The Basic Tools of Finance 6581
78. Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al
will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in
four years. Stan will earn 4% interest and retire in eight years. Who will have the largest
sum when he retires?
a. Al
b. Ralph
c. Stan
d. They all retire with the same amount.
79. Sage decides to cash in all his savings to open a recording studio. He has three accounts
to cash in. The first earned 9 percent for two years. The second earned 6 percent for
three years. And the last earned 3 percent for six years. Supposing he started with $5,000
in each account, from which account will he get the most cash?
a. the two-year account at 9 percent
b. the three-year account at 6 percent
c. the six-year account at 3 percent
d. The accounts are all worth the same.
6582 The Basic Tools of Finance
80. Which of the following is the correct expression for finding the present value of a $1,000
payment one year from today if the interest rate is 6 percent?
a. $1,000 (1.06)
b. $1,000(1.06)
c. $1,000/(1.06)
d. None of the above is correct.
81. 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
The Basic Tools of Finance 6583
82. 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.
83. A scholarship gives you $1,000 today and promises to pay you $1,000 one year from
today. What is the present value of these payments?
a. $2,000/(1 + r)2.
b. $1,000 + $1,000/(1 + r)
c. $1,000/(1 + r) + $1,000/(1 + r)2
d. $1,000(1 + r) + $1,000(1 + r)2
6584 The Basic Tools of Finance
84. Which of the following changes would decrease the present value of a future payment?
a. a decrease in the size of the payment
b. an increase in the time until the payment is made
c. an increase in the interest rate
d. All of the above are correct.
85. Which of the following changes would decrease the present value of a future payment?
a. an increase in the size of the payment
b. an increase in the time until the payment is made
c. a decrease in the interest rate
d. All of the above are correct.
The Basic Tools of Finance 6585
86. Which of the following changes would increase the present value of a future payment?
a. a decrease in the size of the payment
b. an increase in the time until the payment is made
c. a decrease in the interest rate
d. All of the above are correct.
87. The present value of a payment to be made in the future falls as
a. the interest rate rises and the time until the payment is made increases.
b. the interest rate rises and the time until the payment is made decreases.
c. the interest rate falls and the time until the payment is made increases.
d. the interest rate falls and the time until the payment is made decreases.
6586 The Basic Tools of Finance
88. 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.
89. You are expecting to receive $3,500 at some time in the future. Which of the following
would unambiguously increase 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.
The Basic Tools of Finance 6587
90. You have been promised a payment of $250,000 in the future. In which case is the
present value of this payment highest?
a. You receive the payment 3 years from now and the interest rate is 8 percent.
b. You receive the payment 3 years from now and the interest rate is 6 percent.
c. You receive the payment 2 years from now and the interest rate is 8 percent.
d. You receive the payment 2 years from now and the interest rate is 6 percent.
91. You have been promised a payment of $400 in the future. In which of the following
cases is the present value of this payment the lowest?
a. You receive the payment 4 years from now and the interest rate is 4 percent.
b. You receive the payment 4 years from now and the interest rate is 5 percent.
c. You receive the payment 5 years from now and the interest rate is 4 percent.
d. You receive the payment 5 years from now and the interest rate is 5 percent.
6588 The Basic Tools of Finance
92. At which interest rate is the present value of $80.25 one year from today equal to $75
today?
a. 4 percent
b. 5 percent
c. 6 percent
d. 7 percent
93. At which interest rate is the present value of $95.40 one year from today equal to $90
today?
a. 4 percent
b. 5 percent
c. 6 percent
d. 7 percent
The Basic Tools of Finance 6589
94. At which interest rate is the present value of $168.54 two years from today equal to
$150 today?
a. 4 percent
b. 5 percent
c. 6 percent
d. None of the above would give a present value within a cent of $162.24.
95. At which interest rate is the present value of $196.85 three years from today equal to
$175 today?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
6590 The Basic Tools of Finance
96. What is the present value of a payment of $100 one year from today if the interest rate is
5 percent?
a. $95.50
b. $95.24
c. $95.00
d. None of the above are correct to the nearest cent.
97. What is the present value of a payment of $150 one year from today if the interest rate
is 6 percent?
a. $141.11
b. $141.36
c. $141.75
d. None of the above are correct to the nearest cent.
