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College of Business & Accountancy Score

Quiz #2 - MATH 3 (Chapter 2) Exequiel C. Cruspero, Jr., MBA, CPA

TRUE or FALSE. Write TRUE if the statement is correct, otherwise write FALSE.

___________1) A peso received today is worth more than a peso received in the future, assuming a positive interest rate. T
___________2) The future value formula is: FV = PV(1 + r)n where (1 + r)n is the future-value factor (FVF).
___________3) As you increase the interest rate, the future value of an investment increases. T
___________4) For a positive r, future value will always exceed present value. T
___________5) In the equation P133.10 = P100 (1 + .1)3, the exponent “3” represents the number of periods that the present
value is left on deposit. T
___________6) An account that pays simple interest will have a lower FV than an account that pays compound interest. T
___________7) Future value is always bigger than present value. T
___________8) As you increase the interest rate, the future value of an investment increases. T
___________9) As you increase the length of the investment (to receive some lump sum), the present value of the investment
increases. F
___________10) Discounting is calculating the future value of future cash flows. F

PROBLEM. Give what is/are required. NO SOLUTIONS, NO CREDIT.

Beware! Round FV/PV factors to four (4) decimal places, and money amounts to two (2) decimal places.

A. Assume that you deposit P10,000 today into an account paying 6% annual interest and leave it on deposit for
exactly 8 years.
How much will be in the account at the end of 8 years if interest is compounded:
1) annually? _____________P15,938
2) semiannually? _____________P16,047
3) monthly? _____________P16,141

B. You want to buy a house in 4 years and expect to need P25,000 for a down payment. If you have P15,000 to
invest, how much interest do you have to earn (compounded annually) to reach your goal?
Answer: _____________13.62%

C. If you deposit P10,000 today in an account that pays 5% interest compounded annually for five years, how much
interest will you earn?

Answer: _____________2,762.82

D. Complete the table

Principal Term Nominal rate Interest Compound Compound FV factor
compounded amount interest
1) 50,000 2 years 8% quarterly
2) 75,000 6 years 13% semi-annually
3) 100,000 10 years 5% annually
4) 88,000 4 years 12% monthly
5) 105,000 20 years 4% semi-annually

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