Fundamentals of Corporate Finance Canadian Canadian 8th Edition Ross Test Bank 1

Fundamentals of Corporate Finance Canadian Canadian
8th Edition Ross

Full download at:
Solution Manual:
https://testbankpack.com/p/solution-manual-for-fundamentals-of-corporate-finance-
canadian-canadian-8th-edition-by-ross-isbn-0071051600-9780071051606/
Test bank:
https://testbankpack.com/p/test-bank-for-fundamentals-of-corporate-finance-canadian-
canadian-8th-edition-by-ross-isbn-0071051600-9780071051606/
05
Student:
1. If the rate at which you can invest is 0%, the value today of $1 to be received in the future is less than
$1.
True False
2. The future value will increase the longer the period of time.
True False
3. The present value will increase the higher the rate of interest.
True False
4. The present value will increase the lower the rate of interest.
True False
5. Discount rate is the interest rate used to calculate the present value of future cash flows.
True False
6. Present value is the value today of future cash flows discounted at the appropriate discount rate.
True False
7. As the discount rate increases, the future value of $500 to be received four years from now will
decrease:
True False
8. Interest earned on the reinvestment of previous interest payments is called simple interest.
True False
9. Compounding is the process of finding the present value of some future amount.
True False
10. Discounting is the process of finding the present value of some future amount.
True False
11. The value today of future cash flows discounted at the appropriate discount rate is called the
value.
A. Principal
B. Future
C. Present
D. Simple
E. Compound
12. The amount an investment is worth after one or more periods of time is the .
A. Future value.
B. Present value.
C. Principal value.
D. Compound interest rate.
E. Simple interest rate.
13. The process of accumulating interest on an investment over time to earn more interest is called:
A. Growth.
B. Compounding.
C. Aggregation.
D. Accumulation.
14. Interest earned on the reinvestment of previous interest payments is called .
A. Free interest.
B. Annual interest.
C. Simple interest.
D. Interest on interest.
E. Compound interest.
15. Interest earned on both the initial principal and the interest reinvested from prior periods is called
.
A. Free interest.
B. Annual interest.
C. Simple interest.
16. Interest earned only on the original principal amount invested is called .
A. Free interest.
B. Annual interest.
C. Simple interest.
17. The future value interest factor is calculated as:
A. (1 + r)t
B. (1 + rt)
C. (1 + r)(t)
D. 1 + r - t
E. (1 + r)(2)
18. The current value of future cash flows discounted at the appropriate discount rate is called the:
A. Principal value.
B. Future value.
C. Present value.
D. Simple interest rate.
E. Compound interest rate.
19. The process of finding the present value of some future amount is often called .
A. Growth.
B. Discounting.
C. Accumulation.
D. Compounding.
E. Reduction.
20. The present value interest factor is calculated as:
A. 1/(1 + r - t)
B. 1/(1 + rt)
C. 1/(1 + r)(t)
D. 1/(1 + r)t
E. 1 + r + t
21. The interest rate used to calculate the present value of future cash flows is called the
rate.
A. Free interest.
B. Annual interest.
C. Compound interest.
D. Simple interest.
E. Discount.
22. The concept that a dollar received today is worth more than a dollar received tomorrow is referred to as
the:
A. Present value.
B. Simple interest value.
C. Compound value.
D. Time value of money.
E. Future value of money.
23. The factor (1 + r)t is called the:
A. Simple rate of interest.
B. Current factor.
C. Future value interest factor.
D. Present value interest factor.
E. Discount factor.
24. The value computed using the factor 1/(1 + r)t is called the:
A. Present value.
B. Interest rate.
C. Number of periods.
D. Future value.
E. Compound value.
25. Compound interest means that you earn:
A. Interest only on the initial amount invested.
B. Interest on the initial principal only.
C. Interest on both the principal and prior reinvested interest.
D. A decreasing amount of interest each year.
E. The same amount of interest each year.
26. Calculating the present value of a future cash flow to determine its value today is called:
A. Discounted cash flow valuation.
B. The discount rate.
C. Future value compounding.
D. Present value compounding.
E. Timing the cash flow.
27. The rate used to find the present value of a future payment is called the:
A. Simple rate.
B. Discount rate.
C. Compound rate.
D. Future value rate.
E. Loan rate.
28. The discounted value of money is called the:
A. Compound value.
B. Simple value.
C. Future value.
D. Complex value.
E. Present value.
29. The rate of return used when computing a present value is referred to as the rate while the rate
used when computing a future value is referred to as the rate.
A. Compound; discount.
B. Compound; simple.
C. Compound; compound.
D. Discount; discount.
E. Discount; compound.
30. On a financial calculator, the symbol "N" represents the:
A. Current value.
B. Time periods.
C. Future value.
D. Rate of simple interest.
E. Rate of compound interest.
31. The present value equation is:
A. PV = FVt + (1 + r)t.
B. PV = FVt - (1 + r)t.
C. PV = FVt/[1/(1 + r)t].
D. PV = FVt/(1 + r)t.
E. PV = FVt * (1 + r)t.
32. The amount an investment will worth after one or more periods of time is the value.
A. Future.
B. Present.
C. Principal.
D. Discounted.
E. Simple.
A. Growth.
B. Compounding.
C. Aggregation.
D. Accumulation.
E. Discounting.
34. Interest earned on the reinvestment of previous interest payments is called interest.
A. Free.
B. Annual.
C. Simple.
D. Interest on.
E. Intermediary.
interest.
A. Free.
B. Annual.
C. Simple.
D. Internal.
E. Compound.
36. Interest earned only on the original principal amount invested is called interest.
A. Free.
B. Annual.
C. Simple.
D. Interest on.
E. Compound.
37. The current value of future cash flows discounted at the appropriate discount rate to current time is called
the value.
A. Principal.
B. Future.
C. Present.
D. Simple.
E. Compound.
38. The process of finding the present value of some future amount is often called:
A. Growth.
B. Discounting.
C. Accumulation.
D. Compounding.
E. Reduction.
39. The interest rate used to calculate the present value of future cash flows is called the rate.
A. Free.
B. Annual.
C. Compound.
D. Simple.
E. Discount.
40. Future value is best defined as:
A. An amount of money received each period for a stated number of periods.
B. The amount an investment is worth in today's dollars.
C. The dollar amount invested today at a stated rate of interest for some period of time.
D. The amount an investment is worth at the end of some stated period of time.
E. The cash value of an investment in today's dollars based on a stated rate of interest.
41. The term interest-on-interest refers to:
A. The payment of interest more than once per year.
B. The interest earned on previous interest earnings which were reinvested.
C. Earning interest on an investment for a period greater than one year.
D. Earning interest only on the principal amount invested.
E. The process of accumulating interest on an investment over time to earn more interest.
42. Present value is defined as the:
A. Amount of money invested each time period for a stated number of periods.
B. Summation of the cash flows received within a specified period of time.
C. Value of future cash flows in today's dollars given a specific discount rate.
D. Compounded value of a principal amount given a specific rate of interest.
E. Value of an investment given simple interest for a specific period of time.
43. Compound interest is best defined as the interest earned:
A. On prior year's interest which was reinvested.
B. On a simple basis for multiple years.
C. On the initial investment for a stated number of periods.
D. On both the interest reinvested from prior periods and the initial investment.
E. For the first year multiplied by the number of years in the investment period.
44. You are choosing between investments offered by two different banks. One promises a return of 10% for
three years using simple interest while the other offers a return of 10% for three years using compound
interest. You should:
A. Choose the simple interest option because both have the same basic interest rate.
B. Choose the compound interest option because it provides a higher return.
C. Choose the compound interest option only if the compounding is for monthly periods.
D. Choose the simple interest option only if compounding occurs more than once a year.
E. Choose the compound interest option only if you are investing less than $5,000.
45. Suppose you are trying to find the present value of two different cash flows using the same interest rate
for each. One cash flow is $1,000 ten years from now, the other $800 seven years from now. Which of
the following is true about the discount factors used in these valuations?
AThe discount factor for the cash flow ten years away is always less than or equal to the discount factor
. for the cash flow that is received seven years from now.
B. Both discount factors are greater than one.
C Regardless of the interest rate, the discount factors are such that the present value of the $1,000 will
. always be greater than the present value of the $800.
D. Since the payments are different, no statement can be made regarding the discount factors.
E. You should factor in the time differential and choose the payment that arrives the soonest.
46. Given r and t greater than zero:
I. Present value interest factors are less than one.
II. Future value interest factors are less than one.
III. Present value interest factors are greater than future value interest factors.
IV. Present value interest factors grow as t grows, provided r is held constant.
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
47. Which of the following statements is/are accurate? All else the same, .
I. present values increase as the discount rate increases
II. present values increase the further away in time the future value
III. present values are always smaller than future values when both r and t are positive
A. I only
B. I and II only
C. II only
D. III only
E. II and III only
48. Fresh out of college, you are negotiating with your prospective new employer. They offer you a signing
bonus of $2,000,000 today or a lump sum payment of $2,500,000 three years from now. If you can earn
7% on your invested funds, which of the following is true?
A. Take the signing bonus because it has the lower present value.
B. Take the signing bonus because it has the higher future value.
C. Take the lump sum because it has the higher present value.
D. Take the lump sum because it has the lower future value.
E. Based on these numbers, you are indifferent between the two.
49. Mary plans on saving $1,000 a year for ten years. She would like to know the value of these savings
today. Mary should solve for the:
A. Present value.
B. Present value factor.
C. Future value.
D. Future value factor.
E. Compounded value.
50. As long as the interest rate is greater than zero, the present value of a single sum will always:
A. Increase as the interest rate increases.
B. Be less than the future value.
C. Decrease as the period of time decreases.
D. Equal the future value if the time period is one year.
E. Increase as the number of periods increases.
51. Which of the following statements is (are) true concerning the present value of a single sum?
I. The higher the discount rate, the higher the present value.
II. The longer the time period, the higher the present value.
III. The larger the future value, the larger the present value.
IV. The larger the present value factor, the larger the present value.
A. IV only
B. I and IV only
C. III and IV only
D. I, III, and IV only
E. I, II, III, and IV
52. The greater the number of years, the:
A. Smaller the future value of a single sum.
B. Larger the present value of a single sum.
C. Larger the present value factor.
D. Smaller the future value factor.
E. Greater the compounding effect.
53. Monika has $6,000 in her investment account. She wants to withdraw her funds when her account reaches
$10,000. A decrease in the rate of return she earns will:
A. Increase the value of her account faster.
B. Cause her to wait longer before withdrawing her money.
C. Cause the present value of her account to decrease.
D. Allow her to withdraw more money sooner.
E. Cause the compounding effect to increase.
54. Tom and Antonio both want to open savings accounts today. Tom wants to have $1,000 in his savings
account six years from now. Antonio wants to have $1,000 in his savings account three years from now.
Which of the following statements is(are) correct assuming that both Antonio and Tom earn the same rate
of interest?
I. Tom needs to deposit more money into his account today than does Antonio.
II. Tom will need to deposit twice the amount of money today as Antonio.
III. Antonio needs to deposit more money into his account today than does Tom.
IV. Antonio needs to deposit twice the amount of money today as Tom.
A. I only
B. III only
C. I and II only
D. III and IV only
E. II only
55. Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank
should she use if she wishes to maximize her investment?
A. Bank A, which offers a simple rate of 4%.
B. Bank B, which offers a simple rate of 5%.
C. Bank C, which offers a rate of 4% compounded annually.
D. Bank D, which offers a rate of 5% compounded monthly.
E. Bank E, which offers a rate of 5% compounded annually.
56. Neal wants to borrow $2,500 and has received the following offers from his local banks. Which offer
should Neal accept if he wants to repay the loan in one single payment two years from now?
D. Bank D, which offers a rate of 5% compounded annually.
E. Bank E, which offers a rate of 5% compounded monthly.
57. The future value will increase:
I. The longer the period of time.
II. The shorter the period of time.
III. The higher the rate of interest.
IV The lower the rate of interest.
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. I and II only
58. At a 6% rate of interest you will double your money in approximately years.
A. 3
B. 6
C. 12
D. 24
E. 48
59. At a 3% rate of interest, you will quadruple your money in approximately years.
A. 3
B. 6
C. 12
D. 24
E. 48
60. The present value factor will decrease:
A. The longer the period of time.
B. The higher the future value.
C. The lower the interest rate.
D. The higher the present value.
E. The slower the rate of growth.
61. The future value factor will decrease:
B. The lower the present value factor.
E. The higher the future value.
62. The future value of a single sum will increase more rapidly when:
I. The interest rate increases.
II. The interest rate decreases.
III. The frequency of compounding increases.
IV. The frequency of compounding decreases.
A. I only
B. III only
C. I and III only
D. II and III only
E. I and IV only
63. Kurt invests $1,000 at a 10% rate of return for twenty years. The return is based on simple interest that is
paid at the end of each year. Which one of the following is correct?
A. Kurt will receive more interest in year twenty than in year one.
B. Kurt will receive the same amount of interest each year.
C. Kurt will not receive any interest for the first year.
D. Kurt will receive less interest in year twelve than in year eight.
E. Kurt will receive interest on both the principal and year one's interest in year two.
64. Many financial calculators require that:
A. The interest rate be input as a decimal, such as .07.
B. Interest be compounded on an annual basis.
C. The present value be input as a negative number when solving for the interest rate.
D. Interest be computed on a monthly basis.
E. Either the present value or the future value be input as a negative number when solving for the number
of periods.
65. When using a financial calculator, you should:
I. Check the mode for beginning or ending.
II. Clear the calculator before starting a problem.
III. Use a sufficient number of decimal places.
IV. Check the number of payments per year.
A. Do II and III only
B. Do I, II, and III only
C. Do I and II only
D. Do II, III, and IV only
E. Do I, II, III, and IV
66. The formula for a present value calculation using Excel is:
A. PV (rate, nper, pmt, pv).
B. PV (nper, pmt, fv).
C. PV (rate, pmt, pv, fv).
D. PV (rate, nper, pmt, fv).
E. PV (rate, nper, pmt).
67. The future value of C invested at r% for t periods is:
A. FV = C/(1 + r)t.
B. FV = (C)(1 + t)r.
C. FV = (C)(1 + r)t.
D. FV = [C][1/(1 + r)t].
E. FV = (C)(1 + r)(t).
68. As the discount rate increases, the present value of $500 to be received six years from now:
A. Remains constant.
B. Also increases.
C. Decreases.
D. Becomes negative.
E. Will vary but the direction of the change is unknown.
69. Katie is going to receive $1,000 three years from now. Wilt is going to receive $1,000 five years from
now. Which one of the following statements is correct if both Katie and Wilt apply a 5% discount rate to
these amounts?
A. The present value of Katie and Wilt's money is equal.
B. The value of Wilt's money will be greater than the value of Katie's money six years from now.
C. In today's dollars, Wilt's money is worth more than Katie's.
D. In five years, the value of Katie's money will be equal to the value of Wilt's money.
E. Katie's money is worth more than Wilt's money today.
70. Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits $1,000
into an account that pays 4% simple interest. Both deposits were made today. Which of the following
statements are true concerning these two accounts?
I. At the end of one year, both Jamie and Chris will have the same amount in their accounts.
II. At the end of five years, Chris will have more money in his account than Jamie has in hers.
III. Chris will never earn any interest on interest.
IV. All else equal, Jamie made the better investment.
A. I and II only
B. III and IV only
C. I, II, and IV only
E. II, III, and IV only
71. Nadine invests $1,000 at 8% when she is 25 years old. Neal invests $1,000 at 8% when he is 40 years old.
Both investments compound interest annually. Both Nadine and Neal retire at age 60. Which one of the
following statements is correct?
A. Nadine will have less money when she retires than Neal.
B. Neal will earn more interest on interest than Nadine.
C. Neal will earn more compound interest than Nadine.
D. If Neal waits to age 70 to retire, then he will have just as much money as Nadine.
E. Nadine will have more money when she retires than Neal.
72. Sun Lee has $500 today. Which one of the following statements is correct if she invests this money at a
positive rate of interest for five years?
A. The higher the interest rate she earns, the less money she will have in the future.
B. The higher the interest rate, the longer she has to wait for her money to grow to $1,000 in value.
C. If Sun Lee can earn 7%, she will have to wait about six years to have $1,000 total.
D. At the end of the five years Sun Lee will have less money if she invests at 5% rather than at 7%.
E. At 10% interest Sun Lee should expect to have $1,000 in her account at the end of the five years.
