Quiz 501

Quiz 501
Related: Economics, Microeconomics
216 Questions
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Quiz 501
1. Suppose you put $500 into a bank account today. Interest is paid annually and the annual
interest rate is 3 percent. The future value of the $500 after 1 year is
a. $485.44.
b. $496.50.
c. $509.28.
d. $515.00.
interest rate is 8 percent. The future value of the $500 after 2 years is
a. $428.67.
b. $470.00.
c. $580.00.
d. $583.20.
interest rate is 6 percent. The future value of the $350 after 4 years is
a. $414.09.
b. $434.00.
c. $441.87.
d. $481.24.
interest rate is 5.5 percent. The future value of the $500 is
a. $637.50 after 5 years and $822.09 after 10 years.
b. $637.50 after 5 years and $775.00 after 10 years.
c. $653.48 after 5 years and $854.07 after 10 years.
d. $688.36 after 5 years and $915.56 after 10 years.
5. If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6
years?
a. $2,420.68
b. $2,591.85
c. $2,996.33
d. $3,040.63
6. Suppose you will receive $500 at some point in the future. If the annual interest rate is 7.5
percent, then the present value of the $500 is
a. $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10
years.
b. $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10
years.
c. $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10
years.
d. $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10
years.
7. Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the
$100 today if the interest rate is
a. 4 percent.
b. 6 percent.
c. 8 percent.
d. All of the above are correct.
8. Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the
$100 today if the interest rate is
a. 3 percent.
b. 4 percent.
c. 5 percent.
d. None of the above is correct.
9. If the interest rate is 4 percent, then you would be equally happy if you received a gift of either
$100 today or a gift of
a. $110.00 two years from today.
b. $112.49 three years from today.
c. $116.00 four years from today.
d. $123.67 five years from today.
10. Suppose the interest rate is 10 percent. Which of the following payments has the largest
present value?
a. You receive $90.91 two years from today.
b. You receive $82.64 one year from today.
c. You receive $75.13 today.
d. All of these payments have the same present value to the nearest cent.
11. Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in
5 years if the interest rate is
a. 8 percent.
b. 9 percent.
c. 10 percent.
12. Imagine that someone offers you $X today or $1,500 in 5 years. If the interest rate is 4
percent, then you would prefer to take the $X today if and only if
a. X > 1,055.56.
b. X > 1,120.89.
c. X > 1,232.89.
d. X > 1,338.26.
13. James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you
would prefer to take the $1,000 today if and only if
a. X < 1,045.00.
b. X < 1,188.89.
c. X < 1,266.67.
d. X < 1,360.86.
14. In which of the following instances is the present value of the future payment the largest?
a. You will receive $1,000 in 5 years and the annual interest rate is 5 percent.
b. You will receive $1,000 in 10 years and the annual interest rate is 3 percent.
c. You will receive $2,000 in 10 years and the annual interest rate is 10 percent.
d. You will receive $2,400 in 15 years and the annual interest rate is 8 percent.
15. Compounding refers directly to

a. finding the present value of a future sum of money.
b. finding the future value of a present sum of money.
c. changes in the interest rate over time on a bank account or a similar savings vehicle.
d. interest being earned on previously-earned interest.
16. Discounting refers directly to

a. finding the present value of a future sum of money.
b. finding the future value of a present sum of money.
c. calculations that ignore the phenomenon of compounding for the sake of ease and simplicity.
d. decreases in interest rates over time, while compounding refers to increases in interest rates
over time.
17. One way to characterize the difference between compounding and discounting is to say that
a. compounding involves the assumption that the interest rate is zero, whereas discounting does
not involve that assumption.
b. discounting involves the assumption that the interest rate is zero, whereas compounding does
not involve that assumption.
c. the process of compounding produces a future value, whereas the process of discounting
produces a present value.
d. the process of compounding produces a present value, whereas the process of discounting
produces a future value.
18. Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it
for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6
percent, you will buy the bond if its price today is no greater than
a. $8,225.06.
b. $7,920.94.
c. $7,672.58.
d. $6,998.98.
19. Suppose you are deciding whether or not to buy a particular bond for $5,980.17. If you buy
the bond and hold it for 5 years, then at that time you will receive a payment of $10,000. You
will buy the bond today if the interest rate is
a. no less than 9.48 percent.
b. no greater than 9.48 percent.
c. no less than 10.83 percent.
d. no greater than 10.83 percent.
20. A manufacturing company is thinking about building a new factory. The factory, if built, will
yield the company $300 million in 7 years, and it would cost $220 million today to build. The
company will decide to build the factory if the interest rate is
a. no less than 4.53 percent.
b. no greater than 4.53 percent.
c. no less than 5.81 percent.
d. no greater than 5.81 percent.
