Time Value of Money Exam 2023 Verified for learners
If an average home in your town currently costs $350,000, and house prices are
expected to grow at an average rate of 3 percent per year, what will an average
house cost in "5" years?
$405,745.93
When your investment compounds, your money will grow in a(n) __________
fashion.
exponential
You are offered a choice between $770 today and $815 one year from today.
Assume that interest rates are 4 percent. Which do you prefer?
$815 one year from today
People borrow money because they expect
their purchases to give them the satisfaction in the future that compensates them for the
interest payments charged on the loan.
The longer money can earn interest,
the greater the compounding effect.
How much would be in your savings account in 7 years after depositing $100
today if the bank pays 5 percent interest per year?
$140.71
What is the future value of $2,500 deposited for one year earning a 14 percent
interest rate annually?
$2,850
Which of the following statements is correct?
$100 to be received in the future is worth less than that today since it could be invested
and earn interest.
We call the process of earning interest on both the original deposit and on the
earlier interest payments
compounding
What is the future value of $600 deposited for four years earning an 11 percent
interest rate annually?
$910.84
How much would be in your savings account in 12 years if you deposited $1,500
today? Assume the bank pays 5 percent per year.
$2,693.78
How much would be in your savings account in 10 years after depositing $50
today if the bank pays 7 percent interest per year?
$98.36
Which of the following statements is incorrect with respect to time lines?
Interest rates are not included on our time lines.
Compute the present value of $9,000 paid in four years using the following
discount rates: 4 percent in year 1, 5 percent in year 2, 4 percent in year 3, and 3
percent in year 4.
$7,693.95
Which of the following is the equivalent of $300 received today?
, Seven hundred ninety-five dollars ninety-nine cents to be received 20 years in the future
assuming a 5 percent annual interest rate.
How are present values affected by changes in interest rates?
The lower the interest rate, the larger the present value will be.
Approximately how many years does it take to double a $475 investment when
interest rates are 8 percent per year?
9 years
Approximately how many years does it take to double a $600 investment when
interest rates are 6 percent per year?
12 years
Compute the present value of $3,000 paid in four years using the following
discount rates: 3 percent in year 1, 4 percent in year 2, 5 percent in year 3, and 6
percent in year 4.
$2,516.26
Compute the present value of $4,000 paid in five years using the following
discount rates: 10 percent in year 1, 2 percent in year 2, 12 percent in year 3, and
9 percent in years 4 and 5.
$2,679.15
Approximately what interest rate is needed to double an investment over six
years?
12 percent
The interest rate, i, which we use to calculate present value, is often referred to as
the
discount rate.
Approximately what interest rate is needed to double an investment over eight
years?
9 percent
What is the present value of a $500 payment made in four years when the
discount rate is 8 percent?
$367.51
When calculating the number of years needed to grow an investment to a specific
amount of money
the higher the interest rate, the shorter the time period needed to achieve the growth.
Determine the interest rate earned on a $200 deposit when $208 is paid back in
one year.
4 percent
You double your money in five years. The reason your return is not 20 percent
per year is because:
it does not reflect the effect of compounding.
Determine the interest rate earned on a $450 deposit when $475 is paid back in
one year.
5.56 percent
In order to discount multiple cash flows to the present, one would use
the appropriate discount rate.
When saving for future expenditures, we can add the ________ of contributions
over time to see what the total will be worth at some point in time.
If an average home in your town currently costs $350,000, and house prices are
expected to grow at an average rate of 3 percent per year, what will an average
house cost in "5" years?
$405,745.93
When your investment compounds, your money will grow in a(n) __________
fashion.
exponential
You are offered a choice between $770 today and $815 one year from today.
Assume that interest rates are 4 percent. Which do you prefer?
$815 one year from today
People borrow money because they expect
their purchases to give them the satisfaction in the future that compensates them for the
interest payments charged on the loan.
The longer money can earn interest,
the greater the compounding effect.
How much would be in your savings account in 7 years after depositing $100
today if the bank pays 5 percent interest per year?
$140.71
What is the future value of $2,500 deposited for one year earning a 14 percent
interest rate annually?
$2,850
Which of the following statements is correct?
$100 to be received in the future is worth less than that today since it could be invested
and earn interest.
We call the process of earning interest on both the original deposit and on the
earlier interest payments
compounding
What is the future value of $600 deposited for four years earning an 11 percent
interest rate annually?
$910.84
How much would be in your savings account in 12 years if you deposited $1,500
today? Assume the bank pays 5 percent per year.
$2,693.78
How much would be in your savings account in 10 years after depositing $50
today if the bank pays 7 percent interest per year?
$98.36
Which of the following statements is incorrect with respect to time lines?
Interest rates are not included on our time lines.
Compute the present value of $9,000 paid in four years using the following
discount rates: 4 percent in year 1, 5 percent in year 2, 4 percent in year 3, and 3
percent in year 4.
$7,693.95
Which of the following is the equivalent of $300 received today?
, Seven hundred ninety-five dollars ninety-nine cents to be received 20 years in the future
assuming a 5 percent annual interest rate.
How are present values affected by changes in interest rates?
The lower the interest rate, the larger the present value will be.
Approximately how many years does it take to double a $475 investment when
interest rates are 8 percent per year?
9 years
Approximately how many years does it take to double a $600 investment when
interest rates are 6 percent per year?
12 years
Compute the present value of $3,000 paid in four years using the following
discount rates: 3 percent in year 1, 4 percent in year 2, 5 percent in year 3, and 6
percent in year 4.
$2,516.26
Compute the present value of $4,000 paid in five years using the following
discount rates: 10 percent in year 1, 2 percent in year 2, 12 percent in year 3, and
9 percent in years 4 and 5.
$2,679.15
Approximately what interest rate is needed to double an investment over six
years?
12 percent
The interest rate, i, which we use to calculate present value, is often referred to as
the
discount rate.
Approximately what interest rate is needed to double an investment over eight
years?
9 percent
What is the present value of a $500 payment made in four years when the
discount rate is 8 percent?
$367.51
When calculating the number of years needed to grow an investment to a specific
amount of money
the higher the interest rate, the shorter the time period needed to achieve the growth.
Determine the interest rate earned on a $200 deposit when $208 is paid back in
one year.
4 percent
You double your money in five years. The reason your return is not 20 percent
per year is because:
it does not reflect the effect of compounding.
Determine the interest rate earned on a $450 deposit when $475 is paid back in
one year.
5.56 percent
In order to discount multiple cash flows to the present, one would use
the appropriate discount rate.
When saving for future expenditures, we can add the ________ of contributions
over time to see what the total will be worth at some point in time.