73. Fred and Max each want to have $10,000 saved five years from now. Fred can earn 4.35%, compounded
annually, on his savings and Max can earn 4.50%, compounded annually, on his savings. Both Fred and
Max are going to deposit one lump sum today and will not add any additional funds to their accounts.
Given this, Max deposit Fred to achieve the goal.
A. Must; more than
B. Must; at least as much as
C. Must; as much or more than
D. Can; less than
E. Can; the same amount as
74. To decrease the amount required today to fund a $10,000 debt due two years from now, you could
on your savings.
A. Increase the rate of interest earned
B. Decrease the number of compounding periods per year
C. Earn simple interest rather than compound interest
D. Both decrease the rate of interest and the number of compounding periods per year
E. Either decrease the rate of interest or decrease the number of compounding periods per year
75. Given a constant future value and discount rate, an increase in the number of time periods will the
present value.
A. Decrease
B. Either not affect or decrease
C. Not affect
D. Either increase or not affect
E. Increase
76. To create the same future value given a stated discount rate, you can:
A. Decrease both the present value and the time period.
B. Increase both the present value and the time period.
C. Decrease the time period and hold the present value constant.
D. Increase the present value and hold the time period constant.
E. Increase the present value and decrease the time period.
77. Which of the following statements are correct given a constant interest rate and constant five year period
of time?
I. An increase in the future value causes the present value to decline.
II. An increase in the future value causes the present value to increase.
III. There is an inverse relationship between the present value and the future value.
IV. There is a direct relationship between the present value and the future value.
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
78. Grandma Jenkins knows that she has between six and nine months left to live. She wants to leave each
of her grandchildren $1,000 when she dies. For this purpose, she has established a trust fund and has
deposited sufficient monies to provide for her twelve grandchildren. Today, she just discovered that her
daughter is going to have twins, increasing the number of her grandchildren to thirteen. To ensure her
final wish is fully funded, Grandma Jenkins needs to:
A. Withdraw $1,000 from her trust account.
B. Withdraw less than $1,000 from her trust account.
C. See if the rate of interest on her account can be lowered.
D. Deposit at least $1,050 into her trust account.
E. Deposit a little less than $1,000 into her trust account.
79. Which one of the following statements is correct if you invest $100 in an account at a simple interest rate
of 4% for five years?
A. You will earn more interest than if you invested in an account which compounded the interest.
B. For every $1 you earn in interest in the first year, you will earn ($1.04) interest in the second year.
C. You will earn interest on interest for four of the five years.
D The amount of interest you earn in year five will equal the interest you earn in year one, whether or not
. you reinvest your earnings.
E. The total interest you will earn over five years will be equal to $100 x (1 + .04)5.
80. You invest $1,000 in an account paying 5% simple interest. You do not add nor withdraw any funds from
this account. Every year, your account balance will:
A. Remain constant.
B. Increase at an increasing rate.
C. Increase at a constant rate.
D. Increase at a decreasing rate.
E. Increase by a constant amount.
81. Which one of the following statements is correct?
A. The future value decreases as the period of time increases, all else constant.
B. The future value of $100 invested at 6% simple interest increases at a constant rate as the period of
time increases.
C.There is an inverse relationship between the future value of a lump sum investment and the length of
the investment period.
D. The future value of $100 invested at 6%, compounded annually, increases over time in an exponential
manner.
E Because time is the exponent in the future value formula, the length of an investment period has
. minimal effect on the future value of the investment.
82. Margaret invests at 6% simple interest for six years. Pete invests at 6%, compounded annually, for eight
years. Sylvia invests for eight years at 6% simple interest. Which one of the following statements is
correct if all three individuals invested the same amount of money on the same day?
A. Margaret will have more money than Sylvia at the end of three years.
B. Pete will have more money than either Margaret or Sylvia at the end of four years.
C. Sylvia will have more money than either Margaret or Pete at the end of six years.
D. Margaret will have less money than Pete but more money than Sylvia at the end of five years.
E. Sylvia and Margaret will have more money than Pete at the end of six years.
83. Which one of the following interest rates will produce the largest value at the end of ten years given a
lump sum investment of $5,000?
A. 5.5%, compounded annually
B. 5.5%, simple interest
C. 6.0%, simple interest
D. 6.0%, compounded annually
E. 6.0%, compounded semi-annually
84. Stephen has $2,400 to invest. Which one of the following investment options will produce the largest
future value for him?
A. 7% simple interest for 10 years
B. 7%, compounded annually for 10 years
C. 7%, compounded monthly for 12 years
D. 7%, compounded annually for 12 years
E. 7, simple interest for 12 years
85. You received a $1 savings account earning 5% on your 1st birthday. How much will you have in the
account on your 40th birthday if you don't withdraw any money before then?
A. $5.89
B. $6.34
C. $6.70
D. $7.00
E. $7.04
86. What is the future value of $25,000 received today if it is invested at 6.5% compounded annually for six
years?
A. $17,133.35
B. $27,476.42
C. $36,478.56
D. $39,521.75
E. $41,374.89
87. Your parents agree to pay half of the purchase price of a new car when you graduate from college. You
will graduate and buy the car two years from now. You have $6,000 to invest today and can earn 10% on
invested funds. If your parents match the amount of money you have in two years, what is the maximum
you can spend on the new car?
A. $7,260
B. $11,948
C. $12,000
D. $13,250
E. $14,520
88. Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase in the
price of automobiles, how much will a new Suburban cost you five years from now, if today's price is
$48,000?
A. $41,405
B. $48,000
C. $54,024
D. $55,200
E. $55,645
89. An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account
balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much
income would be earned over the same time period?
A. $86.20
B. $92.47
C. $413.80
D. $436.29
E. $500.00
90. An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account
balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much
income would be earned each year over the same time period?
A. $36.97
B. $40.41
C. $40.75
D. $41.38
E. $50.00
91. An account was opened with $1,000 three years ago. Today, the account balance is $1,157.63. If the
account earns simple interest, how long will it take until the account has earned a total of $225 in
interest?
A. Less than one more year.
B. Between one and two more years.
C. Between two and three more years.
D. Between three and four more years.
E. Between four and five more years.
92. You have $500 in an account which pays 5% compound interest. How much additional interest would
you earn over four years if you moved the money to an account earning 6%?
A. $21.89
B. $23.49
C. $24.93
D. $25.88
E. $29.94
93. An account was opened with an investment of $1,000 ten years ago. The ending balance in the account is
$1,500. If interest was compounded annually, what rate was earned on the account?
A. 1.0%
B. 2.2%
C. 2.9%
D. 3.8%
E. 4.1%
94. An account was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the account
paid interest compounded annually, how much interest on interest was earned?
A. $86.20
B. $93.10
C. $102.39
D. $130.28
E. $500.00
95. How much would you have to invest today at 8% compounded annually to have $25,000 available for the
purchase of a car four years from now?
A. $18,267.26
B. $18,375.75
C. $19,147.25
D. $21,370.10
E. $22,149.57
96. You will receive a $100,000 inheritance in 20 years. You can invest that money today at 6% compounded
annually. What is the present value of your inheritance?
A. $27,491.53
B. $29,767.15
C. $31,180.47
D. $35,492.34
E. $100,000.00
97. You just won the lottery and want to put some money away for your child's college education. College
will cost $65,000 in 18 years. You can earn 8% compounded annually. How much do you need to invest
today?
A. $9,828.18
B. $11,763.07
C. $13,690.82
D. $15,258.17
E. $16,266.19
98. You are supposed to receive $2,000 five years from now. At an interest rate of 6%, what is that $2,000
worth today?
A. $1,491.97
B. $1,492.43
C. $1,494.52
D. $1,497.91
E. $1,499.01
99. Andy promises Opie that he will give him $5,000 upon his graduation from college at Mayberry U. How
much must Andy invest today to make good on his promise, if Opie is expected to graduate in 12 years
and Andy can earn 5% on his money?
A. $2,135.32
B. $2,784.19
C. $2,881.11
D. $3,012.88
E. $8,979.28
100.Your grandfather placed $2,000 in a trust fund for you. In 10 years the fund will be worth $5,000. What is
the rate of return on the trust fund?
A. 5.98%
B. 8.76%
C. 9.60%
D. 9.98%
E. 10.14%
101.All County Insurance, Inc. promises to pay Ted $1 million on his 65th birthday in return for a one-time
payment of $75,000 today. (Ted just turned 25) At what rate of interest would Ted be indifferent between
accepting the company's offer and investing the premium on his own?
A. 2.4%
B. 5.5%
C. 6.1%
D. 6.7%
E. 7.2%
102.In 1889, Vincent Van Gogh's painting, "Sunflowers," sold for $125. One hundred years later it sold for
$36 million. Had the painting been purchased by your great-grandfather and passed on to you, what
annual return on investment would your family have earned on the painting?
A. 9.11%
B. 10.09%
C. 11.88%
D. 11.99%
E. 13.40%
103.You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5% compounded
annually, how long will you have to wait to buy the stereo?
A. 6.58 years
B. 8.42 years
C. 14.58 years
D. 15.75 years
E. 18.78 years
104.Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance
has doubled. How long will you have to leave the money in the account?
A. 16 years
B. 17 years
C. 18 years
D. 19 years
E. 20 years
105.Chia Burgers began operations by opening 115 restaurants in Western Canada at the end of its first year
of operations. By the end of year 2, an additional 5 restaurants were opened. By the end of year 3, there
were 130 restaurants operational. At the end of year 5, there were 138 total restaurants.
From the end of year 1 to the end of year 5, the number of eating establishments grew at a rate of
compounded annually.
A. 4.2%
B. 4.7%
C. 5.6%
D. 8.7%
E. 9.3%
Between the end of year 2 and the end of year 3, the number of eating establishments grew at a rate of
A. 4.2%
B. 4.7%
C. 5.6%
D. 8.3%
E. 9.3%
If, over the next five years, eating establishments are expected to grow at the same rate as they did during
year 5, forecast the number of eating establishments at the end of year 10.
A. 172
B. 198
C. 202
D. 223
E. 225
If the number of eating establishments is expected to grow in year 6 at the same rate as the percentage
increase in year 5, how many new eating establishments will be added in year 6?
A. 5
B. 6
C. 7
D. 8
E. 9
109.If the town's population was 62,000 at the end of year 5, and the population grew at the same annual rate
as the number of eating establishments between the end of year 1 and the end of year 5, what was the
town's population at the end of year 1?
A. 49,809
B. 51,435
C. 53,230
D. 54,330
E. 56,730
110.If you leave the money in the account for another five years and the account earns 8% compounded
annually, what will the balance in the account grow to?
A. $1,341.05
B. $1,347.82
C. $1,395.86
D. $1,406.23
E. $1,491.15
111.During year 2, the account earned .
A. 1.3%
B. 2.8%
C. 4.6%
D. 5.5%
E. 7.5%
112.During year 5, the account earned compounded annually.
A. 11.6%
B. 12.8%
C. 14.6%
D. 15.6%
E. 23.1%
113.Over the first four years, the account earned compounded annually.
A. 11.5%
B. 12.8%
C. 14.6%
D. 15.6%
E. 23.1%
114.In which year did the account earn its highest annually compounded return?
A. Year 1 at 10%
B. Year 2 at 5.45%
C. Year 3 at 13.8%
D. Year 4 at 17.0%
E. Year 5 at 15.6%
115.If the account earned a total of $300 in simple interest over its life, how much was earned in compound
interest?
A. $25
B. $50
C. $75
D. $100
E. $125
116.During years 2 and 3 combined, the account earned $10 compound interest. How much was in simple
interest?
A. $30
B. $80
C. $105
D. $110
E. $120
117.Tishie invests $3,000 today at a 9% rate of return. She wants to have $24,000 to give to her
granddaughter Kathy for college 16 years from now. Which one of the following statements is correct
concerning Tishie's situation?
A. Tishie will have the $24,000 when she wants it.
B. Tishie would have to wait an additional ten years to have $24,000.
C. Tishie would have to earn a 10% rate of return to have $24,000 in 16 years.
D. Tishie will only have approximately $12,000 sixteen years from now.
E. Tishie should plan on only giving Kathy $10,000 in sixteen years.
118.What is the present value of $2,800 to be received three years from now if the discount rate is 9.5%?
A. $2,114.48
B. $2,132.63
C. $2,361.48
D. $2,734.54
E. $3,676.21
119.The Blackwell Co. expects to receive $135,000 from an insurance settlement four years from now. If the
company can earn 11% on its investments, what is the value of the insurance settlement worth today?
A. $85,368.94
B. $87,693.43
C. $88,928.68
D. $130,161.39
E. $140,018.48
120.Isaac and Faith both want to have $5,000 in three years. Isaac expects to earn 8% on his investments and
Faith expects a 7% rate of return. Which one of the following statements is correct concerning the amount
of money they each need to invest today?
A. Faith needs to deposit $112.33 more than Isaac today.
B. Faith needs to deposit $173.33 more than Isaac today.
C. Isaac needs to deposit $3,699.16 today.
D. Faith needs to deposit $3,081.49 today.
E. Both Faith and Isaac should deposit $3,969.16 today.
121.Courtney invests $1,200 today. If she can earn a 13.25% rate of return for the next two years, how much
money will she have at the end of the two years?
A. $1,203.18
B. $1,232.01
C. $1,359.00
D. $1,539.07
E. $1,742.99
122.A customer makes two offers to settle a disputed account. He will either pay you $500 today or pay you
$650 in three years. Which one of the following is correct if your company earns 10.5% on its surplus
funds?
A. The company should accept the $650 offer as it pays $150 more.
B. The company should accept the $650 offer as it is worth more today.
C. The company should accept the $650 offer as it is worth $12.42 more today.
D. The company should accept the $500 offer as it is worth $18.24 more today.
E. The company should accept the $500 offer as it is worth $512.42 today.
123.What is the future value of $7,540 invested at 6.5% interest for seven years?
A. $10,330.45
B. $11,001.93
C. $11,041.26
D. $11,717.06
E. $11,337.37
124.The James Co. plans on saving money to buy some new equipment. The company is opening an account
today with a deposit of $15,000 and expects to earn 4% interest. After 3 years, the firm wants to add an
additional $50,000 to the account. If the account continues to earn 4%, how much money will the James
Co. have in their account five years from now?
A. $66,872.96
B. $68,249.79
C. $70,952.96
D. $72,329.79
E. $81,361.18
125.Five friends all open investment accounts today. Which one will withdraw the largest amount of money
from their account assuming that they each withdraw their funds at the end of their initial investment
period?
A. John, who invests $1,000 for eight years at 6% simple interest.
B. Terry, who invests $1,000 for four years at 9% with interest compounded annually.
C. Alicia, who invests $800 for ten years at 11% with interest compounded annually.
D. Kristi, who invests $1,200 for six years at 8% simple interest.
E. Roger, who invests $900 for nine years at 9% with interest compounded annually.
126.Alexander Industries just had a very profitable year. The owner has decided to invest $225,000 of the
profits in a venture that pays an 8% rate of return for fifteen years. How much more would the investment
have been worth if the owner could have made 9% on this investment?
A. $52,910.25
B. $105,820.50
C. $211,641.00
D. $713,738.05
E. $819,558.55
127.Gretchen Enterprises borrowed $149,500 for two years from the bank. At the end of the two years, they
repaid the loan with one payment of $176,590. What was the interest rate on the loan?
A. 8.68%
B. 9.06%
C. 10.00%
D. 10.42%
E. 18.12%
128.Six years ago, Marti invested $3,500 in an account. No other investments or withdrawals have been
made. Today the account is worth $7,403.16. What rate of return has Marti earned thus far?
A. 12.86%
B. 13.30%
C. 15.96%
D. 18.58%
E. 19.20%
129.Ito invested $4,350. After seven years he had an account value of $6,980.58. Maria invested $5,920. After
six years she had an account value of $8,834.62. Which one of the following statements is correct?
A. Maria earned a rate of interest that was 0.9% higher than Ito's rate.
B. Maria earned a rate of interest of 5.89%.
C. Ito earned a rate of interest that was 0.09% higher than Maria's rate.
D. Ito earned a rate of interest of 6.90%.
E. Both Ito and Maria earned the same rate of interest.
130.Koji invested $3,300 at 7.75% interest. After a period of time he withdrew $9,383.31. How long did Koji
have his money invested?
A. 13 years
B. 14 years
C. 15 years
D. 16 years
E. 17 years
131.Sampson, Inc. invested $1.325 million in a project that earned an 8.25% rate of return. Sampson sold
their investment for $3,713,459. How much sooner could Sampson have sold the company if they only
wanted $3 million from the project?
A. 2.69 years
B. 3.33 years
C. 5.17 years
D. 6.67 years
E. 10.31 years
132.Lakeside Inc. invested $735,000 at an 11.25% rate of return. The company sold their investment
for $1,067,425. How much longer would Lakeside have had to wait if they had wanted to sell their
investment for $1.25 million?
A. .98 year
B. 1.48 years
C. 1.98 years
D. 2.31 years
E. 3.50 years
133.Martha is going to receive $6,000 in two years from Tom. She will receive an additional $4,000 in three
years from Tom. She earns 7.15% on her investments. How much is this money from Tom worth to
Martha today?
A. $7,893.46
B. $8,477.47
C. $8,891.74
D. $9,225.97
E. $9,251.50
134.The I.C. James Co. invested $10,000 six years ago at 5% simple interest. The I.M. Smart Co. invested
$10,000 six years ago at 5% interest which is compounded annually. Which one of the following
statements is true concerning these two investments?
I. The I.C. James Co. has an account value of $13,400.96 today.
