BUS1-170 Midterm 1 Practice QUESTIONS & ANSWERS
1. What is the future value of $15,000 received today if it is invested at 7.5%
compounded semi-annually for five years?
$21,675.66
2. How much would you have to invest today at 4.5% compounded annually to have
$35,000 available for the purchase of a car at the end of five years from now?
$28,085.79
3. What is the total present value of $500 received at the end of year one, $300 received
in year two, and $700received in year sixth if the discount rate is 6%?
NPV = $1,232.17
4. 1,232.17You 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: 1,232.17You 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 simple interest because both have the same
basic interest rate.
B) Choose compound interest because it provides a higher return. C) Choose
compound
interest only if compounding is for monthly periods.
D) Choose simple interest only if compounding occurs
more than once a year.
E) Choose the compound interest only if you are investing less than $5,000.
B) Choose compound interest because it provides
a higher return.
5. At the end of each year for the next 8 years you will receive cash flows of $500.
, The initial investment is 11.81% What rate of return are you expecting from this
investment?
$2,500 today.
6. In order to help you through college, your parents just deposited $20,000 into a bank
account paying 6% interest. Starting tomorrow, you plan to withdraw equal amounts
from the account at the beginning of each year for the next four years. What is the
MOST you can withdraw annually?
$5,445.12
7. You deposit $10,000 today in a savings account that pays 12.9% interest,
compounded daily. How much will your account be worth at the end of 40 years?
FV = $1,740,057.56
8. What's the present value of a perpetuity that pays $3,800 per year if the appropriate
interest rate is 5%?
a.$76,000.00
9. You have $100,000 to invest. Your bank offers one-year certificates of deposit with
a stated rate of 3.50% compounded quarterly. What rate compounded semiannually
would provide you with the same amount of money at the end of one year?
3.515%
10. Janice has $5,000 invested in a bank that pays 3.8% annually. How long will it take
for her funds to triple?
29.46 Years
11. You plan to invest in securities that pay 8.0%, compounded annually. If you invest
$5,000 today, how many years will it take for your investment to grow to $9,140.20?
7.84Years
1. What is the future value of $15,000 received today if it is invested at 7.5%
compounded semi-annually for five years?
$21,675.66
2. How much would you have to invest today at 4.5% compounded annually to have
$35,000 available for the purchase of a car at the end of five years from now?
$28,085.79
3. What is the total present value of $500 received at the end of year one, $300 received
in year two, and $700received in year sixth if the discount rate is 6%?
NPV = $1,232.17
4. 1,232.17You 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: 1,232.17You 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 simple interest because both have the same
basic interest rate.
B) Choose compound interest because it provides a higher return. C) Choose
compound
interest only if compounding is for monthly periods.
D) Choose simple interest only if compounding occurs
more than once a year.
E) Choose the compound interest only if you are investing less than $5,000.
B) Choose compound interest because it provides
a higher return.
5. At the end of each year for the next 8 years you will receive cash flows of $500.
, The initial investment is 11.81% What rate of return are you expecting from this
investment?
$2,500 today.
6. In order to help you through college, your parents just deposited $20,000 into a bank
account paying 6% interest. Starting tomorrow, you plan to withdraw equal amounts
from the account at the beginning of each year for the next four years. What is the
MOST you can withdraw annually?
$5,445.12
7. You deposit $10,000 today in a savings account that pays 12.9% interest,
compounded daily. How much will your account be worth at the end of 40 years?
FV = $1,740,057.56
8. What's the present value of a perpetuity that pays $3,800 per year if the appropriate
interest rate is 5%?
a.$76,000.00
9. You have $100,000 to invest. Your bank offers one-year certificates of deposit with
a stated rate of 3.50% compounded quarterly. What rate compounded semiannually
would provide you with the same amount of money at the end of one year?
3.515%
10. Janice has $5,000 invested in a bank that pays 3.8% annually. How long will it take
for her funds to triple?
29.46 Years
11. You plan to invest in securities that pay 8.0%, compounded annually. If you invest
$5,000 today, how many years will it take for your investment to grow to $9,140.20?
7.84Years
