FIN 300 CH 5 (Latest Update )
Questions and Verified Answers {Grade A}
100 % Correct - BYU
Andy deposited $3,000 this morning into an account that pays 5 percent interest,
compounded annually. Barb also deposited $3,000 this morning into an account that
pays 5 percent interest, compounded annually. Andy will withdraw his interest
earnings and spend it as soon as possible. Barb will reinvest her interest earnings into
her account. Given this, which one of the following statements is true?
A. Barb will earn more interest the second year than Andy.
B. After five years, Andy and Barb will both have earned the same amount of interest.
C. Barb will earn more interest the first year than Andy will.
D. Andy will earn more interest in year three than Barb will.
E. Andy will earn compound interest. - correct answer A. Barb will earn more interest
the second year than Andy.
Terry is calculating the present value of a bonus he will receive next year. The process
he is using is called:
A. Discounting.
B. Accumulating.
C. Compounding.
D. Reducing.
E. Growth analysis. - correct answer A. Discounting.
, FIN 300 CH 5 (Latest Update )
Questions and Verified Answers {Grade A}
100 % Correct - BYU
You would like to give your daughter $75,000 towards her college education 17 years
from now. How much money must you set aside today for this purpose if you can
earn 8 percent on your investments? - correct answer $20,270.17
Present value = $75,000/(1 + .08)17 = $20,270.17
You are depositing $3,000 in a retirement account today and expect to earn an
average return of 7.5 percent on this money. How much additional income will you
earn if you leave the money invested for 45 years instead of just 40 years? - correct
answer $23,581.80
Future value = $3,000 × (1 + .075)45 = $77,714.52
Future value = $3,000 × (1 + .075)40 = $54,132.72
Difference = $77,714.52 - 54,132.72 = $23,581.80
Phillippe invested $1,000 ten years ago and expected to have $1,800 today. He has
not added or withdrawn any money from this account since his initial investment. All
interest was reinvested in the account. As it turns out, he only has $1,680 in his
account today. Which one of the following must be true?
A. He ignored the Rule of 72 which caused his account to decrease in value.
B. The future value interest factor turned out to be higher than he expected.
C. He earned a lower interest rate than he expected.
C. He earned simple interest rather than compound interest.
Questions and Verified Answers {Grade A}
100 % Correct - BYU
Andy deposited $3,000 this morning into an account that pays 5 percent interest,
compounded annually. Barb also deposited $3,000 this morning into an account that
pays 5 percent interest, compounded annually. Andy will withdraw his interest
earnings and spend it as soon as possible. Barb will reinvest her interest earnings into
her account. Given this, which one of the following statements is true?
A. Barb will earn more interest the second year than Andy.
B. After five years, Andy and Barb will both have earned the same amount of interest.
C. Barb will earn more interest the first year than Andy will.
D. Andy will earn more interest in year three than Barb will.
E. Andy will earn compound interest. - correct answer A. Barb will earn more interest
the second year than Andy.
Terry is calculating the present value of a bonus he will receive next year. The process
he is using is called:
A. Discounting.
B. Accumulating.
C. Compounding.
D. Reducing.
E. Growth analysis. - correct answer A. Discounting.
, FIN 300 CH 5 (Latest Update )
Questions and Verified Answers {Grade A}
100 % Correct - BYU
You would like to give your daughter $75,000 towards her college education 17 years
from now. How much money must you set aside today for this purpose if you can
earn 8 percent on your investments? - correct answer $20,270.17
Present value = $75,000/(1 + .08)17 = $20,270.17
You are depositing $3,000 in a retirement account today and expect to earn an
average return of 7.5 percent on this money. How much additional income will you
earn if you leave the money invested for 45 years instead of just 40 years? - correct
answer $23,581.80
Future value = $3,000 × (1 + .075)45 = $77,714.52
Future value = $3,000 × (1 + .075)40 = $54,132.72
Difference = $77,714.52 - 54,132.72 = $23,581.80
Phillippe invested $1,000 ten years ago and expected to have $1,800 today. He has
not added or withdrawn any money from this account since his initial investment. All
interest was reinvested in the account. As it turns out, he only has $1,680 in his
account today. Which one of the following must be true?
A. He ignored the Rule of 72 which caused his account to decrease in value.
B. The future value interest factor turned out to be higher than he expected.
C. He earned a lower interest rate than he expected.
C. He earned simple interest rather than compound interest.