II. The I.C. James Co. will have an account value of $13,400.96 six years from now.
III. The I.M Smart Co. will earn $525 interest in the second year.
IV. Both the I.C. James Co. and the I.M. Smart Co. will earn $500 interest in the first year.
A. I and III only
B. I, III and IV only
C. II and IV only
D. II, III and IV only
E. III and IV only
135.The Smith Co. has $450,000 to invest at 5.5% interest. How much more money will they have if they
invest these funds for eight years instead of five years?
A. $62,948.21
B. $68,851.36
C. $74,250.00
D. $78,408.62
E. $102,476.93
136.Today Richard is investing $1,000 at 5% interest for five years. One year ago, Richard invested $1,000
at 6.25% for six years. How much money will Richard have saved in total five years from now if both
investments compound interest annually?
A. $2,543.77
B. $2,641.98
C. $2,678.81
D. $2,630.36
E. $2,714.99
137.Betty invests $500 in an account that pays 3% simple interest. How much money will Betty have at the
end of ten years?
A. $630.00
B. $633.33
C. $650.00
D. $671.96
E. $675.00
138.Dale invests $500 in an account that pays 6% simple interest. How much more could he have earned over
a thirty year period if the interest had compounded annually?
A. $1,471.75
B. $1,532.50
C. $1,621.25
D. $1,804.25
E. $2,371.75
139.Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you earn
annual raises of 3.5%?
A. $47,035.35
B. $47,522.89
C. $47,747.44
D. $48,091.91
E. $48,201.60
140.You own a classic automobile that is currently valued at $39,500. If the value increases by 6% annually,
how much will the auto be worth ten years from now?
A. $64,341.34
B. $44,734.42
C. $69,843.06
D. $70,738.48
E. $74,146.93
141.You hope to buy your dream house six years from now. Today your dream house costs $189,900. You
expect housing prices to rise by an average of 4.5% per year over the next six years. How much will your
dream house cost by the time you are ready to buy it?
A. $240,284.08
B. $246,019.67
C. $246,396.67
D. $246,831.94
E. $247,299.20
142.Your grandmother invested one lump sum 17 years ago at 4.25% interest. Today, she gave you the
proceeds of that investment which totaled $5,539.92. How much did your grandmother originally invest?
A. $2,700.00
B. $2,730.30
C. $2,750.00
D. $2,768.40
E. $2,774.90
143.You would like to give your daughter $40,000 towards her college education thirteen years from now.
How much money must you set aside today for this purpose if you can earn 6.3% on your funds?
A. $17,750.00
B. $17,989.28
C. $18,077.05
D. $18,213.69
E. $18,395.00
144.Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the
average rate of return your father earned on his investment?
A. 8.50%
B. 9.33%
C. 9.50%
D. 9.87%
E. 9.99%
145.Ten years ago, Joe invested $5,000. Five years ago, Marie invested $2,500. Today, both Joe and Marie's
investments are each worth $8,500. Which one of the following statements is correct concerning their
investments?
A. Three years from today, Joe's investment will be worth more than Marie's.
B. Last year, Marie's investment was worth more than Joe's.
C. Joe has earned more interest on interest than Marie.
D. Marie earned an annual interest rate of 27.73%.
E. Joe earned an annual interest rate of 6.45%.
146.Alpha, Inc. is saving money to build a new factory. Six years ago they set aside $250,000 for this
purpose. Today, that account is worth $306,958. What rate of interest is Alpha earning on this money?
A. 3.43%
B. 3.45%
C. 3.48%
D. 3.52%
E. 3.55%
147.On your tenth birthday, you received $100 which you invested at 4.5% interest, compounded annually.
That investment is now worth $3,000. How old are you today?
A. age 77
B. age 82
C. age 84
D. age 86
E. age 87
148.You want to have $10,000 saved ten years from now. How much less do you have to deposit today to
reach this goal if you can earn 6% rather than 5% on your savings?
A. $555.18
B. $609.81
C. $615.48
D. $928.73
E. $1,046.22
149.Your older sister deposited $5,000 today at 8% interest for five years. You would like to have just as
much money at the end of the next five years as your sister. However, you can only earn 6% interest.
How much more money must you deposit today than your sister if you are to have the same amount at the
end of five years?
A. $201.80
B. $367.32
C. $399.05
D. $423.81
E. $489.84
150.When you retire forty years from now, you want to have $1 million. You think you can earn an average
of 8.5% on your money. To meet this goal, you are trying to decide whether to deposit a lump sum today,
or to wait and deposit a lump sum five years from today. How much more will you have to deposit as a
lump sum if you wait for five years before making the deposit?
A. $18,001.06
B. $18,677.78
C. $18,998.03
D. $19,272.81
E. $21,036.83
151.Antonette needs $20,000 as a down payment for a house five years from now. She earns 4% on her
savings. Antonette can either deposit one lump sum today for this purpose or she can wait a year and
deposit a lump sum. How much additional money must Antonette deposit if she waits for one year rather
than making the deposit today?
A. $639.19
B. $657.54
C. $658.23
D. $659.04
E. $800.00
152.Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for eight years from
now. How much additional money will they have eight years from now if they can earn 9% rather than
7% on this money?
A. $58,829.69
B. $86,991.91
C. $118,009.42
D. $126,745.19
E. $137,188.23
153.You will be receiving $5,000 from your family as a graduation present. You have decided to save this
money for your retirement. You plan to retire thirty-five years after graduating. How much additional
money will you have at that time if you can earn an average of 8.5% on your investment instead of just
8%?
A. $12,971.49
B. $13,008.47
C. $13,123.93
D. $13,234.44
E. $13,309.85
154.You deposit $3,000 in a retirement account today at 5.5% interest. How much more money will you have
if you leave the money invested for forty-five years rather than forty years?
A. $7,714.91
B. $7,799.08
C. $7,839.73
D. $7,846.52
E. $7,858.19
155.You collect model cars. One particular model increases in value at a rate of 5% per year. Today, the
model is worth $29.50. How much additional money can you make if you wait ten years to sell the model
rather than selling it five years from now?
A. $9.98
B. $10.40
C. $10.86
D. $11.03
E. $11.24
156.Cooper invests $6,500 in a savings account at his local bank. The bank pays 2.75% simple interest.
Cooper does not make any additional withdrawals or deposits to this account. How much will his account
be worth after 12 years?
A. $2,145
B. $2,655
C. $6,679
D. $8,645
E. $9,001
157.Stephen invests $2,500 in an account that pays 6% simple interest. How much money will Stephen have
at the end of three years?
A. $2,650
B. $2,809
C. $2,950
D. $2,978
E. $3,000
158.Lisa deposited $500 in a savings account this morning. The account pays 2.5% simple interest. If Lisa
leaves this money in the account for five years, how much total interest will she earn?
A. $10.75
B. $12.50
C. $53.75
D. $62.50
E. $67.25
159.Jennifer invested $2,000 in an account that pays 3% simple interest. How much more could she have
earned over a six-year period if the interest had compounded annually?
A. $28.10
B. $29.18
C. $31.50
D. $33.33
E. $34.67
160.Robin invested $10,000 in an account that pays 5% simple interest. How much more could she have
earned over a 40-year period if the interest had compounded annually?
A. $38,207.16
B. $38,414.14
C. $40,399.89
D. $48,414.14
E. $50,399.89
161.Alex and Courtney are each investing $1,200 today in a savings account. Alex will earn 4% interest
compounded annually. Courtney will earn 4% simple interest. After five years Alex will have more
than Courtney.
A. $19.98
B. $20.13
C. $20.17
D. $20.21
E. $20.28
162.What is the future value of $4,160 invested for eight years at 8.5% compounded annually?
A. $6,988.80
B. $7,989.71
C. $8,122.20
D. $8,211.29
E. $8,404.12
163.Today, you earn a salary of $37,800. What will your annual salary be twelve years from now if you
receive annual raises of 3.6%?
A. $55,981.03
B. $56,324.17
C. $56,907.08
D. $57,784.17
E. $58,213.46
164.You own a stamp collection that is currently valued at $24,500. If the value increases by 5.5% annually,
how much will the collection be worth when you retire 40 years from now?
A. $204,113.07
B. $204,981.16
C. $205,155.45
D. $206,666.67
E. $208,576.07
165.Your goal is to build your first home seven years from now. The home that you desire currently costs
$215,900. New home prices are increasing by 4.2% annually. If home prices continue rising at that pace,
how much will your home cost when you are ready to build seven years from now?
A. $281,113.21
B. $284,109.67
C. $287,956.36
D. $292,001.06
E. $295,474.06
166.Today, your grandmother gave you a gift of $25,000 to help pay for your college education. She told you
that this amount was the result of a one-time investment at 8% interest 13 years ago. How much did your
grandmother originally invest?
A. $9,192.45
B. $9,225.00
C. $9,350.00
D. $9,419.25
E. $9,504.55
167.What is the present value of $36,500 to be received five years from today if the discount rate is 6.75%?
A. $26,330.16
B. $26,678.19
C. $26,911.47
D. $28,008.19
E. $28,123.76
168.You would like to give your daughter $50,000 towards her college education sixteen years from now.
A. $14,775.50
B. $15,033.84
C. $15,250.00
D. $16,245.33
E. $16,909.13
169.One year ago, you invested $5,000. Today, your investment is worth $6,178.40. What rate of interest did
you earn?
A. 16.23%
B. 16.45%
C. 22.18%
D. 23.57%
E. 24.09%
170.Thirty years ago, your father invested $6,000. Today that investment is worth $67,270.98. What is the
average rate of return your father earned on this investment?
A. 8.39%
B. 8.44%
C. 10.23%
D. 10.34%
E. 11.67%
171.Twenty years ago, Max invested $10,000. Thirty years ago, Julie invested $5,000. Today, both Max and
Julie's investments are each worth $35,000. Which one of the following statements is correct concerning
their investments? Assume that they will continue earning the same rate of return.
A. Two years from now, Max's investment will be worth more than Julie's.
B. Last year, Julie's investment was worth more than Max's.
C. Max has earned more interest on interest than Julie.
D. Julie has earned an average annual interest rate of 6.7%.
E. Max has earned an average annual interest rate of 6.41%.
172.New Metals, Inc. is planning on expanding their operations when the economy strengthens in a few years.
At that time they will need to purchase additional equipment. Four years ago, they set aside $300,000 in
a special account for this purpose. Today, that account is worth $383,048.98. What rate of interest is New
Metals earning on this money?
A. 5.87%
B. 5.92%
C. 6.26%
D. 6.30%
E. 6.35%
173.Kay purchased some land costing $124,600. Today, that same land is valued at $179,400. How long has
she owned this land if the price of land has been increasing at 6% per year?
A. 5.95 years
B. 6.26 years
C. 6.33 years
D. 6.50 years
E. 6.57 years
174.When you were 26 years old, you received an inheritance of $1,500 from your grandfather. You invested
that amount in Nu-Wave stock and have not touched the investment since then. Today, this investment is
worth $109,533.59. Nu-Wave stock has earned an average rate of return of 11.3% per year over this time
period. How old are you today?
A. age 57
B. age 59
C. age 62
D. age 64
E. age 66
175.Your goal is to have $50,000 in cash to build a new home twelve years from now. Your plan is to make
one deposit today to fund this goal. How much more will you have to deposit today to fund this goal if
you can only earn 4% on your savings rather than 5%?
A. $3,104.11
B. $3,188.87
C. $3,218.07
D. $3,273.16
E. $3,387.98
176.Your goal is to have two separate investments that will be worth $10,000 each ten years from today.
Investment A will pay 6% interest. Investment B will pay 6.5% interest. You will make a one-time
deposit into each account today. What is the difference between the amount you must invest today in
Investment A as compared to the amount you must invest today in Investment B if you are to reach your
goal in ten years?
A. $241.92
B. $245.45
C. $256.69
D. $261.08
E. $263.47
177.Twenty years from now, you would like to purchase a cottage located on the shores of your favourite
lake. You expect that you will have $250,000 available at that time for this purchase. You could afford
a home that is currently selling for if the homes increase in value by 3% annually, but if the homes
increase in value by 5% annually, you can only afford a home priced at today.
A. $127,023; $92,687
B. $138,419; $94,222
C. $138,419; $114,097
D. $144,676; $100,469
E. $144,676; $111,068
178.You would like to invest some money today such that your investment will be worth $100,000 fifteen
years from now. Your broker gives you two options. First, you can invest at a guaranteed annual rate of
4%. Or, you can invest in stocks and hopefully earn an average of 7% per year. How much more will you
have to invest today if you opt for the fixed rate rather than the stocks?
A. $18,145.45
B. $18,419.02
C. $18,623.18
D. $18,904.21
E. $19,281.85
179.Omar has an investment valued at $12,345 today. He made a one-time investment at 6.5% four years ago.
Leon has an investment that is also valued at $12,345 today. Leon invested four years ago at 7.5%. Omar
originally invested and Leon invested .
A. $9,568.24; $9,199.16
B. $9,596.05; $9,243.94
C. $9,608.14; $9,267.67
D. $9,633.33; $9,304.06
E. $9,652.18; $9,389.00
180.When you retire thirty years from now, you want to have $750,000. You think you can earn an average
of 9% on your money. To meet this goal, you are trying to decide whether to deposit a lump sum today,
or to wait and deposit a lump sum five years from today. How much more will you have to deposit as a
lump sum if you wait for five years before making the deposit?
A. $28,788.03
B. $29,414.14
C. $30,447.53
D. $36,118.09
E. $38,278.27
181.Jeanette needs $15,000 as a down payment for a house six years from now. She earns 3.5% on her
savings. Jeanette can either deposit one lump sum today for this purpose or she can wait a year and
deposit a lump sum. How much additional money must Jeanette deposit if she waits for one year rather
than making the deposit today?
A. $121.03
B. $166.67
C. $307.00
D. $333.33
E. $427.09
182.Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from now.
She can earn 7% on her savings. How much more will she have to deposit if she waits one more year
before investing versus if she deposits one lump sum today?
A. $466.44
B. $469.15
C. $470.23
D. $471.08
E. $471.54
183.Moe and Joe are twins. Moe invested $1,000, earned 9% annually, and now has $1,992.56. Joe invested
$1,000, earned 6.47%, and now has $1,992.97. Joe invested his money years before Moe.
A. 2.5 years
B. 2.8 years
C. 3.0 years
D. 3.2 years
E. 3.5 years
184.Sue invested $5,000 eleven years ago at 12%. Terri has the same amount saved today as Sue has. Terri
also earns 12% but she only invested $2,500. How long ago did Terri invest her money?
A. 17.1 years
B. 17.4 years
C. 17.9 years
D. 21.5 years
E. 22.0 years
185.You have just been awarded a $200,000 insurance settlement. The insurance company has offered to
invest this amount at a guaranteed interest rate of 4.5% for ten years. You think you can invest this money
yourself and earn an average return of 8%. If you are able to do that, how much more will your settlement
be worth ten years from now than if you had left the funds with the insurance company?
A. $78,829.69
B. $86,991.91
C. $118,009.42
D. $121,191.12
E. $137,188.23
186.You have just landed your first job. Part of the offer includes a $4,000 new employee bonus which is
intended to cover your relocation costs. You have determined that you can move yourself for $1,000.
Thus, you have decided to open an Individual Retirement Account with the remaining $3,000. How much
more will this investment be worth 35 years from now if you can earn an average rate of return of 9.5%
rather than 9%?
A. $10,639.32
B. $10,676.16
C. $11,207.91
D. $11,341.41
E. $11,454.54
if you leave the money invested for forty-five years rather than forty years?
A. $7,834.91
B. $7,838.08
C. $7,839.73
D. $7,840.52
E. $7,841.19
188.You collect model airplanes. One particular model is currently valued at $275. If this model increases in
value by 5% annually, it will be worth six years from now and twelve years from now.
A. $368.01; $442.89
B. $368.01; $461.34
C. $368.53; $442.89
D. $368.53; $467.08
E. $368.53; $493.86
189.Frank invests $2,500 in an account that pays 6% simple interest. How much money will he have at the
end of four years?
A. $2,650
B. $3,100
C. $3,156
D. $3,163
E. $10,600
190.Faith invests $4,500 in an account that pays 4% simple interest. How much money will she have at the
end of eight years?
A. $4,680
B. $5,367
C. $5,940
D. $6,122
E. $6,159
191.Jessica invests $3,000 in an account that pays 5% simple interest. How much more could she have earned
over a 7-year period if the interest had compounded annually?
A. $122.20
B. $129.20
C. $147.80
D. $171.30
E. $221.30
192.Jeff invests $3,000 in an account that pays 7% simple interest. How much more could he have earned
over a 20-year period if the interest had compounded annually?
A. $2,840.00
B. $3,212.12
C. $3,778.54
D. $4,087.18
E. $4,409.05
193.What is the future value of $3,497 invested for 15 years at 7.5% compounded annually?
A. $7,431.13
B. $10,347.19
C. $14,289.16
D. $14,911.08
E. $15,267.21
194.Today, you earn a salary of $42,500. What will be your annual salary 10 years from now if you earn
annual raises of 3.2%?
A. $56,100.00
B. $57,414.06
C. $58,235.24
D. $59,122.08
E. $59,360.45
195.You own a classic automobile that is currently valued at $67,900. If the value increases by 8% annually,
how much will the automobile be worth 15 years from now?
A. $199,801.33
B. $212,524.67
C. $214,740.01
D. $215,390.28
E. $218,887.79
196.You hope to buy your dream house 3 years from now. Today, your dream house costs $247,900. You
expect housing prices to rise by an average of 7.5% per year over the next 3 years. How much will your
dream house cost by the time you are ready to buy it?
A. $292,063.48
B. $294,882.01
C. $298,600.00
D. $307,965.40
E. $309,425.45
197.Your grandmother invested one lump sum 42 years ago at 3.5% interest. Today, she gave you the
proceeds of that investment which totaled $28,204.37. How much did your grandmother originally
invest?
A. $4,500
B. $6,650
C. $7,200
D. $7,500
E. $9,000
198.What is the present value of $36,800 to be received 6 years from today if the discount rate is 12%?
A. $18,644.03
B. $19,407.18
C. $19,414.14
D. $20,211.08
E. $20,390.14
199.You would like to give your daughter $50,000 towards her college education 15 years from now. How
much money must you set aside today for this purpose if you can earn 9% on your investments?
A. $12,250.00
B. $12,989.47
C. $13,726.90
D. $14,008.50
E. $14,211.11
200.One year ago, you invested $2,500. Today it is worth $2,789.50. What rate of interest did you earn?
A. 8.67%
B. 9.89%
C. 10.67%
D. 11.42%
E. 11.58%
201.Thirty years ago, your father invested $11,000. Today, that investment is worth $287,047.
