b.
$496.50.
c.
$509.28.
d.
$515.00.
2. Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent. The
future value of the $500 after 2 years is
a.
$428.67.
b.
$470.00.
c.
$580.00.
d.
$583.20.
3. Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The
future value of the $350 after 4 years is
a.
$414.09.
b.
$434.00.
c.
$441.87.
d.
$481.24.
4. 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.
5. If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?
a.
$2,420.68
b.
$2,591.85
c.
$2,996.33
d.
$3,040.63
6. Suppose you will receive $500 at some point in the future. If the annual interest rate is 7.5 percent, then the present
value of the $500 is
a.
$411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10 years.
b.
$348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years.
c.
$291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10 years.
d.
$291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10 years.
7. Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the $100 today if the
interest rate is
a.
4 percent.
b.
6 percent.
c.
8 percent.
d.
All of the above are correct.
8. Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest
rate is
a.
3 percent.
b.
4 percent.
c.
5 percent.
d.
None of the above is correct.
9. If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of
a.
$110.00 two years from today.
b.
$112.49 three years from today.
c.
$116.00 four years from today.
d.
$123.67 five years from today.
10. 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.
11. Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate
is
a.
8 percent.
b.
9 percent.
c.
10 percent.
d.
All of the above are correct.
12. Imagine that someone offers you $X today or $1,500 in 5 years. If the interest rate is 4 percent, then you would prefer
to take the $X today if and only if
a.
X > 1,055.56.
b.
X > 1,120.89.
c.
X > 1,232.89.
d.
X > 1,338.26.
13. James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you would prefer to take the
$1,000 today if and only if
a.
X < 1,045.00.
b.
X < 1,188.89.
c.
X < 1,266.67.
d.
X < 1,360.86.
14. In which of the following instances is the present value of the future payment the largest?
a.
You will receive $1,000 in 5 years and the annual interest rate is 5 percent.
b.
You will receive $1,000 in 10 years and the annual interest rate is 3 percent.
c.
You will receive $2,000 in 10 years and the annual interest rate is 10 percent.
d.
You will receive $2,400 in 15 years and the annual interest rate is 8 percent.
15. Compounding refers directly to
a.
finding the present value of a future sum of money.
b.
finding the future value of a present sum of money.
c.
changes in the interest rate over time on a bank account or a similar savings vehicle.
d.
interest being earned on previously-earned interest.
16. Discounting refers directly to
a.
finding the present value of a future sum of money.
b.
finding the future value of a present sum of money.
c.
calculations that ignore the phenomenon of compounding for the sake of ease and simplicity.
d.
decreases in interest rates over time, while compounding refers to increases in interest rates over time.
17. One way to characterize the difference between compounding and discounting is to say that
a.
compounding involves the assumption that the interest rate is zero, whereas discounting does not involve that
assumption.
b.
discounting involves the assumption that the interest rate is zero, whereas compounding does not involve that
assumption.
c.
the process of compounding produces a future value, whereas the process of discounting produces a present
value.
d.
the process of compounding produces a present value, whereas the process of discounting produces a future
value.
18. 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.
19. Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy the bond and hold it for 5
years, then at that time you will receive a payment of $10,000. You will buy the bond today if the interest rate is
a.
no less than 9.48 percent.
b.
no greater than 9.48 percent.
c.
no less than 10.83 percent.
d.
no greater than 10.83 percent.
20. A manufacturing company is thinking about building a new factory. The factory, if built, will yield the company $300
million in 7 years, and it would cost $220 million today to build. The company will decide to build the factory if the
interest rate is
a.
no less than 4.53 percent.
b.
no greater than 4.53 percent.
c.
no less than 5.81 percent.
d.
no greater than 5.81 percent.
21. Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?
a.
$X(1 + rN)N
b.
$X(1 + r)N
c.
$X(1 + rN)
d.
$X(1 + r/N)N
22. Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent
interest for 16 years?
a.
$1(1 + .05)16
b.
$1(1 + .05 16) 16
c.
$1(1 + .05 16)
d.
$1(1 + 16/.05)16
23. Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent
interest for 10 years?
a.
$100(1 + .0410)
b.
$100(1 + .04 10)
c.
$100 × 10 (1 + .04)
d.
$100(1 + .04)10
24. The future value of a deposit in a savings account will be larger
a.
the longer a person waits to withdraw the funds.
b.
the higher the interest rate is.
c.
the larger the initial deposit is.
d.
All of the above are correct.
25. The future value of a deposit in a savings account will be smaller
a.
the longer a person waits to withdraw the funds.
b.
the lower the interest rate is.
c.
the larger the initial deposit is.
d.
All of the above are correct.
26. What is the future value of $500 one year from today if the interest rate is 6 percent?
a.
$515
b.
$520
c.
$530
d.
None of the above is correct.
27. What is the future value of $750 one year from today if the interest rate is 2.5 percent?
a.
$766.50
b.
$768.75
c.
$770.23
d.
None of the above are correct to the nearest cent.
28. What is the future value of $800 one year from today if the interest rate is 7 percent?
a.
$747.66
b.
$756.00
c.
$856.00
d.
None of the above are correct to the nearest cent.
29. What is the future value of $375 at an interest rate of 3 percent one year from today?
a.
$371.75
b.
$386.25
c.
$393.33
d.
None of the above are correct to the nearest cent.
30. What is the future value of $450 at an interest rate of 9 percent two years from today?
a.
$534.65
b.
$546.35
c.
$565.18
d.
$574.13
31. At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?
a.
5
b.
7
c.
9
d.
11
32. At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value?
a.
8
b.
10
c.
12
d.