21. Which of the following is the correct way to compute the future value of $X that earns r
percent interest for N years?
a. $X(1 + rN)N
b. $X(1 + r)N
c. $X(1 + rN)
d. $X(1 + r/N)N
22. Which of the following is the correct way to compute the future value of $1 put into an
account that earns 5 percent interest for 16 years?
a. $1(1 + .05)16
b. $1(1 + .05 16) 16
c. $1(1 + .05 16)
d. $1(1 + 16/.05)16
23. Which of the following is the correct way to compute the future value of $100 put into an
account that earns 4 percent interest for 10 years?
a. $100(1 + .0410)
b. $100(1 + .04 10)
c. $100 × 10 (1 + .04)
d. $100(1 + .04)10
24. The future value of a deposit in a savings account will be larger

a. the longer a person waits to withdraw the funds.
b. the higher the interest rate is.
c. the larger the initial deposit is.
25. The future value of a deposit in a savings account will be smaller

a. the longer a person waits to withdraw the funds.
b. the lower the interest rate is.
c. the larger the initial deposit is.
26. What is the future value of $500 one year from today if the interest rate is 6 percent?
a. $515
b. $520
c. $530
27. What is the future value of $750 one year from today if the interest rate is 2.5 percent?
a. $766.50
b. $768.75
c. $770.23
d. None of the above are correct to the nearest cent.
28. What is the future value of $800 one year from today if the interest rate is 7 percent?
a. $747.66
b. $756.00
c. $856.00
29. What is the future value of $375 at an interest rate of 3 percent one year from today?
a. $371.75
b. $386.25
c. $393.33
30. What is the future value of $450 at an interest rate of 9 percent two years from today?
a. $534.65
b. $546.35
c. $565.18
d. $574.13
31. At an annual interest rate of 10 percent, about how many years will it take $100 to double in
value?
a. 5
b. 7
c. 9
d. 11
32. At an annual interest rate of 10 percent, about how many years will it take $100 to triple in
value?
a. 8
b. 10
c. 12
d. 14
33. At an annual interest rate of 14 percent, about how many years will it take $100 to double in
value?
a. 3
b. 4
c. 5
d. 7
34. At an annual interest rate of 20 percent, about how many years will it take $100 to triple in
value?
a. 5
b. 6
c. 8
d. 9
35. If you put $250 into an account with a 4 percent interest rate, how many years would you
have to wait to have $432.92?
a. 10
b. 14
c. 17
d. 20
36. If you presently have $50,000 saved and earn 15 percent interest per year, about how many
years will it take for your investment to triple?
a. 6
b. 8
c. 10
d. 12
37. You put $75 in the bank one year ago and forgot about it. The bank sends you a notice that
you now have $81 in your account. What interest rate did you earn?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
38. You put $150 in the bank two years ago and forgot about it. The bank sends you a notice that
you now have $169.34 in your account. What interest rate did you earn?
a. 5.50 percent
b. 5.65 percent
c. 6.25 percent
d. 7.05 percent
39. Amelia knows that she has about $105 in her bank account. She knows she earned an interest
rate of 4 percent, but she doesn't remember how much she opened the account with a year ago.
How much did she put in?
a. $98.18
b. $100.96
c. $102.04
d. $103.24
40. Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a
statement indicating that he now has $294.25 in his account. What interest rate did Tim earn?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
41. When you were 10 years old, your grandparents put $500 into an account for you paying 7
percent interest. Now that you are 18 years old, your grandparents tell you that you can take the
money out of the account. What is the balance to the nearest cent?
a. $1,200.00
b. $1,111.77
c. $983.58
d. $859.09
42. If you put $125 into an account that paid 3.25 percent interest, then how much money would
you have in the account after 20 years?
a. $285.83
b. $236.98
c. $202.04
d. $145.65
43. If you put $300 into an account paying 2 percent interest, what will be the value of this
account in 4 years?
a. $320.69
b. $324.00
c. $324.73
d. $327.81
44. Two years ago Darryl put $3,000 into an account paying 3 percent interest. How much does
he have in the account today?
a. $3,180.00
b. $3,182.70
c. $3,183.62
45. Three years ago Dawn put $1,200 into an account paying 2 percent interest. How much is
Dawn’s account worth today?
a. $1,225.38
b. $1,248.48
c. $1,264.72
d. $1,273.45
46. Toni deposited $250 into an account and one year later she had $272.50 in the account. What
interest rate was paid on Toni’s deposit?