What is the average annual rate of return your father earned on his investment?
A. 11.14%
B. 11.27%
C. 11.38%
D. 11.49%
E. 12.07%
202.Twelve years ago, Jake invested $2,000. Six years ago, Tami invested $4,000. Today, both Jake's and
Tami's investments are each worth $9,700. Assume that both Jake and Tami continue to earn their
respective rates of return. Which one of the following statements is correct concerning these investments?
A. Three years from today, Jake's investment will be worth more than Tami's.
B. One year ago, Tami's investment was worth more than Jake's.
C. Jake has earned a higher rate of return than Tami.
D. Tami has earned an average annual interest rate of 15.91%.
E. Jake has earned an average annual interest rate of 15.47%.
203.Tropical Tans is saving money to build a new salon. Three years ago, they set aside $12,000 for this
purpose. Today, that account is worth $16,418. What rate of interest is Tropical Tans earning on this
money?
A. 10.88%
B. 10.97%
C. 11.01%
D. 11.14%
E. 11.23%
204.Five years ago, Precision Tool set aside $50,000 in case of a financial emergency. Today, that account
has increased in value to $64,397. What rate of interest is the firm earning on this money?
A. 5.19%
B. 5.47%
C. 6.18%
D. 6.32%
E. 6.45%
205.Six years ago, Home Health Industries (HHI) adopted a plan to expand its services next year. At the time
the plan was adopted, HHI set aside $125,000 in excess funds to be held for this purpose. As of today,
that money has increased in value to $186,408. What rate of interest is the firm earning on these funds?
A. 6.89%
B. 7.10%
C. 7.18%
D. 7.27%
E. 7.43%
206.On your thirteenth birthday, you received $1,000 which you invested at 6.5% interest, compounded
annually. Your investment is now worth $5,476. How old are you today?
A. age 29
B. age 32
C. age 35
D. age 37
E. age 40
207.You want to have $260,000 saved 15 years from now. How much less do you have to deposit today to
A. $8,728.44
B. $12,273.13
C. $16,602.12
D. $17,414.41
E. $20,019.2
208.Your big brother deposited $10,000 today at 9% interest for 6 years. You would like to have just as much
money at the end of the next 6 years as your brother. However, you can only earn 7.5% interest. How
much more money must you deposit today than your brother did if you are to have the same amount at
the end of the 6 years?
A. $398.68
B. $487.63
C. $575.00
D. $648.21
E. $866.96
209.Last year, you deposited $25,000 into a retirement savings account at a fixed rate of 7.5%. Today,
you could earn a fixed rate of 8% on a similar type account. However, your rate is fixed and cannot be
adjusted. How much less could you have deposited last year if you could have earned a fixed rate of 8%
and still have the same amount as you currently will when you retire 40 years from today?
A. $1,218.46 less
B. $1,666.67 less
C. $2,408.28 less
D. $3,628.09 less
E. $4,331.30 less
210.When you retire 36 years from now, you want to have $2 million. You think you can earn an average of
11.5% on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum
today, or to wait and deposit a lump sum 3 years from today. How much more will you have to deposit as
a lump sum if you wait for 3 years before making the deposit?
A. $15,344.14
B. $15,677.78
C. $16,208.11
D. $17,021.12
E. $19,407.78
211.Marie needs $26,000 as a down payment for a house 4 years from now. She earns 5.25% on her savings.
Marie can either deposit one lump sum today for this purpose or she can wait a year and deposit a lump
sum. How much additional money must Marie deposit if she waits for one year rather than making the
deposit today?
A. $878.98
B. $911.13
C. $1,112.36
D. $1,348.03
E. $1,420.18
212.Wexter and Daughter invested $165,000 to help fund a company expansion project planned for 3 years
from now. How much additional money will the firm have saved 3 years from now if it can earn 7%
rather than 5% on this money?
A. $7,940.09
B. $8,218.07
C. $11,123.97
D. $12,648.18
E. $13,211.21
213.You just received $278,000 from an insurance settlement. You have decided to set this money aside and
invest it for your retirement. Currently, your goal is to retire 38 years from today. How much more will
you have in your account on the day you retire if you can earn an average return of 9.5% rather than just
9.0%?
A. $794,014
B. $1,396,036
C. $1,611,408
D. $1,818,342
E. $2,033,333
214.You will be receiving $2,500 from your family as a graduation present. You have decided to save this
money for your retirement. You plan to retire 40 years after graduation. How much additional money will
you have at that time if you can earn an average of 12.5% on your investment instead of just 12%?
A. $45,370.08
B. $51,400.62
C. $53,018.97
D. $58,811.99
E. $64,367.48
if you leave the money invested for 40 years rather than 35 years?
A. $7,714.91
B. $7,799.08
C. $7,839.73
D. $7,846.52
E. $8,753.38
216.You collect old model trains. One particular model increases in value at a rate of 6.5% per year. Today,
the model is worth $1,670. How much additional money can you make if you wait 4 years to sell the
model rather than selling it 2 years from now?
A. $196.67
B. $208.04
C. $241.79
D. $254.24
E. $280.15
217.Some time ago, Richard purchased five acres of land costing $123,400. Today, that land is valued at
$189,700. How long has he owned this land if the price of land has been increasing at 5.5% per year?
A. 6.01 years
B. 6.98 years
C. 7.42 years
D. 8.03 years
E. 8.67 years
218.Which of the following will result in a future value greater than $100?
A. $40 deposited now with an annual interest rate of 14% for 8 years.
B. $60 deposited now with an annual interest rate of 12% for 4 years.
C. $60 deposited now with an annual interest rate of 8% for 6 years.
D. $80 deposited now with an annual interest rate of 7% for 3 year.
E. $80 deposited now with an annual interest rate of 10% for 2 year.
219.Seven years ago David deposited $10,000 into an account earning 5.25% compounded monthly.
Recently, David was quoted by a home improvement firm a price of $15,000 to renovate his roof. Does
David have enough cash on hand to pay for the roof?
A. Yes. David now has exactly $15,000 in his account.
B. No. David has only $14,430 in his account.
C. Yes. David now has $17,818 in his account.
D. No. David has $12,818 in his account
E. No. David has only $11,508 in his account
220.You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan
uses a rate of 4.75% per year, what was contributed into this plan?
A. $4,459
B. $5,800
C. $6,506
D. $7,007
E. $8,576
221.Approximately 13,500 students enrolled at Kwantlen University five years ago. Today, enrolment
reached 18,800 students. Determine the annual growth rate in student enrolment.
A. 5.55%
B. 6.85%
C. 7.65%
D. 8.25%
E. 9.55%
222.Thirty years ago, an average house cost $120,000 in Vancouver. Now the average house price is
$950,000. Determine the annual rate of growth in Vancouver's housing prices.
A. 8.31%
B. 7.14%
C. 6.25%
D. 5.58%
E. 4.63%
223.The price of gold has gone from $250 an ounce to approximately $1,600. Given an annual growth rate of
8.04%, how long did it take gold to reach its highest value?
A. 27 years
B. 26 years
C. 25 years
D. 24 years
E. 23 years
224.The price of fuel has tripled over the past fifteen years. Determine the rate of growth over this time
period.
A. 7.6%
B. 8.7%
C. 9.6%
D. 10.5%
E. 11.3%
225.The term to convert a future value amount into its present value is:
A. Annuitize
B. Compound
C. Discount
D. Multiply
E. Amortize
226.You are scheduled to receive $18,000 in five years. When you receive it, you will invest it for five more
years at 8.6% per year. How much will you have at the end of this time? What would be an equivalent
Present Value?
A. $15,916
B. $14,916
C. $13,916
D. $12,916
E. $11,916
227.You are scheduled to receive $30,000 in three years. When you receive it, you will invest it for seven
more years at 5.5% per year. How much will you have at the end of this time? What would be an
equivalent Present Value?
A. $29,548
B. $28,548
C. $27,548
D. $26,548
E. $25,548
228.You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw
your funds. Given this information calculate the balance at the end of year two.
A. $665,202
B. $632,804
C. $636,549
D. $687,702
E. $693,303
229.You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw
your funds. Given this information calculate the interest earned at the end of year 3.
A. $77,096
B. $78,806
C. $79,096
D. $80,806
E. $81,096
230.A deposit of $10,000 increased to $12,500 in 5 years. Determine the annual rate of interest used.
Calculate the balance at the end of year four.
A. $11,954
B. $12,254
C. $13,954
D. $14,254
E. $15,954
231.A deposit of $10,000 increased to $12,500 in 5 years. Determine the annual rate of interest used.
Calculate the interest earned at the end of year five.
A. $546
B. $556
C. $566
D. $586
E. $596
232.Draw a picture illustrating the future value of $1, using five different interest rates (including 0%) and
maturities ranging from today to 10 years from now. Plot time to maturity on the horizontal axis and
dollars on the vertical axis. (Note: you need not make any calculations; draw the figure using your
intuition.)
233.Explain what compounding is and the relationship between compound interest earned and the number of
years over which an investment is compounded.
234.Explain intuitively why it is that present values decrease as the discount rate increases.
235.You are considering two lottery payment streams. Choice A pays $1,000 today and choice B pays $1,750
at the end of five years from now. Using a discount rate of 5%, based on present values, which would you
choose? Using the same discount rate of 5%, based on future values, which would you choose? What do
your results suggest as a general rule for approaching such problems? (Make your choices based purely
on the time value of money.)
236.At an interest rate of 10% and using the Rule of 72, how long will it take to double the value of a lump
sum invested today? How long will it take after that until the account grows to four times the initial
investment? Given the power of compounding, shouldn't it take less time for the money to double the
second time?
237.Some financial advisors recommend you increase the amount of federal income taxes withheld from your
paycheque each month so that you will get a larger refund come April. That is, you take home less today
but get a bigger lump sum when you get your refund. Based on your knowledge of the time value of
money, what do you think of this idea? Explain.
238.The notion that money has "time-value" is based on the existence of a nonzero "opportunity rate", i.e., a
rate of return at which it is possible to invest. Why is the opportunity rate so important?
239.Susie and Tim are twins. Susie invests $5,000 at age 20 and earns 5% compound interest. Tim invests
$10,000 at age 40 and earns 5% compound interest. No matter how long they live, Tim will never have as
much money as Susie. Explain why.
240.Present value is used extensively by managers who are reviewing proposed projects. Why is this so and
how does the present value of a cash flow assist management in making these business decisions?
241.Write a sentence explaining why present values decrease as the discount rate increases.
242.Explain what compounding is and the relationship between compound interest earned and the number of
years over which an investment is compounded.
243.Define and explain the relationship between the present value and the discount rate. Graphically illustrate
this relationship.
244.State the future value formula and explain the effect that time has on the future value of an
investment.
245.Why do you think the concept known as the time value of money plays such a critical role in finance?
05 Key
1. If the rate at which you can invest is 0%, the value today of $1 to be received in the future is less than
$1.
FALSE
Difficulty: Basic
Learning Objective: 05-02 How to determine the present value of cash to be received at a future date.
Ross - Chapter 05 #1
Type: Concepts
2. The future value will increase the longer the period of time.
TRUE
Difficulty: Basic
Learning Objective: 05-01 How to determine the future value of an investment made today.
Type: Concepts
3. The present value will increase the higher the rate of interest.
FALSE
Difficulty: Basic
Type: Concepts
4. The present value will increase the lower the rate of interest.
TRUE
Difficulty: Basic
Type: Concepts
5. Discount rate is the interest rate used to calculate the present value of future cash flows.
TRUE
Difficulty: Basic
Type: Concepts
6. Present value is the value today of future cash flows discounted at the appropriate discount rate.
TRUE
Difficulty: Basic
Type: Concepts
7. As the discount rate increases, the future value of $500 to be received four years from now will
decrease:
FALSE
Difficulty: Basic
Type: Concepts
8. Interest earned on the reinvestment of previous interest payments is called simple interest.
FALSE
Difficulty: Basic
Learning Objective: 05-03 How to find the return on an investment.
Type: Concepts
9. Compounding is the process of finding the present value of some future amount.
FALSE
Difficulty: Basic
Type: Concepts
10. Discounting is the process of finding the present value of some future amount.
TRUE
Difficulty: Basic
Type: Concepts
11. The value today of future cash flows discounted at the appropriate discount rate is called the
value.
A. Principal
B. Future
C. Present
D. Simple
E. Compound
Difficulty: Basic
Type: Definitions
12. The amount an investment is worth after one or more periods of time is the .
A. Future value. B.
Present value. C.
Principal value.
D. Compound interest rate.
E. Simple interest rate.
Difficulty: Basic
Type: Definitions
A. Growth.
B. Compounding.
C. Aggregation.
D. Accumulation.
Difficulty: Basic
Type: Definitions
14. Interest earned on the reinvestment of previous interest payments is called .
A. Free interest.
B. Annual interest.
C. Simple interest.
Difficulty: Basic
Type: Definitions
.
A. Free interest.
B. Annual interest.
C. Simple interest.
Difficulty: Basic
Type: Definitions
16. Interest earned only on the original principal amount invested is called .
A. Free interest.
B. Annual interest.
C. Simple interest.
Difficulty: Basic
Type: Definitions
17. The future value interest factor is calculated as:
A. (1 + r)t
B. (1 + rt)
C. (1 + r)(t)
D. 1 + r - t
E. (1 + r)(2)
Difficulty: Basic
Type: Definitions
18. The current value of future cash flows discounted at the appropriate discount rate is called the:
A. Principal value.
B. Future value.
C. Present value.
D. Simple interest rate.
E. Compound interest rate.
Difficulty: Basic
Type: Definitions
19. The process of finding the present value of some future amount is often called .
A. Growth.
B. Discounting.
C. Accumulation.
D. Compounding.
E. Reduction.
Difficulty: Basic
Type: Definitions
20. The present value interest factor is calculated as:
A. 1/(1 + r - t)
B. 1/(1 + rt)
C. 1/(1 + r)(t)
D. 1/(1 + r)t
E. 1 + r + t
Difficulty: Basic
Type: Definitions
21. The interest rate used to calculate the present value of future cash flows is called the
rate.
A. Free interest.
B. Annual interest.
C. Compound interest.
D. Simple interest.
E. Discount.
Difficulty: Basic
Type: Definitions
22. The concept that a dollar received today is worth more than a dollar received tomorrow is referred to
as the:
A. Present value.
B. Simple interest value.
C. Compound value.
D. Time value of money.
E. Future value of money.
Difficulty: Basic
Type: Definitions
23. The factor (1 + r)t is called the:
A. Simple rate of interest.
B. Current factor.
C. Future value interest factor.
D. Present value interest factor.
E. Discount factor.
Difficulty: Basic
Type: Definitions
24. The value computed using the factor 1/(1 + r)t is called the:
A. Present value.
B. Interest rate.
C. Number of periods.
D. Future value.
E. Compound value.
Difficulty: Basic
Type: Definitions
25. Compound interest means that you earn:
A. Interest only on the initial amount invested.
B. Interest on the initial principal only.
C. Interest on both the principal and prior reinvested interest.
D. A decreasing amount of interest each year.
E. The same amount of interest each year.
Difficulty: Basic
Type: Definitions
26. Calculating the present value of a future cash flow to determine its value today is called:
A. Discounted cash flow valuation.
B. The discount rate.
C. Future value compounding.
D. Present value compounding.
E. Timing the cash flow.
Difficulty: Basic
Type: Definitions
27. The rate used to find the present value of a future payment is called the:
A. Simple rate.
B. Discount rate.
C. Compound rate.
D. Future value rate.
E. Loan rate.
Difficulty: Basic
Type: Definitions
28. The discounted value of money is called the:
A. Compound value.
B. Simple value.
C. Future value.
D. Complex value.
E. Present value.
Difficulty: Basic
Type: Definitions
29. The rate of return used when computing a present value is referred to as the rate while the rate
used when computing a future value is referred to as the rate.
A. Compound; discount.
B. Compound; simple.
C. Compound; compound.
D. Discount; discount.
E. Discount; compound.
Difficulty: Basic
Type: Definitions
30. On a financial calculator, the symbol "N" represents the:
A. Current value.
B. Time periods.
C. Future value.
D. Rate of simple interest.
E. Rate of compound interest.
Difficulty: Basic
Learning Objective: 05-04 How long it takes for an investment to reach a desired value.
Type: Definitions
31. The present value equation is:
A. PV = FVt + (1 + r)t.
B. PV = FVt - (1 + r)t.
C. PV = FVt/[1/(1 + r)t].
D. PV = FVt/(1 + r)t.
E. PV = FVt * (1 + r)t.
Difficulty: Basic
Type: Definitions
32. The amount an investment will worth after one or more periods of time is the value.
A. Future. B.
Present. C.
Principal.
D. Discounted.
E. Simple.
Difficulty: Basic
Type: Definitions
A. Growth.
B. Compounding.
C. Aggregation.
D. Accumulation.
E. Discounting.
Difficulty: Basic
Type: Definitions
34. Interest earned on the reinvestment of previous interest payments is called interest.
A. Free.
B. Annual.
C. Simple.
D. Interest on.
E. Intermediary.
Difficulty: Basic
Type: Definitions
interest.
A. Free.
B. Annual.
C. Simple.
D. Internal.
E. Compound.
Difficulty: Basic
Type: Definitions
36. Interest earned only on the original principal amount invested is called interest.
A. Free.
B. Annual.
C. Simple.
D. Interest on.
E. Compound.
Difficulty: Basic
Type: Definitions
37. The current value of future cash flows discounted at the appropriate discount rate to current time is
called the value.
A. Principal.
B. Future.
C. Present.
D. Simple.
E. Compound.
Difficulty: Basic
Type: Definitions
38. The process of finding the present value of some future amount is often called:
A. Growth.
B. Discounting.
C. Accumulation.
D. Compounding.
E. Reduction.
Difficulty: Basic
Type: Definitions
39. The interest rate used to calculate the present value of future cash flows is called the rate.
A. Free.
B. Annual.
C. Compound.
D. Simple.
E. Discount.
Difficulty: Basic
Type: Definitions
40. Future value is best defined as:
A. An amount of money received each period for a stated number of periods.