14
33. At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?
a.
3
b.
4
c.
5
d.
7
34. At an annual interest rate of 20 percent, about how many years will it take $100 to triple in value?
a.
5
b.
6
c.
8
d.
9
35. If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have
$432.92?
a.
10
b.
14
c.
17
d.
20
36. If you presently have $50,000 saved and earn 15 percent interest per year, about how many years will it take for your
investment to triple?
a.
6
b.
8
c.
10
d.
12
37. You put $75 in the bank one year ago and forgot about it. The bank sends you a notice that you now have $81 in your
account. What interest rate did you earn?
a.
5 percent
b.
6 percent
c.
7 percent
d.
8 percent
38. You put $150 in the bank two years ago and forgot about it. The bank sends you a notice that you now have $169.34
in your account. What interest rate did you earn?
a.
5.50 percent
b.
5.65 percent
c.
6.25 percent
d.
7.05 percent
39. Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she
doesn't remember how much she opened the account with a year ago. How much did she put in?
a.
$98.18
b.
$100.96
c.
$102.04
d.
$103.24
40. Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a statement indicating that he
now has $294.25 in his account. What interest rate did Tim earn?
a.
5 percent
b.
6 percent
c.
7 percent
d.
8 percent
41. When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that
you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the
nearest cent?
a.
$1,200.00
b.
$1,111.77
c.
$983.58
d.
$859.09
42. If you put $125 into an account that paid 3.25 percent interest, then how much money would you have in the account
after 20 years?
a.
$285.83
b.
$236.98
c.
$202.04
d.
$145.65
43. If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?
a.
$320.69
b.
$324.00
c.
$324.73
d.
$327.81
44. Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much does he have in the account
today?
a.
$3,180.00
b.
$3,182.70
c.
$3,183.62
d.
None of the above are correct to the nearest cent.
45. Three years ago Dawn put $1,200 into an account paying 2 percent interest. How much is Dawn’s account worth
today?
a.
$1,225.38
b.
$1,248.48
c.
$1,264.72
d.
$1,273.45
46. Toni deposited $250 into an account and one year later she had $272.50 in the account. What interest rate was paid on
Toni’s deposit?
a.
8 percent
b.
9 percent
c.
10 percent
d.
None of the above is correct.
47. Ellen deposited $500 into an account and two years later she had $561.80 in the account. What interest rate was paid
on Ellen’s deposit?
a.
4.88 percent
b.
6.00 percent
c.
12.36 percent
d.
None of the above is correct.
48. 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.
49. Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan’s deposit?
a.
5 percent
b.
7 percent
c.
8 percent
d.
10 percent
50. Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has
about $168.73. How long did Hector wait to check his balance?
a.
3 years
b.
3.5 years
c.
4 years
d.
4.5 years
51. 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
52. Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his balance and finds that he has a
balance of about $272.10. How many years did Clint wait to check his balance?
a.
3 years
b.
3.5 years
c.
4 years
d.
4.5 years
53. Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's
worth about $708.62. How many years did she wait to check her balance?
a.
5 years
b.
6 years
c.
7 years
d.
8 years
54. Laura says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than
the present value of $700 to be received two years from today if the interest rate is 3 percent. Cassie says that $700 saved
for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.
a.
Both Laura and Cassie are correct.
b.
Both Laura and Cassie are incorrect.
c.
Only Laura is correct.
d.
Only Cassie is correct.
55. Braden says that $400 saved for one year at 4 percent interest has a smaller future value than $400 saved for two years
at 2 percent interest. Lefty says that the present value of $400 to be received one year from today if the interest rate is 4
percent exceeds the present value of $400 to be received two years from today if the interest rate is 2 percent.
a.
Braden and Lefty are both correct.
b.
Braden and Lefty are both incorrect.
c.
Only Braden is correct.
d.
Only Lefty is correct.
56. Jarrod says that the future value of $250 saved for one year at 6 percent interest is less than the future value of $250
saved for two years at 3 percent interest. Simon says that the present value of a $250 payment to be received in one year
when the interest rate is 6 percent is less than the value of a $250 payment to be received in two years when the interest
rate is 3 percent.
a.
Jarrod and Simon are both correct.
b.
Jarrod and Simon are both incorrect.
c.
Only Jarrod is correct.
d.
Only Simon is correct.
57. 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.
58. Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year
she earned 5 percent. How much money does Veronica have in her account today?
a.
$1,133.31
b.
$1,120.00
c.
$1,123.50
d.
None of the above are correct to the nearest cent.
59. Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he
earned 5 percent interest. How much money does Felix have in his account now?
a.
$540.75
b.
$540.80
c.
$540.85
d.
None of the above are correct to the nearest cent.
60. Jorge deposited $1,000 into an account three years ago. The first two years he earned 5 percent interest; the third year
he earned 6 percent interest. How much money does Jorge have in his account today?
a.
$1,157.90
b.
$1,168.65
c.
$1,176.00
d.
None of the above are correct to the nearest cent.
61. Anna deposited $10,000 into an account three years ago. The first year she earned 12 percent interest, the second year
she earned 8 percent interest, and the third year she earned 4 percent interest. How much money does she have in her
account today?
a.
$12,579.84
b.
$12,596.80
c.
$12,597.12
d.
None of the above are correct to the nearest cent.
62. Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next
three years, you will have $944.78 in your account. If your accountant is correct, then what is the current interest rate?
a.
6 percent
b.
7 percent
c.
8 percent
d.
10 percent
63. Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next
two years you will have $898.88 in your account. If your accountant is correct, then what is the current interest rate?
a.
6 percent
b.
7 percent
c.
8 percent
d.
9 percent