The Basic Tools of Finance 6591
98. What is the present value of a payment of $250 one year from today if the interest rate is
4 percent?
a. $240.38
b. $242.24
c. $244.40
d. None of the above are correct to the nearest cent.
99. At which interest rate is the present value of $260.10 two years from today equal to $250
today?
a. 2 percent
b. 3 percent
c. 4 percent
d. 5 percent
6592 The Basic Tools of Finance
100. At which interest rate is the present value of $145.80 two years from today equal to
$125 today?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
101. At which interest rate is the present value of $35.00 two years from today equal to
about $30.00 today?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
The Basic Tools of Finance 6593
102. What is the present value of a payment of $100 to be made one year from today if the
interest rate is 6 percent?
a. $105.26
b. $105.00
c. $97.24
d. $94.34
103. Of the following interest rates, which is the highest one at which you would prefer to
have $170 ten years from today instead of $100 today?
a. 3 percent
b. 5 percent
c. 7 percent
d. 9 percent
6594 The Basic Tools of Finance
104. What is the present value of a payment of $200 to be made one year from today if the
interest rate is 10 percent?
a. $180
b. $181.82
c. $220
d. $222.22
105. If the interest rate is 4.5 percent, what is the present value of a payment of $500 to be
made one year from today?
a. $457.14
b. $468.02
c. $478.47
d. None of the above are correct to the nearest cent.
The Basic Tools of Finance 6595
106. 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
107. You have a bond that entitles you to a one–time payment of $10,000 one year from now.
The interest rate is 10 percent per year. How much is the bond worth today?
a. $9,090.91
b. $10,000.00
c. $8,264.46
d. $9,523.81
6596 The Basic Tools of Finance
108. Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4
percent, then how much is this future payment worth today?
a. $924.56
b. $931.44
c. $937.87
d. None of the above are correct to the nearest cent.
109. At which interest rate is the present value of $183.60 two years from today equal to
about $173.06 today?
a. 2 percent
b. 3 percent
c. 4 percent
d. 5 percent
The Basic Tools of Finance 6597
110. At which interest rate is the present value of $360 three years from today equal to about
$310 today?
a. 4.7 percent
b. 5.1 percent
c. 5.5 percent
d. 5.9 percent
111. Assuming the interest rate is 6 percent, which of the following has the greatest present
value?
a. $300 paid in two years
b. $150 paid in one year plus $140 paid in two years
c. $100 paid today plus $100 paid in one year plus $100 paid in two years
d. $285 today
6598 The Basic Tools of Finance
112. 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
113. Suppose the interest rate is 4 percent. Which of the following has the greatest present
value?
a. $100 today plus $190 one year from today
b. $150 today plus $140 one year from today
c. $200 today plus $90 one year from today
d. $250 today plus $40 one year from today
The Basic Tools of Finance 6599
114. Suppose the interest rate is 7 percent. Consider four payment options: Option A: $500
today.
Option B: $550 one year from today. Option C: $575 two years from today. Option D:
$600 three years from today. Which of the payments has the highest present value
today?
a. Option A
b. Option B
c. Option C
d. Option D
115. Suppose the interest rate is 7 percent. Consider four payment options: Option A: $500
today.
Option B: $550 one year from today. Option C: $575 two years from today. Option D:
$600 three years from today. Which of the payments has the lowest present value
today?
a. Option A
b. Option B
c. Option C
d. Option D
6600 The Basic Tools of Finance
116. Suppose the interest rate is 8 percent. Consider three payment options:
1. $200 today.
2. $220 one year from today.
3. $240 two years from today.
Which of the following is correct?
a. Option 1 has the highest present value and Option 2 has the lowest.
b. Option 2 has the highest present value and Option 3 has the lowest.
c. Option 3 has the highest present value and Option 1 has the lowest.
d. None of the above is correct.
117. Suppose the interest rate is 5 percent. Consider three payment options:
1. $500 today.
2. $520 one year from today.
3. $550 two years from today.
Which of the following is correct?
a. 1 has the lowest present value and 3 has the highest.
b. 2 has the lowest present value and 1 has the highest.
c. 3 has the lowest present value and 2 has the highest.
d. None of the above is correct.