B. The amount an investment is worth in today's dollars.
C. The dollar amount invested today at a stated rate of interest for some period of time.
D. The amount an investment is worth at the end of some stated period of time.
E. The cash value of an investment in today's dollars based on a stated rate of interest.
Difficulty: Basic
Type: Definitions
41. The term interest-on-interest refers to:
A. The payment of interest more than once per year.

B. The interest earned on previous interest earnings which were reinvested.
C. Earning interest on an investment for a period greater than one year.
D. Earning interest only on the principal amount invested.
E. The process of accumulating interest on an investment over time to earn more interest.
Difficulty: Basic
Type: Definitions
42. Present value is defined as the:
A. Amount of money invested each time period for a stated number of periods.
B. Summation of the cash flows received within a specified period of time.
C. Value of future cash flows in today's dollars given a specific discount rate.
D. Compounded value of a principal amount given a specific rate of interest.
E. Value of an investment given simple interest for a specific period of time.
Difficulty: Basic
Type: Definitions
43. Compound interest is best defined as the interest earned:
A. On prior year's interest which was reinvested.
B. On a simple basis for multiple years.
C. On the initial investment for a stated number of periods.
D. On both the interest reinvested from prior periods and the initial investment.
E. For the first year multiplied by the number of years in the investment period.
Difficulty: Basic
Type: Definitions
44. You are choosing between investments offered by two different banks. One promises a return of
10% for three years using simple interest while the other offers a return of 10% for three years using
compound interest. You should:
A. Choose the simple interest option because both have the same basic interest rate.
B. Choose the compound interest option because it provides a higher return.
C. Choose the compound interest option only if the compounding is for monthly periods.
D. Choose the simple interest option only if compounding occurs more than once a year.
E. Choose the compound interest option only if you are investing less than $5,000.
Difficulty: Basic
Type: Concepts
45. Suppose you are trying to find the present value of two different cash flows using the same interest
rate for each. One cash flow is $1,000 ten years from now, the other $800 seven years from now.
Which of the following is true about the discount factors used in these valuations?
AThe discount factor for the cash flow ten years away is always less than or equal to the discount
. factor for the cash flow that is received seven years from now.
B. Both discount factors are greater than one.
C Regardless of the interest rate, the discount factors are such that the present value of the $1,000 will
. always be greater than the present value of the $800.
D. Since the payments are different, no statement can be made regarding the discount factors.
E. You should factor in the time differential and choose the payment that arrives the soonest.
Difficulty: Basic
Type: Concepts
46. Given r and t greater than zero:
I. Present value interest factors are less than one.

