- Description
FIN 370T Wk 2 – Apply: Homework
If an average home in your town currently costs $300,000, and house prices are expected to grow at an average rate of 5 percent per year, what will an average house cost in 10 years?
Multiple Choice
$507,593.74
$488,688.39
$483,153.01
$450,000.00
We call the process of earning interest on both the original deposit and on the earlier interest payments
Multiple Choice
discounting.
compounding.
multiplying.
computing.
What is the future value of $1,000 deposited for one year earning 5 percent interest rate annually?
Multiple Choice
$1,000
$2,050
$1,005
$1,050
When your investment compounds, your money will grow in a(n) __________ fashion.
Multiple Choice
static
linear
exponential
implied
An average home in Chicago costs $295,000. If house prices are expected to grow at an average rate of 3 percent per year, what will a house cost in five years?
Multiple Choice
$338,941.27
$341,985.85
$347,028.19
$328,995.61
Which of the following statements is incorrect with respect to time lines?
Multiple Choice
A helpful tool for organizing our analysis is the time line.
Interest rates are not included on our time lines.
Cash flows we receive are called inflows and denoted with a positive number.
Cash flows we pay out are called outflows and designated with a negative number.
What is the future value of $2,500 deposited for one year earning a 14 percent interest rate annually?
Multiple Choice
$2,550
$3,150
$2,850
$2,950
Compute the present value of $9,000 paid in four years using the following discount rates: 4 percent in year 1, 5 percent in year 2, 4 percent in year 3, and 3 percent in year 4.
rev: 10_14_2017_QC_CS-105529
Multiple Choice
$8,543.26
$9,000.00
$10,823.01
$7,693.95
What is the present value of a $500 payment made in four years when the discount rate is 8 percent?
Multiple Choice
$367.51
$365.35
$680.24
$460.00
How are present values affected by changes in interest rates?
Multiple Choice
The lower the interest rate, the larger the present value will be.
The higher the interest rate, the larger the present value will be.
Present values are not affected by changes in interest rates.
One would need to know the future value in order to determine the impact.
What is the present value of a $600 payment in one year when the discount rate is 8 percent?
Multiple Choice
$555.56
$525.87
$498.61
$575.09
Approximately how many years does it take to double a $500 investment when interest rates are 4 percent per year?
Multiple Choice
6.94 years
0.06 year
18 years
6 years
Approximately what interest rate is needed to double an investment over eight years?
Multiple Choice
12 percent
8 percent
100 percent
9 percent
Approximately what rate is needed to double an investment over five years?
Multiple Choice
15.8 percent
12.2 percent
14.4 percent
8 percent
Determine the interest rate earned on a $500 deposit when $650 is paid back in one year.
Multiple Choice
77.0 percent
1.30 percent
0.77 percent
30.0 percent
Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.
Multiple Choice
1.12 percent
89.00 percent
12.00 percent
0.89 percent
Determine the interest rate earned on an $800 deposit when $808 is paid back in one year.
Multiple Choice
10 percent
15 percent
1 percent
100 percent
In order to discount multiple cash flows to the present, one would use
Multiple Choice
- the appropriate tax rate.
- the appropriate compound rate.
- the appropriate simple rate.
- the appropriate discount rate.
Which of the following will increase the future value of an annuity?
Multiple Choice
- The number of periods increases.
- The amount of the annuity increases.
- The interest rate increases.
- All of these choices are correct.
Level sets of frequent, consistent cash flows are called
Multiple Choice
- loans.
- annuities.
- budgets.
- bills.
When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.
Multiple Choice
- time value to money
- payment
- future value
- present value
What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?
Multiple Choice
- $4,320.00
- $3,312.10
- $9,214.20
- $4,506.11
If the future value of an ordinary, 11-year annuity is $5,575 and interest rates are 5.5 percent, what is the future value of the same annuity due?
Multiple Choice
- $5,947.88
- $5,769.06
- $5,881.63
- $5,619.52
What is the present value of a $1,100 payment made every year forever when interest rates are 4.5 percent?
Multiple Choice
- $24,444.44
- $21,089.37
- $11,100
- $22,963.14
What is the present value of a $775 annuity payment over six years if interest rates are 11 percent?
Multiple Choice
- $3,017.84
- $3,202.92
- $3,119.67
- $3,278.67
If the present value of an ordinary, 10-year annuity is $25,000 and interest rates are 7 percent, what is the present value of the same annuity due?
Multiple Choice
- $24,997.51
- $26,750.00
- $25,000.00
- $23,644.49
Many people who want to start investing for their future want to start today, which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred to as
Multiple Choice
- ordinary annuities.
- perpetuities.
- present values.
- annuities due.
Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value
Multiple Choice
- is independent of the monthly compounding.
- grows.
- is affected only if the calculation involves an annuity due.
- decreases.
When you get your credit card bill, it will offer a minimum payment, which
Multiple Choice
- usually only pays the accrued interest and a small amount of principal.
- usually only pays the accrued interest and no principal.
- usually only pays the principal and no accrued interest.
- usually only pays the principal and a small amount of accrued interest.
A loan is offered with monthly payments and a 10 percent APR. What is the loan’s effective annual rate (EAR)?
Multiple Choice
- 12.67 percent
- 11.20 percent
- 10.00 percent
- 10.47 percent