Last Updated 11 Feb 2020

# Finance 3220 Problem Set 1

What is the present value of $150,000 to be received 8 years from today if the discount rate is 11 percent? Question 1 options: | A)| $65,088. 97| | B)| $71,147. 07| | C)| $74,141. 41| | D)| $79,806. 18| | E)| $83,291. 06 | Question 2 (2 points) According to the Rule of 72, you can do which one of the following? Question 2 options: | A)| double your money in five years at 7. 2 percent interest| | B)| double your money in 7. 2 years at 8 percent interest| | C)| double your money in 8 years at 9 percent interest| | D)| triple your money in 7. years at 5 percent interest| | E)| triple your money at 10 percent interest in 7. 2 years | Question 3 (2 points) On your ninth birthday, you received $300 which you invested at 4. 5 percent interest, compounded annually. Your investment is now worth $757. How old are you today? Question 3 options: | A)| age 29| | B)| age 30| | C)| age 31| | D)| age 32| | E)| age 33| Question 4 (2 points) You just received a $5,000 gift from your grandmother. You have decided to save this money so that you can gift it to your grandchildren 50 years from now.

How much additional money will you have to gift to your grandchildren if you can earn an average of 8. 5 percent instead of just 8 percent on your savings? Question 4 options: | A)| $47,318. 09| | B)| $52,464. 79| | C)| $55,211. 16| | D)| $58,811. 99| | E)| $60,923. 52 | Question 5 (2 points) Shelley won a lottery and will receive $1,000 a year for the next ten years. The value of her winnings today discounted at her discount rate is called which one of the following? Question 5 options: | A)| single amount| | B)| future value| | C)| present value| D)| simple amount| | E)| compounded value | Question 6 (2 points) Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true? Question 6 options: | A)| Barb will earn more interest the first year than Andy will. | B)| Andy will earn more interest in year three than Barb will. | | C)| Barb will earn interest on interest. | | D)| After five years, Andy and Barb will both have earned the same amount of interest. | | E)| Andy will earn compound interest. | Question 7 (2 points) You invested $1,650 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually? Question 7 options: | A)| $849. 22| | B)| $930. 11| | C)| $982. 19| | D)| $1,021. 15| | E)| $1,077. 94 | Question 8 (2 points)

A year ago, you deposited $30,000 into a retirement savings account at a fixed rate of 5. 5 percent. Today, you could earn a fixed rate of 6. 5 percent 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 6. 5 percent and still have the same amount as you currently will when you retire 38 years from today? Question 8 options: | A)| $2,118. 42 less| | B)| $3,333. 33 less| | C)| $5,417. 09 less| | D)| $7,274. 12 less| | E)| $9,234. 97 less |

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Question 9 (2 points) You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? Question 9 options: | A)| future value| | B)| present value| | C)| principal amounts| | D)| discounted value| | E)| invested principal | Question 10 (2 points) One year ago, you invested $1,800. Today it is worth $1,924. 62. What rate of interest did you earn? Question 10 options: | A)| 6. 59 percent| | B)| 6. 67 percent| | C)| 6. 88 percent| | D)| 6. 92 percent| | E)| 7. 01 percent |

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