II. Future value interest factors are less than one.
III. Present value interest factors are greater than future value interest factors.
IV. Present value interest factors grow as t grows, provided r is held constant.
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
Difficulty: Basic
Type: Concepts
47. Which of the following statements is/are accurate? All else the same, .
I. present values increase as the discount rate increases
II. present values increase the further away in time the future value
III. present values are always smaller than future values when both r and t are positive
A. I only
B. I and II only
C. II only
D. III only
E. II and III only
Difficulty: Basic
Type: Concepts
48. Fresh out of college, you are negotiating with your prospective new employer. They offer you a
signing bonus of $2,000,000 today or a lump sum payment of $2,500,000 three years from now. If you
can earn 7% on your invested funds, which of the following is true?
A. Take the signing bonus because it has the lower present value.
B. Take the signing bonus because it has the higher future value.
C. Take the lump sum because it has the higher present value.
D. Take the lump sum because it has the lower future value.
E. Based on these numbers, you are indifferent between the two.
Difficulty: Basic
Type: Concepts
49. Mary plans on saving $1,000 a year for ten years. She would like to know the value of these savings
today. Mary should solve for the:
A. Present value.
B. Present value factor.
C. Future value.
D. Future value factor.
E. Compounded value.
Difficulty: Basic
Type: Concepts
50. As long as the interest rate is greater than zero, the present value of a single sum will always:
A. Increase as the interest rate increases.
B. Be less than the future value.
C. Decrease as the period of time decreases.
D. Equal the future value if the time period is one year.
E. Increase as the number of periods increases.
Difficulty: Intermediate
Type: Concepts
51. Which of the following statements is (are) true concerning the present value of a single sum?
I. The higher the discount rate, the higher the present value.
II. The longer the time period, the higher the present value.
III. The larger the future value, the larger the present value.
IV. The larger the present value factor, the larger the present value.
A. IV only
B. I and IV only
C. III and IV only
E. I, II, III, and IV
Type: Concepts
52. The greater the number of years, the:
A. Smaller the future value of a single sum.
B. Larger the present value of a single sum.
C. Larger the present value factor.
D. Smaller the future value factor.
E. Greater the compounding effect.
Type: Concepts
53. Monika has $6,000 in her investment account. She wants to withdraw her funds when her account
reaches $10,000. A decrease in the rate of return she earns will:
A. Increase the value of her account faster.
B. Cause her to wait longer before withdrawing her money.
C. Cause the present value of her account to decrease.
D. Allow her to withdraw more money sooner.
E. Cause the compounding effect to increase.
Type: Concepts
54. Tom and Antonio both want to open savings accounts today. Tom wants to have $1,000 in his savings
account six years from now. Antonio wants to have $1,000 in his savings account three years from
now. Which of the following statements is(are) correct assuming that both Antonio and Tom earn the
same rate of interest?
I. Tom needs to deposit more money into his account today than does Antonio.
II. Tom will need to deposit twice the amount of money today as Antonio.
III. Antonio needs to deposit more money into his account today than does Tom.
IV. Antonio needs to deposit twice the amount of money today as Tom.
A. I only
B. III only
C. I and II only
D. III and IV only
E. II only
Type: Concepts
55. Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank
should she use if she wishes to maximize her investment?
D. Bank D, which offers a rate of 5% compounded monthly.
E. Bank E, which offers a rate of 5% compounded annually.
Difficulty: Basic
Type: Concepts
56. Neal wants to borrow $2,500 and has received the following offers from his local banks. Which offer
should Neal accept if he wants to repay the loan in one single payment two years from now?
D. Bank D, which offers a rate of 5% compounded annually.
E. Bank E, which offers a rate of 5% compounded monthly.
Type: Concepts
57. The future value will increase:
I. The longer the period of time.
II. The shorter the period of time.
III. The higher the rate of interest.
IV The lower the rate of interest.
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. I and II only
Difficulty: Basic
Type: Concepts
58. At a 6% rate of interest you will double your money in approximately years.
A. 3
B. 6
C. 12
D. 24
E. 48
Difficulty: Basic
Type: Concepts
59. At a 3% rate of interest, you will quadruple your money in approximately years.
A. 3
B. 6
C. 12
D. 24
E. 48
Type: Concepts
60. The present value factor will decrease:
B. The higher the future value.
E. The slower the rate of growth.
Type: Concepts
61. The future value factor will decrease:
B. The lower the present value factor.
E. The higher the future value.
Type: Concepts
62. The future value of a single sum will increase more rapidly when:
I. The interest rate increases.
II. The interest rate decreases.
III. The frequency of compounding increases.
IV. The frequency of compounding decreases.
A. I only
B. III only
C. I and III only
D. II and III only
E. I and IV only
Type: Concepts
63. Kurt invests $1,000 at a 10% rate of return for twenty years. The return is based on simple interest that
is paid at the end of each year. Which one of the following is correct?
A. Kurt will receive more interest in year twenty than in year one.
B. Kurt will receive the same amount of interest each year.
C. Kurt will not receive any interest for the first year.
D. Kurt will receive less interest in year twelve than in year eight.
E. Kurt will receive interest on both the principal and year one's interest in year two.
Type: Concepts
64. Many financial calculators require that:
A. The interest rate be input as a decimal, such as .07.
B. Interest be compounded on an annual basis.
C. The present value be input as a negative number when solving for the interest rate.
D. Interest be computed on a monthly basis.
E. Either the present value or the future value be input as a negative number when solving for the
number of periods.
Type: Concepts
65. When using a financial calculator, you should:
I. Check the mode for beginning or ending.
II. Clear the calculator before starting a problem.
III. Use a sufficient number of decimal places.
IV. Check the number of payments per year.
A. Do II and III only
B. Do I, II, and III only
C. Do I and II only
D. Do II, III, and IV only
E. Do I, II, III, and IV
Type: Concepts
66. The formula for a present value calculation using Excel is:
A. PV (rate, nper, pmt, pv).
B. PV (nper, pmt, fv).
C. PV (rate, pmt, pv, fv).
D. PV (rate, nper, pmt, fv).
E. PV (rate, nper, pmt).
Type: Concepts
67. The future value of C invested at r% for t periods is:
A. FV = C/(1 + r)t.
B. FV = (C)(1 + t)r.
C. FV = (C)(1 + r)t.
D. FV = [C][1/(1 + r)t].
E. FV = (C)(1 + r)(t).
Difficulty: Basic
Type: Concepts
68. As the discount rate increases, the present value of $500 to be received six years from now:
A. Remains constant.
B. Also increases.
C. Decreases.
D. Becomes negative.
E. Will vary but the direction of the change is unknown.
Difficulty: Basic
Type: Concepts
69. Katie is going to receive $1,000 three years from now. Wilt is going to receive $1,000 five years from
now. Which one of the following statements is correct if both Katie and Wilt apply a 5% discount rate
to these amounts?
A. The present value of Katie and Wilt's money is equal.
B. The value of Wilt's money will be greater than the value of Katie's money six years from now.
C. In today's dollars, Wilt's money is worth more than Katie's.
D. In five years, the value of Katie's money will be equal to the value of Wilt's money.
E. Katie's money is worth more than Wilt's money today.
Difficulty: Basic
Type: Concepts
70. Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits
$1,000 into an account that pays 4% simple interest. Both deposits were made today. Which of the
following statements are true concerning these two accounts?
I. At the end of one year, both Jamie and Chris will have the same amount in their accounts.
II. At the end of five years, Chris will have more money in his account than Jamie has in hers.
III. Chris will never earn any interest on interest.
IV. All else equal, Jamie made the better investment.
A. I and II only
B. III and IV only
C. I, II, and IV only
E. II, III, and IV only
Difficulty: Basic
Type: Concepts
71. Nadine invests $1,000 at 8% when she is 25 years old. Neal invests $1,000 at 8% when he is 40 years
old. Both investments compound interest annually. Both Nadine and Neal retire at age 60. Which one
of the following statements is correct?
A. Nadine will have less money when she retires than Neal.
B. Neal will earn more interest on interest than Nadine.
C. Neal will earn more compound interest than Nadine.
D. If Neal waits to age 70 to retire, then he will have just as much money as Nadine.
E. Nadine will have more money when she retires than Neal.
Difficulty: Basic
Type: Concepts
72. Sun Lee has $500 today. Which one of the following statements is correct if she invests this money at
a positive rate of interest for five years?
A. The higher the interest rate she earns, the less money she will have in the future.
B. The higher the interest rate, the longer she has to wait for her money to grow to $1,000 in value.
C. If Sun Lee can earn 7%, she will have to wait about six years to have $1,000 total.
D. At the end of the five years Sun Lee will have less money if she invests at 5% rather than at 7%.
E. At 10% interest Sun Lee should expect to have $1,000 in her account at the end of the five years.
Difficulty: Basic
Type: Concepts
73. Fred and Max each want to have $10,000 saved five years from now. Fred can earn 4.35%,
compounded annually, on his savings and Max can earn 4.50%, compounded annually, on his savings.
Both Fred and Max are going to deposit one lump sum today and will not add any additional funds to
their accounts. Given this, Max deposit Fred to achieve the goal.
A. Must; more than
B. Must; at least as much as
C. Must; as much or more than
D. Can; less than
E. Can; the same amount as
Difficulty: Basic
Type: Concepts
74. To decrease the amount required today to fund a $10,000 debt due two years from now, you could
on your savings.
A. Increase the rate of interest earned
B. Decrease the number of compounding periods per year
C. Earn simple interest rather than compound interest
D. Both decrease the rate of interest and the number of compounding periods per year
E. Either decrease the rate of interest or decrease the number of compounding periods per year
Difficulty: Basic
Type: Concepts
75. Given a constant future value and discount rate, an increase in the number of time periods will
the present value.
A. Decrease
B. Either not affect or decrease
C. Not affect
D. Either increase or not affect
E. Increase
Difficulty: Basic
Type: Concepts
76. To create the same future value given a stated discount rate, you can:
A. Decrease both the present value and the time period.
B. Increase both the present value and the time period.
C. Decrease the time period and hold the present value constant.
D. Increase the present value and hold the time period constant.
E. Increase the present value and decrease the time period.
Difficulty: Basic
Type: Concepts
77. Which of the following statements are correct given a constant interest rate and constant five year
period of time?
I. An increase in the future value causes the present value to decline.
II. An increase in the future value causes the present value to increase.
III. There is an inverse relationship between the present value and the future value.
IV. There is a direct relationship between the present value and the future value.
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
Difficulty: Basic
Type: Concepts
78. Grandma Jenkins knows that she has between six and nine months left to live. She wants to leave each
of her grandchildren $1,000 when she dies. For this purpose, she has established a trust fund and has
deposited sufficient monies to provide for her twelve grandchildren. Today, she just discovered that
her daughter is going to have twins, increasing the number of her grandchildren to thirteen. To ensure
her final wish is fully funded, Grandma Jenkins needs to:
A. Withdraw $1,000 from her trust account.
B. Withdraw less than $1,000 from her trust account.
C. See if the rate of interest on her account can be lowered.
D. Deposit at least $1,050 into her trust account.
E. Deposit a little less than $1,000 into her trust account.
Difficulty: Basic
Type: Concepts
79. Which one of the following statements is correct if you invest $100 in an account at a simple interest
rate of 4% for five years?
A. You will earn more interest than if you invested in an account which compounded the interest.
B. For every $1 you earn in interest in the first year, you will earn ($1.04) interest in the second year.
C. You will earn interest on interest for four of the five years.
D.The amount of interest you earn in year five will equal the interest you earn in year one, whether or
not you reinvest your earnings.
E. The total interest you will earn over five years will be equal to $100 x (1 + .04)5.
Difficulty: Basic
Type: Concepts
80. You invest $1,000 in an account paying 5% simple interest. You do not add nor withdraw any funds
from this account. Every year, your account balance will:
A. Remain constant.
B. Increase at an increasing rate.
C. Increase at a constant rate.
D. Increase at a decreasing rate.
E. Increase by a constant amount.
Difficulty: Basic
Type: Concepts
81. Which one of the following statements is correct?
A. The future value decreases as the period of time increases, all else constant.
B. The future value of $100 invested at 6% simple interest increases at a constant rate as the period of
time increases.
C. There is an inverse relationship between the future value of a lump sum investment and the length
of the investment period.
D. The future value of $100 invested at 6%, compounded annually, increases over time in an
exponential manner.
E.Because time is the exponent in the future value formula, the length of an investment period has
minimal effect on the future value of the investment.
Difficulty: Basic
Type: Concepts
82. Margaret invests at 6% simple interest for six years. Pete invests at 6%, compounded annually,
for eight years. Sylvia invests for eight years at 6% simple interest. Which one of the following
statements is correct if all three individuals invested the same amount of money on the same day?
A. Margaret will have more money than Sylvia at the end of three years.
B. Pete will have more money than either Margaret or Sylvia at the end of four years.
C. Sylvia will have more money than either Margaret or Pete at the end of six years.
D. Margaret will have less money than Pete but more money than Sylvia at the end of five years.
E. Sylvia and Margaret will have more money than Pete at the end of six years.
Difficulty: Basic
Type: Concepts
83. Which one of the following interest rates will produce the largest value at the end of ten years given a
lump sum investment of $5,000?
A. 5.5%, compounded annually
B. 5.5%, simple interest
C. 6.0%, simple interest
D. 6.0%, compounded annually
E. 6.0%, compounded semi-annually
Difficulty: Basic
Type: Concepts
84. Stephen has $2,400 to invest. Which one of the following investment options will produce the largest
future value for him?
A. 7% simple interest for 10 years
B. 7%, compounded annually for 10 years
C. 7%, compounded monthly for 12 years
D. 7%, compounded annually for 12 years
E. 7, simple interest for 12 years
Difficulty: Basic
Type: Concepts
85. You received a $1 savings account earning 5% on your 1st birthday. How much will you have in the
account on your 40th birthday if you don't withdraw any money before then?
A. $5.89
B. $6.34
C. $6.70
D. $7.00
E. $7.04
Difficulty: Basic
Type: Problems
86. What is the future value of $25,000 received today if it is invested at 6.5% compounded annually for
six years?
A. $17,133.35
B. $27,476.42
C. $36,478.56
D. $39,521.75
E. $41,374.89
Difficulty: Basic
Type: Problems
87. Your parents agree to pay half of the purchase price of a new car when you graduate from college.
You will graduate and buy the car two years from now. You have $6,000 to invest today and can earn
10% on invested funds. If your parents match the amount of money you have in two years, what is the
maximum you can spend on the new car?
A. $7,260
B. $11,948