a. 8 percent
b. 9 percent
c. 10 percent
47. Ellen deposited $500 into an account and two years later she had $561.80 in the account.
What interest rate was paid on Ellen’s deposit?
a. 4.88 percent
b. 6.00 percent
c. 12.36 percent
48. Bert put $75 into an account and one year later had $100. What interest rate was paid on
Bert’s deposit?
a. 20 percent
b. 25 percent
c. 28 percent
49. Susan put $375 into an account and one year later had $405. What interest rate was paid on
Susan’s deposit?
a. 5 percent
b. 7 percent
c. 8 percent
d. 10 percent
50. Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his
balance and finds he has about $168.73. How long did Hector wait to check his balance?
a. 3 years
b. 3.5 years
c. 4 years
d. 4.5 years
51. Marcia has four savings accounts. Which account has the largest balance?
a. $100 deposited 1 year ago at an 8 percent interest rate
b. $100 deposited 2 years ago at a 4 percent interest rate
c. $100 deposited 4 years ago at a 2 percent interest rate
d. $100 deposited 8 years ago at a 1 percent interest rate
52. Clint puts $200 into an account when the interest rate is 8 percent. Later he checks his
balance and finds that he has a balance of about $272.10. How many years did Clint wait to
check his balance?
a. 3 years
b. 3.5 years
c. 4 years
d. 4.5 years
53. Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her
balance and finds it's worth about $708.62. How many years did she wait to check her balance?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
54. Laura says that the present value of $700 to be received one year from today if the interest
rate is 6 percent is less than the present value of $700 to be received two years from today if the
interest rate is 3 percent. Cassie says that $700 saved for one year at 6 percent interest has a
smaller future value than $700 saved for two years at 3 percent interest.
a. Both Laura and Cassie are correct.
b. Both Laura and Cassie are incorrect.
c. Only Laura is correct.
d. Only Cassie is correct.
55. Braden says that $400 saved for one year at 4 percent interest has a smaller future value than
$400 saved for two years at 2 percent interest. Lefty says that the present value of $400 to be
received one year from today if the interest rate is 4 percent exceeds the present value of $400 to
be received two years from today if the interest rate is 2 percent.
a. Braden and Lefty are both correct.
b. Braden and Lefty are both incorrect.
c. Only Braden is correct.
d. Only Lefty is correct.
56. Jarrod says that the future value of $250 saved for one year at 6 percent interest is less than
the future value of $250 saved for two years at 3 percent interest. Simon says that the present
value of a $250 payment to be received in one year when the interest rate is 6 percent is less than
the value of a $250 payment to be received in two years when the interest rate is 3 percent.
a. Jarrod and Simon are both correct.
b. Jarrod and Simon are both incorrect.
c. Only Jarrod is correct.
d. Only Simon is correct.
57. Three people go to the bank to cash in their accounts. Amy had her money in an account for
25 years at 4 percent interest. Bill had his money in an account for 20 years at 5 percent interest.
Celia had her money in an account for 5 years at 20 percent interest. If each of them originally
deposited $500 in their accounts, which of them gets the most money when they cash in their
accounts?
a. Amy
b. Bill
c. Celia
d. They each get the same amount.
58. Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent
interest; the second year she earned 5 percent. How much money does Veronica have in her
account today?
a. $1,133.31
b. $1,120.00
c. $1,123.50
59. Felix deposited $500 into an account two years ago. The first year he earned 3 percent
interest and the second year he earned 5 percent interest. How much money does Felix have in
his account now?
a. $540.75
b. $540.80
c. $540.85
60. Jorge deposited $1,000 into an account three years ago. The first two years he earned 5
percent interest; the third year he earned 6 percent interest. How much money does Jorge have in
his account today?
a. $1,157.90
b. $1,168.65
c. $1,176.00
61. Anna deposited $10,000 into an account three years ago. The first year she earned 12 percent
interest, the second year she earned 8 percent interest, and the third year she earned 4 percent
interest. How much money does she have in her account today?
a. $12,579.84
b. $12,596.80
c. $12,597.12
62. Your accountant tells you that if you can continue to earn the current interest rate on your
balance of $750 for the next three years, you will have $944.78 in your account. If your
accountant is correct, then what is the current interest rate?
a. 6 percent
b. 7 percent
c. 8 percent
d. 10 percent
balance of $800 for the next two years you will have $898.88 in your account. If your accountant
is correct, then what is the current interest rate?
