Question

1.Travis invests $10,000 today into a retirement account. He expects to earn 8 percent, compounded annually, on his money for the next 26 years. After that, he wants to be more conservative, so only expects to earn 5 percent, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account?
Select one:

A. $129,411.20
B. $132,827.88
C. $134,616.56
D. $141,919.67
E. $142,003.12

2.Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000 back some time in the future. Which one of the following statements is correct?

Select one:

A. The period of time she has to wait until she reaches her goal is unaffected by the compounding of interest.
B. The lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal.
C. She will have to wait longer if she earns 6 percent compound interest instead of 6 percent simple interest.
D. The length of time she has to wait to reach her goal is directly related to the interest rate she earns.
E. The period of time she has to wait decreases as the amount she invests today increases.

3.The present value of a lump sum future amount:

Select one:

A. increases as the interest rate decreases.
B. decreases as the time period decreases.
C. is inversely related to the future value.
D. is directly related to the interest rate.
E. is directly related to the time period.

4.Your parents just gave you a gift of $15,000. You are investing this money for 12 years at 5 percent simple interest. How much money will you have at the end of the 12 years?

Select one:

A. $15,750
B. $16,000
C. $17,375
D. $24,000
E. $26,938

5.You have $5,000 you want to invest for the next 45 years. You are offered an investment plan that will pay you 6 percent per year for the next 15 years and 10 percent per year for the last 30 years. How much will you have at the end of the 45 years? How much will you have if the investment plan pays you 10 percent per year for the first 15 years and 6 percent per year for the next 30 years?

Select one:

A. $201,516.38 & $201,516.38
B. $209,092.54 & $201,516.38
C. $209,092.54 & $119,959.94
D. $209,092.54 & $209,092.52
E. $221,408.97 & $119,949.94

6.Precision Engineering invested $110,000 at 6.5 percent interest, compounded annually for 4 years. How much interest on interest did the company earn over this period of time?

Select one:

A. $2,481.25
B. $2,911.30
C. $3,014.14
D. $3,250.00
E. $3,333.33

7.You want to have $25,000 for a down payment on a house 6 years from now. If you can earn 6.5 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal?

Select one:

A. $17,133.35
B. $17,420.73
C. $17,880.69
D. $18,211.17
E. $18,886.40

Answer 1

Answer:

Q1. Answer is B

Explanation: FV= PV(1+r)n

FV= 10,000(1+0.08)26

FV= 73,963.53

FV= 73,963.53(1+0.05)12

FV=132,827.88

Q2. Answer is D

Explanation: The lenght of time she has to wait to reach her goal is directly related to the interest rate she earns

Q3. Answer is A

Explanation: Interest as the interest rate decreases

Q4. Answer is D

Explanation: A = P(1 + rt)

A= 15,000(1+0.05*12)

A= 15,000(1.6)

A= 24,000

Q5. Answer is C

Explanation: FV= PV(1+r)n

FV= 5000(1+0.06)15

FV=5000(2.396558193)

FV=11,982.79

FV=11,982.79(1+0.1)30

FV=11,982.79(17.44940226888)

FV=209,092.54

Explanation: FV= PV(1+r)n

FV= 5000(1+0.1)15

FV=5000(4.1772481694)

FV=20,886.24

FV=20,886.24(1+0.06)30

FV=20,886.24(5.7434911729)

FV=119,959.94

Q6. Answer is A

Explanation: Interest on interest $2,481.25

Q7. Answer is A

Explanation: FV= PV(1+r)n

25,000=PV(1+0.065)6

25,000=PV(1.4591422165))

PV=25,000/1.4591422165

PV=17,133.35