C. $12,000
D. $13,250
E. $14,520
Difficulty: Basic
Type: Problems
88. Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase
in the price of automobiles, how much will a new Suburban cost you five years from now, if today's
price is $48,000?
A. $41,405
B. $48,000
C. $54,024
D. $55,200
E. $55,645
Difficulty: Basic
Type: Problems
89. An account paying annual compound interest was opened with $1,000 ten years ago. Today, the
account balance is $1,500. If the same interest rate is offered on an account paying simple interest,
how much income would be earned over the same time period?
A. $86.20
B. $92.47
C. $413.80
D. $436.29
E. $500.00
Difficulty: Basic
Type: Problems
90. An account paying annual compound interest was opened with $1,000 ten years ago. Today, the
account balance is $1,500. If the same interest rate is offered on an account paying simple interest,
how much income would be earned each year over the same time period?
A. $36.97
B. $40.41
C. $40.75
D. $41.38
E. $50.00
Difficulty: Basic
Type: Problems
91. An account was opened with $1,000 three years ago. Today, the account balance is $1,157.63. If the
account earns simple interest, how long will it take until the account has earned a total of $225 in
interest?
A. Less than one more year.
B. Between one and two more years.
C. Between two and three more years.
D. Between three and four more years.
E. Between four and five more years.
Type: Problems
92. You have $500 in an account which pays 5% compound interest. How much additional interest would
you earn over four years if you moved the money to an account earning 6%?
A. $21.89
B. $23.49
C. $24.93
D. $25.88
E. $29.94
Type: Problems
93. An account was opened with an investment of $1,000 ten years ago. The ending balance in the
account is $1,500. If interest was compounded annually, what rate was earned on the account?
A. 1.0%
B. 2.2%
C. 2.9%
D. 3.8%
E. 4.1%
Difficulty: Basic
Type: Problems
94. An account was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the
account paid interest compounded annually, how much interest on interest was earned?
A. $86.20
B. $93.10
C. $102.39
D. $130.28
E. $500.00
Type: Problems
95. How much would you have to invest today at 8% compounded annually to have $25,000 available for
the purchase of a car four years from now?
A. $18,267.26
B. $18,375.75
C. $19,147.25
D. $21,370.10
E. $22,149.57
Difficulty: Basic
Type: Problems
96. You will receive a $100,000 inheritance in 20 years. You can invest that money today at 6%
compounded annually. What is the present value of your inheritance?
A. $27,491.53
B. $29,767.15
C. $31,180.47
D. $35,492.34
E. $100,000.00
Difficulty: Basic
Type: Problems
97. You just won the lottery and want to put some money away for your child's college education. College
will cost $65,000 in 18 years. You can earn 8% compounded annually. How much do you need to
invest today?
A. $9,828.18
B. $11,763.07
C. $13,690.82
D. $15,258.17
E. $16,266.19
Difficulty: Basic
Type: Problems
98. You are supposed to receive $2,000 five years from now. At an interest rate of 6%, what is that $2,000
worth today?
A. $1,491.97
B. $1,492.43
C. $1,494.52
D. $1,497.91
E. $1,499.01
Difficulty: Basic
Type: Problems
99. Andy promises Opie that he will give him $5,000 upon his graduation from college at Mayberry U.
How much must Andy invest today to make good on his promise, if Opie is expected to graduate in 12
years and Andy can earn 5% on his money?
A. $2,135.32
B. $2,784.19
C. $2,881.11
D. $3,012.88
E. $8,979.28
Difficulty: Basic
Type: Problems
100. Your grandfather placed $2,000 in a trust fund for you. In 10 years the fund will be worth $5,000.
What is the rate of return on the trust fund?
A. 5.98%
B. 8.76%
C. 9.60%
D. 9.98%
E. 10.14%
Difficulty: Basic
Type: Problems
101. All County Insurance, Inc. promises to pay Ted $1 million on his 65th birthday in return for a one-
time payment of $75,000 today. (Ted just turned 25) At what rate of interest would Ted be indifferent
between accepting the company's offer and investing the premium on his own?
A. 2.4%
B. 5.5%
C. 6.1%
D. 6.7%
E. 7.2%
Difficulty: Basic
Type: Problems
102. In 1889, Vincent Van Gogh's painting, "Sunflowers," sold for $125. One hundred years later it sold
for $36 million. Had the painting been purchased by your great-grandfather and passed on to you,
what annual return on investment would your family have earned on the painting?
A. 9.11%
B. 10.09%
C. 11.88%
D. 11.99%
E. 13.40%
Difficulty: Basic
Type: Problems
103. You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5% compounded
annually, how long will you have to wait to buy the stereo?
A. 6.58 years
B. 8.42 years
C. 14.58 years
D. 15.75 years
E. 18.78 years
Difficulty: Basic
Type: Problems
104. Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance
has doubled. How long will you have to leave the money in the account?
A. 16 years
B. 17 years
C. 18 years
D. 19 years
E. 20 years
Difficulty: Basic
Type: Problems
105. Chia Burgers began operations by opening 115 restaurants in Western Canada at the end of its first
year of operations. By the end of year 2, an additional 5 restaurants were opened. By the end of year 3,
there were 130 restaurants operational. At the end of year 5, there were 138 total restaurants.
From the end of year 1 to the end of year 5, the number of eating establishments grew at a rate of
A. 4.2%
B. 4.7%
C. 5.6%
D. 8.7%
E. 9.3%
Difficulty: Basic
Type: Problems
Between the end of year 2 and the end of year 3, the number of eating establishments grew at a rate of
A. 4.2%
B. 4.7%
C. 5.6%
D. 8.3%
E. 9.3%
Difficulty: Basic
Type: Problems
If, over the next five years, eating establishments are expected to grow at the same rate as they did
during year 5, forecast the number of eating establishments at the end of year 10.
A. 172
B. 198
C. 202
D. 223
E. 225
Difficulty: Basic
Type: Problems
If the number of eating establishments is expected to grow in year 6 at the same rate as the percentage
increase in year 5, how many new eating establishments will be added in year 6?
A. 5
B. 6
C. 7
D. 8
E. 9
Difficulty: Basic
Type: Problems
109. If the town's population was 62,000 at the end of year 5, and the population grew at the same annual
rate as the number of eating establishments between the end of year 1 and the end of year 5, what was
the town's population at the end of year 1?
A. 49,809
B. 51,435
C. 53,230
D. 54,330
E. 56,730
Difficulty: Basic
Type: Problems
110. If you leave the money in the account for another five years and the account earns 8% compounded
annually, what will the balance in the account grow to?
A. $1,341.05
B. $1,347.82
C. $1,395.86
D. $1,406.23
E. $1,491.15
Difficulty: Basic
Type: Problems
111. During year 2, the account earned .
A. 1.3%
B. 2.8%
C. 4.6%
D. 5.5%
E. 7.5%
Difficulty: Basic
Type: Problems
112. During year 5, the account earned compounded annually.
A. 11.6%
B. 12.8%
C. 14.6%
D. 15.6%
E. 23.1%
Type: Problems
113. Over the first four years, the account earned compounded annually.
A. 11.5%
B. 12.8%
C. 14.6%
D. 15.6%
E. 23.1%
Difficulty: Basic
Type: Problems
114. In which year did the account earn its highest annually compounded return?
A. Year 1 at 10%
B. Year 2 at 5.45%
C. Year 3 at 13.8%
D. Year 4 at 17.0%
E. Year 5 at 15.6%
Type: Problems
115. If the account earned a total of $300 in simple interest over its life, how much was earned in
compound interest?
A. $25
B. $50
C. $75
D. $100
E. $125
Difficulty: Basic
Type: Problems
116. During years 2 and 3 combined, the account earned $10 compound interest. How much was in simple
interest?
A. $30
B. $80
C. $105
D. $110
E. $120
Type: Problems
117. Tishie invests $3,000 today at a 9% rate of return. She wants to have $24,000 to give to her
granddaughter Kathy for college 16 years from now. Which one of the following statements is correct
concerning Tishie's situation?
A. Tishie will have the $24,000 when she wants it.
B. Tishie would have to wait an additional ten years to have $24,000.
C. Tishie would have to earn a 10% rate of return to have $24,000 in 16 years.
D. Tishie will only have approximately $12,000 sixteen years from now.
E. Tishie should plan on only giving Kathy $10,000 in sixteen years.
Type: Problems
118. What is the present value of $2,800 to be received three years from now if the discount rate is 9.5%?
A. $2,114.48
B. $2,132.63
C. $2,361.48
D. $2,734.54
E. $3,676.21
Difficulty: Basic
Type: Problems
119. The Blackwell Co. expects to receive $135,000 from an insurance settlement four years from now.
If the company can earn 11% on its investments, what is the value of the insurance settlement worth
today?
A. $85,368.94
B. $87,693.43
C. $88,928.68
D. $130,161.39
E. $140,018.48
Difficulty: Basic
Type: Problems
120. Isaac and Faith both want to have $5,000 in three years. Isaac expects to earn 8% on his investments
and Faith expects a 7% rate of return. Which one of the following statements is correct concerning the
amount of money they each need to invest today?
A. Faith needs to deposit $112.33 more than Isaac today.
B. Faith needs to deposit $173.33 more than Isaac today.
C. Isaac needs to deposit $3,699.16 today.
D. Faith needs to deposit $3,081.49 today.
E. Both Faith and Isaac should deposit $3,969.16 today.
Type: Problems
121. Courtney invests $1,200 today. If she can earn a 13.25% rate of return for the next two years, how
much money will she have at the end of the two years?
A. $1,203.18
B. $1,232.01
C. $1,359.00
D. $1,539.07
E. $1,742.99
Difficulty: Basic
Type: Problems
122. A customer makes two offers to settle a disputed account. He will either pay you $500 today or pay
you $650 in three years. Which one of the following is correct if your company earns 10.5% on its
surplus funds?
A. The company should accept the $650 offer as it pays $150 more.
B. The company should accept the $650 offer as it is worth more today.
C. The company should accept the $650 offer as it is worth $12.42 more today.
D. The company should accept the $500 offer as it is worth $18.24 more today.
E. The company should accept the $500 offer as it is worth $512.42 today.
Type: Problems
123. What is the future value of $7,540 invested at 6.5% interest for seven years?
A. $10,330.45
B. $11,001.93
C. $11,041.26
D. $11,717.06
E. $11,337.37
Difficulty: Basic
Type: Problems
124. The James Co. plans on saving money to buy some new equipment. The company is opening an
account today with a deposit of $15,000 and expects to earn 4% interest. After 3 years, the firm wants
to add an additional $50,000 to the account. If the account continues to earn 4%, how much money
will the James Co. have in their account five years from now?
A. $66,872.96
B. $68,249.79
C. $70,952.96
D. $72,329.79
E. $81,361.18
Difficulty: Challenge
Type: Problems
125. Five friends all open investment accounts today. Which one will withdraw the largest amount of
money from their account assuming that they each withdraw their funds at the end of their initial
investment period?
A. John, who invests $1,000 for eight years at 6% simple interest.
B. Terry, who invests $1,000 for four years at 9% with interest compounded annually.
C. Alicia, who invests $800 for ten years at 11% with interest compounded annually.
D. Kristi, who invests $1,200 for six years at 8% simple interest.
E. Roger, who invests $900 for nine years at 9% with interest compounded annually.
Type: Problems
126. Alexander Industries just had a very profitable year. The owner has decided to invest $225,000 of
the profits in a venture that pays an 8% rate of return for fifteen years. How much more would the
investment have been worth if the owner could have made 9% on this investment?
A. $52,910.25
B. $105,820.50
C. $211,641.00
D. $713,738.05
E. $819,558.55
Type: Problems
127. Gretchen Enterprises borrowed $149,500 for two years from the bank. At the end of the two years,
they repaid the loan with one payment of $176,590. What was the interest rate on the loan?
A. 8.68%
B. 9.06%
C. 10.00%
D. 10.42%
E. 18.12%
Type: Problems
128. Six years ago, Marti invested $3,500 in an account. No other investments or withdrawals have been
made. Today the account is worth $7,403.16. What rate of return has Marti earned thus far?
A. 12.86%
B. 13.30%
C. 15.96%
D. 18.58%
E. 19.20%
Type: Problems
129. Ito invested $4,350. After seven years he had an account value of $6,980.58. Maria invested $5,920.
After six years she had an account value of $8,834.62. Which one of the following statements is
correct?
A. Maria earned a rate of interest that was 0.9% higher than Ito's rate.
B. Maria earned a rate of interest of 5.89%.
C. Ito earned a rate of interest that was 0.09% higher than Maria's rate.
D. Ito earned a rate of interest of 6.90%.
E. Both Ito and Maria earned the same rate of interest.
Type: Problems
130. Koji invested $3,300 at 7.75% interest. After a period of time he withdrew $9,383.31. How long did
Koji have his money invested?
A. 13 years
B. 14 years
C. 15 years
D. 16 years
E. 17 years
Difficulty: Basic
Type: Problems
131. Sampson, Inc. invested $1.325 million in a project that earned an 8.25% rate of return. Sampson sold
their investment for $3,713,459. How much sooner could Sampson have sold the company if they
only wanted $3 million from the project?
A. 2.69 years
B. 3.33 years
C. 5.17 years
D. 6.67 years
E. 10.31 years
Type: Problems
132. Lakeside Inc. invested $735,000 at an 11.25% rate of return. The company sold their investment
for $1,067,425. How much longer would Lakeside have had to wait if they had wanted to sell their
investment for $1.25 million?
A. .98 year
B. 1.48 years
C. 1.98 years
D. 2.31 years
E. 3.50 years
Type: Problems
133. Martha is going to receive $6,000 in two years from Tom. She will receive an additional $4,000 in
three years from Tom. She earns 7.15% on her investments. How much is this money from Tom worth
to Martha today?
A. $7,893.46
B. $8,477.47
C. $8,891.74
D. $9,225.97
E. $9,251.50
Type: Problems
134. The I.C. James Co. invested $10,000 six years ago at 5% simple interest. The I.M. Smart Co. invested
$10,000 six years ago at 5% interest which is compounded annually. Which one of the following
statements is true concerning these two investments?
I. The I.C. James Co. has an account value of $13,400.96 today.
II. The I.C. James Co. will have an account value of $13,400.96 six years from now.
III. The I.M Smart Co. will earn $525 interest in the second year.
IV. Both the I.C. James Co. and the I.M. Smart Co. will earn $500 interest in the first year.
A. I and III only
B. I, III and IV only
C. II and IV only
D. II, III and IV only
E. III and IV only
Type: Problems
135. The Smith Co. has $450,000 to invest at 5.5% interest. How much more money will they have if they
invest these funds for eight years instead of five years?
A. $62,948.21
B. $68,851.36
C. $74,250.00
D. $78,408.62
E. $102,476.93
Type: Problems
136. Today Richard is investing $1,000 at 5% interest for five years. One year ago, Richard invested
$1,000 at 6.25% for six years. How much money will Richard have saved in total five years from now
if both investments compound interest annually?
A. $2,543.77
B. $2,641.98
C. $2,678.81
D. $2,630.36
E. $2,714.99
Type: Problems
137. Betty invests $500 in an account that pays 3% simple interest. How much money will Betty have at
the end of ten years?
A. $630.00
B. $633.33
C. $650.00
D. $671.96
E. $675.00
Difficulty: Basic
Type: Problems
138. Dale invests $500 in an account that pays 6% simple interest. How much more could he have earned
over a thirty year period if the interest had compounded annually?
A. $1,471.75
B. $1,532.50
C. $1,621.25
D. $1,804.25
E. $2,371.75
Difficulty: Basic
Type: Problems
139. Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you
earn annual raises of 3.5%?
A. $47,035.35
B. $47,522.89
C. $47,747.44
D. $48,091.91
E. $48,201.60
Difficulty: Basic
Type: Problems
140. You own a classic automobile that is currently valued at $39,500. If the value increases by 6%
annually, how much will the auto be worth ten years from now?
A. $64,341.34
B. $44,734.42
C. $69,843.06
D. $70,738.48
E. $74,146.93
Difficulty: Basic
Type: Problems
141. You hope to buy your dream house six years from now. Today your dream house costs $189,900. You
expect housing prices to rise by an average of 4.5% per year over the next six years. How much will
your dream house cost by the time you are ready to buy it?
A. $240,284.08
B. $246,019.67
C. $246,396.67
D. $246,831.94
E. $247,299.20
Difficulty: Basic
Type: Problems
142. Your grandmother invested one lump sum 17 years ago at 4.25% interest. Today, she gave you the
proceeds of that investment which totaled $5,539.92. How much did your grandmother originally
invest?
A. $2,700.00
B. $2,730.30
C. $2,750.00
D. $2,768.40
E. $2,774.90
Difficulty: Basic
Type: Problems
143. You would like to give your daughter $40,000 towards her college education thirteen years from now.
A. $17,750.00
B. $17,989.28
C. $18,077.05
D. $18,213.69
E. $18,395.00
Difficulty: Basic
Type: Problems
144. Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the
average rate of return your father earned on his investment?
A. 8.50%
B. 9.33%
C. 9.50%
D. 9.87%
E. 9.99%
Difficulty: Basic
Type: Problems
145. Ten years ago, Joe invested $5,000. Five years ago, Marie invested $2,500. Today, both Joe and
Marie's investments are each worth $8,500. Which one of the following statements is correct
concerning their investments?
A. Three years from today, Joe's investment will be worth more than Marie's.
B. Last year, Marie's investment was worth more than Joe's.
C. Joe has earned more interest on interest than Marie.
D. Marie earned an annual interest rate of 27.73%.
E. Joe earned an annual interest rate of 6.45%.
Type: Problems
146. Alpha, Inc. is saving money to build a new factory. Six years ago they set aside $250,000 for this
purpose. Today, that account is worth $306,958. What rate of interest is Alpha earning on this money?
A. 3.43%
B. 3.45%
C. 3.48%
D. 3.52%
E. 3.55%
Difficulty: Basic
Type: Problems
147. On your tenth birthday, you received $100 which you invested at 4.5% interest, compounded
annually. That investment is now worth $3,000. How old are you today?
A. age 77
B. age 82
C. age 84
D. age 86
E. age 87
Difficulty: Basic
Type: Problems
148. You want to have $10,000 saved ten years from now. How much less do you have to deposit today to
A. $555.18
B. $609.81
C. $615.48
D. $928.73
E. $1,046.22
Type: Problems
149. Your older sister deposited $5,000 today at 8% interest for five years. You would like to have just as
much money at the end of the next five years as your sister. However, you can only earn 6% interest.
How much more money must you deposit today than your sister if you are to have the same amount at
the end of five years?
A. $201.80
B. $367.32
C. $399.05
D. $423.81
E. $489.84
Type: Problems
150. When you retire forty years from now, you want to have $1 million. You think you can earn an
average of 8.5% on your money. To meet this goal, you are trying to decide whether to deposit a lump
sum today, or to wait and deposit a lump sum five years from today. How much more will you have to
deposit as a lump sum if you wait for five years before making the deposit?
A. $18,001.06
B. $18,677.78
C. $18,998.03
D. $19,272.81
E. $21,036.83
Type: Problems
151. Antonette needs $20,000 as a down payment for a house five years from now. She earns 4% on her
savings. Antonette can either deposit one lump sum today for this purpose or she can wait a year and
deposit a lump sum. How much additional money must Antonette deposit if she waits for one year
rather than making the deposit today?
A. $639.19
B. $657.54
C. $658.23
D. $659.04
E. $800.00
Type: Problems
152. Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for eight years from
now. How much additional money will they have eight years from now if they can earn 9% rather than
7% on this money?
A. $58,829.69
B. $86,991.91
C. $118,009.42
D. $126,745.19
E. $137,188.23
Type: Problems
153. You will be receiving $5,000 from your family as a graduation present. You have decided to save this
money for your retirement. You plan to retire thirty-five years after graduating. How much additional
money will you have at that time if you can earn an average of 8.5% on your investment instead of
just 8%?
A. $12,971.49
B. $13,008.47
C. $13,123.93
D. $13,234.44
E. $13,309.85
Type: Problems
154. You deposit $3,000 in a retirement account today at 5.5% interest. How much more money will you
have if you leave the money invested for forty-five years rather than forty years?
A. $7,714.91
B. $7,799.08
C. $7,839.73
D. $7,846.52
E. $7,858.19
Difficulty: Basic
Type: Problems
155. You collect model cars. One particular model increases in value at a rate of 5% per year. Today, the
model is worth $29.50. How much additional money can you make if you wait ten years to sell the
model rather than selling it five years from now?
A. $9.98
B. $10.40
C. $10.86
D. $11.03
E. $11.24
Difficulty: Basic
Type: Problems
156. Cooper invests $6,500 in a savings account at his local bank. The bank pays 2.75% simple interest.
Cooper does not make any additional withdrawals or deposits to this account. How much will his
account be worth after 12 years?
A. $2,145
B. $2,655
C. $6,679
D. $8,645
E. $9,001
Difficulty: Basic
Type: Problems
157. Stephen invests $2,500 in an account that pays 6% simple interest. How much money will Stephen
have at the end of three years?
A. $2,650
B. $2,809
C. $2,950
D. $2,978
E. $3,000
Difficulty: Basic
Type: Problems
158. Lisa deposited $500 in a savings account this morning. The account pays 2.5% simple interest. If Lisa
leaves this money in the account for five years, how much total interest will she earn?
A. $10.75
B. $12.50
C. $53.75
D. $62.50
E. $67.25
Difficulty: Basic
Type: Problems
159. Jennifer invested $2,000 in an account that pays 3% simple interest. How much more could she have
earned over a six-year period if the interest had compounded annually?
A. $28.10
B. $29.18
C. $31.50
D. $33.33
E. $34.67
Difficulty: Basic
Type: Problems
160. Robin invested $10,000 in an account that pays 5% simple interest. How much more could she have
earned over a 40-year period if the interest had compounded annually?
A. $38,207.16
B. $38,414.14
C. $40,399.89
D. $48,414.14
E. $50,399.89
Difficulty: Basic
Type: Problems
161. Alex and Courtney are each investing $1,200 today in a savings account. Alex will earn 4% interest
compounded annually. Courtney will earn 4% simple interest. After five years Alex will have
more than Courtney.
A. $19.98
B. $20.13
C. $20.17
D. $20.21
E. $20.28
Difficulty: Basic
Type: Problems
162. What is the future value of $4,160 invested for eight years at 8.5% compounded annually?
A. $6,988.80
B. $7,989.71
C. $8,122.20
D. $8,211.29
E. $8,404.12
Difficulty: Basic
Type: Problems
163. Today, you earn a salary of $37,800. What will your annual salary be twelve years from now if you
receive annual raises of 3.6%?
A. $55,981.03
B. $56,324.17
C. $56,907.08
D. $57,784.17
E. $58,213.46
Difficulty: Basic
Type: Problems
164. You own a stamp collection that is currently valued at $24,500. If the value increases by 5.5%
annually, how much will the collection be worth when you retire 40 years from now?
A. $204,113.07
B. $204,981.16
C. $205,155.45
D. $206,666.67
E. $208,576.07
Difficulty: Basic
Type: Problems
165. Your goal is to build your first home seven years from now. The home that you desire currently costs
$215,900. New home prices are increasing by 4.2% annually. If home prices continue rising at that
pace, how much will your home cost when you are ready to build seven years from now?
A. $281,113.21
B. $284,109.67
C. $287,956.36
D. $292,001.06
E. $295,474.06
Difficulty: Basic
Type: Problems
166. Today, your grandmother gave you a gift of $25,000 to help pay for your college education. She told
you that this amount was the result of a one-time investment at 8% interest 13 years ago. How much
did your grandmother originally invest?
A. $9,192.45
B. $9,225.00
C. $9,350.00
D. $9,419.25
E. $9,504.55
Difficulty: Basic
Type: Problems
167. What is the present value of $36,500 to be received five years from today if the discount rate is
6.75%?
A. $26,330.16
B. $26,678.19
C. $26,911.47
D. $28,008.19
E. $28,123.76
Difficulty: Basic
Type: Problems
168. You would like to give your daughter $50,000 towards her college education sixteen years from now.
A. $14,775.50
B. $15,033.84
C. $15,250.00
D. $16,245.33
E. $16,909.13
Difficulty: Basic
Type: Problems
169. One year ago, you invested $5,000. Today, your investment is worth $6,178.40. What rate of interest
did you earn?
A. 16.23%
B. 16.45%
C. 22.18%
D. 23.57%
E. 24.09%
Difficulty: Basic
Type: Problems
170. Thirty years ago, your father invested $6,000. Today that investment is worth $67,270.98. What is the
average rate of return your father earned on this investment?
A. 8.39%
B. 8.44%
C. 10.23%
D. 10.34%
E. 11.67%
Difficulty: Basic
Type: Problems
171. Twenty years ago, Max invested $10,000. Thirty years ago, Julie invested $5,000. Today, both Max
and Julie's investments are each worth $35,000. Which one of the following statements is correct
concerning their investments? Assume that they will continue earning the same rate of return.
A. Two years from now, Max's investment will be worth more than Julie's.
B. Last year, Julie's investment was worth more than Max's.
C. Max has earned more interest on interest than Julie.
D. Julie has earned an average annual interest rate of 6.7%.
E. Max has earned an average annual interest rate of 6.41%.
Type: Problems
172. New Metals, Inc. is planning on expanding their operations when the economy strengthens in a few
years. At that time they will need to purchase additional equipment. Four years ago, they set aside
$300,000 in a special account for this purpose. Today, that account is worth $383,048.98. What rate of
interest is New Metals earning on this money?
A. 5.87%
B. 5.92%
C. 6.26%
D. 6.30%
E. 6.35%
Difficulty: Basic
Type: Problems
173. Kay purchased some land costing $124,600. Today, that same land is valued at $179,400. How long
has she owned this land if the price of land has been increasing at 6% per year?
A. 5.95 years
B. 6.26 years
C. 6.33 years
D. 6.50 years
E. 6.57 years
Difficulty: Basic
Type: Problems
174. When you were 26 years old, you received an inheritance of $1,500 from your grandfather. You
invested that amount in Nu-Wave stock and have not touched the investment since then. Today, this
investment is worth $109,533.59. Nu-Wave stock has earned an average rate of return of 11.3% per
year over this time period. How old are you today?
A. age 57
B. age 59
C. age 62
D. age 64
E. age 66
Difficulty: Basic
Type: Problems
175. Your goal is to have $50,000 in cash to build a new home twelve years from now. Your plan is to
make one deposit today to fund this goal. How much more will you have to deposit today to fund this
goal if you can only earn 4% on your savings rather than 5%?
A. $3,104.11
B. $3,188.87
C. $3,218.07
D. $3,273.16
E. $3,387.98
Difficulty: Basic
Type: Problems
176. Your goal is to have two separate investments that will be worth $10,000 each ten years from today.
Investment A will pay 6% interest. Investment B will pay 6.5% interest. You will make a one-time
deposit into each account today. What is the difference between the amount you must invest today in
Investment A as compared to the amount you must invest today in Investment B if you are to reach
your goal in ten years?
A. $241.92
B. $245.45
C. $256.69
D. $261.08
E. $263.47
Difficulty: Basic
Type: Problems
177. Twenty years from now, you would like to purchase a cottage located on the shores of your favourite
lake. You expect that you will have $250,000 available at that time for this purchase. You could afford
a home that is currently selling for if the homes increase in value by 3% annually, but if the
homes increase in value by 5% annually, you can only afford a home priced at today.
A. $127,023; $92,687
B. $138,419; $94,222
C. $138,419; $114,097
D. $144,676; $100,469
E. $144,676; $111,068
Type: Problems
178. You would like to invest some money today such that your investment will be worth $100,000 fifteen
years from now. Your broker gives you two options. First, you can invest at a guaranteed annual rate
of 4%. Or, you can invest in stocks and hopefully earn an average of 7% per year. How much more
will you have to invest today if you opt for the fixed rate rather than the stocks?
A. $18,145.45
B. $18,419.02
C. $18,623.18
D. $18,904.21
E. $19,281.85
Difficulty: Basic
Type: Problems
179. Omar has an investment valued at $12,345 today. He made a one-time investment at 6.5% four years
ago. Leon has an investment that is also valued at $12,345 today. Leon invested four years ago at
7.5%. Omar originally invested and Leon invested .
A. $9,568.24; $9,199.16
B. $9,596.05; $9,243.94
C. $9,608.14; $9,267.67
D. $9,633.33; $9,304.06
E. $9,652.18; $9,389.00
Difficulty: Basic
Type: Problems
180. When you retire thirty years from now, you want to have $750,000. You think you can earn an
average of 9% on your money. To meet this goal, you are trying to decide whether to deposit a lump
sum today, or to wait and deposit a lump sum five years from today. How much more will you have to
deposit as a lump sum if you wait for five years before making the deposit?
A. $28,788.03
B. $29,414.14
C. $30,447.53
D. $36,118.09
E. $38,278.27
Difficulty: Basic
Type: Problems
181. Jeanette needs $15,000 as a down payment for a house six years from now. She earns 3.5% on her
savings. Jeanette can either deposit one lump sum today for this purpose or she can wait a year and
deposit a lump sum. How much additional money must Jeanette deposit if she waits for one year
rather than making the deposit today?
A. $121.03
B. $166.67
C. $307.00
D. $333.33
E. $427.09
Difficulty: Basic
Type: Problems
182. Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from
now. She can earn 7% on her savings. How much more will she have to deposit if she waits one more
year before investing versus if she deposits one lump sum today?
A. $466.44
B. $469.15
C. $470.23
D. $471.08
E. $471.54
Difficulty: Basic
Type: Problems
183. Moe and Joe are twins. Moe invested $1,000, earned 9% annually, and now has $1,992.56. Joe
invested $1,000, earned 6.47%, and now has $1,992.97. Joe invested his money years before
Moe.
A. 2.5 years
B. 2.8 years
C. 3.0 years
D. 3.2 years
E. 3.5 years
Difficulty: Basic
Type: Problems
184. Sue invested $5,000 eleven years ago at 12%. Terri has the same amount saved today as Sue has. Terri
also earns 12% but she only invested $2,500. How long ago did Terri invest her money?
A. 17.1 years
B. 17.4 years
C. 17.9 years
D. 21.5 years
E. 22.0 years
Difficulty: Basic
Type: Problems
185. You have just been awarded a $200,000 insurance settlement. The insurance company has offered to
invest this amount at a guaranteed interest rate of 4.5% for ten years. You think you can invest this
money yourself and earn an average return of 8%. If you are able to do that, how much more will your
settlement be worth ten years from now than if you had left the funds with the insurance company?
A. $78,829.69
B. $86,991.91
C. $118,009.42
D. $121,191.12
E. $137,188.23
Difficulty: Basic
Type: Problems
186. You have just landed your first job. Part of the offer includes a $4,000 new employee bonus which is
intended to cover your relocation costs. You have determined that you can move yourself for $1,000.
Thus, you have decided to open an Individual Retirement Account with the remaining $3,000. How
much more will this investment be worth 35 years from now if you can earn an average rate of return
of 9.5% rather than 9%?
A. $10,639.32
B. $10,676.16
C. $11,207.91
D. $11,341.41
E. $11,454.54
Difficulty: Basic
Type: Problems
187. You deposit $3,000 in a retirement account today at 5.5% interest. How much more money will you
have if you leave the money invested for forty-five years rather than forty years?
A. $7,834.91
B. $7,838.08
C. $7,839.73
D. $7,840.52
E. $7,841.19
Difficulty: Basic
Type: Problems
188. You collect model airplanes. One particular model is currently valued at $275. If this model increases
in value by 5% annually, it will be worth six years from now and twelve years from
now.
A. $368.01; $442.89
B. $368.01; $461.34
C. $368.53; $442.89
D. $368.53; $467.08
E. $368.53; $493.86
Difficulty: Basic
Type: Problems
189. Frank invests $2,500 in an account that pays 6% simple interest. How much money will he have at the
end of four years?
A. $2,650
B. $3,100
C. $3,156
D. $3,163
E. $10,600
Ending value = $2,500 + ($2,500 × .06 × 4) = $3,100.00
Difficulty: Basic
Type: Problems
190. Faith invests $4,500 in an account that pays 4% simple interest. How much money will she have at the
end of eight years?
A. $4,680
B. $5,367
C. $5,940
D. $6,122
E. $6,159
Ending value = $4,500 + ($4,500 × .04 × 8) = $5,940.00
Difficulty: Basic
Type: Problems

Fundamentals of Corporate Finance Canadian Canadian 8th Edition Ross Test Bank 1

Uploaded by

Copyright:

Available Formats

You might also like

Fundamentals of Corporate Finance Canadian Canadian 8th Edition Ross Test Bank 1

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fundamentals of Corporate Finance Canadian Canadian 8th Edition Ross Test Bank 1

Uploaded by

Copyright:

Available Formats

Fundamentals of Corporate Finance Canadian Canadian

8th Edition Ross

A. An amount of money received each period for a stated number of periods.

A. The payment of interest more than once per year.

I. Present value interest factors are less than one.

Ending value = $2,500 + ($2,500 × .06 × 4) = $3,100.00

Ending value = $4,500 + ($4,500 × .04 × 8) = $5,940.00

You might also like