a. 6 percent
b. 7 percent
c. 8 percent
d. 9 percent
balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is
the current rate of interest?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
65. Your financial advisor tells you that if you earn the historical rate of return on a certain
mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does
your financial advisor expect you to earn?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
66. Robert put $15,000 into an account with a fixed interest rate two years ago and now the
account balance is $16,917.66. What rate of interest did Robert earn?
a. 4.5 percent
b. 5.4 percent
c. 6.2 percent
d. 8.0 percent
67. The price of a bond is equal to the sum of the present values of its future payments. Suppose
a certain bond pays $50 one year from today and $1,050 two years from today. What is the price
of the bond if the interest rate is 5 percent?
a. $1,050.00
b. $1,045.35
c. $1,000.00
d. $945.35
68. Tonya put $250 into an account three years ago. The first year he earned 6 percent interest,
the second year 7 percent, and the third year 8 percent. About how about much does Tonya have
in her account now?
a. $302.50
b. $306.23
c. $308.67
d. $309.39
69. Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8
percent annual interest rate. How much money do you have in your account now?
a. $22,880.00
b. $23,200.00
c. $23,232.00
d. $23,328.00
70. You are given three options. You may have the balance in an account that has been collecting
5 percent interest for 20 years, the balance in an account that has been collecting 10 percent
interest for 10 years, or the balance in an account that has been collecting 20 percent interest for
five years. Each account had the same original balance. Which account now has the lowest
balance?
a. the first one
b. the second one
c. the third one
d. They all have the same balance.
71. Daniel has $300 in a bank account. Some years ago he put $213.20 into this account, and it
has earned 5 percent interest every year since then. How many years ago did Daniel open his
account?
a. 4 years
b. 5 years
c. 6 years
d. 7 years
72. When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He now
has $158.69 in this account. For how many years did Hussam leave this money in his account?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
73. Four years ago Ollie deposited some money into an account. He earned 5 percent interest on
this account and now it has a balance of $303.88. About how much money did Ollie deposit into
his account when he opened it?
a. $210
b. $220
c. $240
d. $250
74. Two years ago Lenny put some money into an account. He earned 6 percent interest on this
account and now he has about $1,000. About how much did Lenny deposit into his account two
years ago?
a. about $860
b. about $870
c. about $880
d. about $890
75. On May 25, 1980 three pals graduated from high school, pooled together $3,000 and put the
money into an account promising to pay 8% for the next 30 years. On May 25, 2010 they
withdrew all the money from the account. To the nearest dollar, how much did they withdraw?
a. $25,962
b. $27,297
c. $30,188
d. None of the above are correct to the nearest dollar.
76. Zoey wants to have about $750,000 when she retires in 10 years. She has $300,000 to deposit
now. At which of the following interest rates would Zoey’s deposit come closest to $750,000
after 10 years?
a. 9.6 percent
b. 9.9 percent
c. 10.2 percent
d. 10.5 percent
77. You want to have $100,000 in five years. If the interest rate is 8 percent, about how much do
you need to have today?
a. $66,225.25
b. $67,556.42
c. $68,058.32
d. $71,428.57
78. Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al will
earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years.
Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he
retires?
a. Al
b. Ralph
c. Stan
d. They all retire with the same amount.
79. Sage decides to cash in all his savings to open a recording studio. He has three accounts to
cash in. The first earned 9 percent for two years. The second earned 6 percent for three years.
And the last earned 3 percent for six years. Supposing he started with $5,000 in each account,
from which account will he get the most cash?
a. the two-year account at 9 percent
b. the three-year account at 6 percent
c. the six-year account at 3 percent
d. The accounts are all worth the same.
80. Which of the following is the correct expression for finding the present value of a $1,000
payment one year from today if the interest rate is 6 percent?
a. $1,000 (1.06)
b. $1,000(1.06)
c. $1,000/(1.06)
81. What is the present value of a payment of $100 to be made one year from today?
a. $100*(1 + r)
b. $100/(1 + r)
c. $100 - $100 r
d. $100 - (1 + r)/$100
82. Which of the following is the correct expression for finding the present value of a $500
payment two years from today if the interest rate is 6 percent?
a. $500/(1.06)2
b. $500 - 500(1.06)2
c. $500/(1.02)6
83. A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today.
What is the present value of these payments?
a. $2,000/(1 + r)2.
b. $1,000 + $1,000/(1 + r)
c. $1,000/(1 + r) + $1,000/(1 + r)2
d. $1,000(1 + r) + $1,000(1 + r)2
84. Which of the following changes would decrease the present value of a future payment?
a. a decrease in the size of the payment
b. an increase in the time until the payment is made
c. an increase in the interest rate
85. Which of the following changes would decrease the present value of a future payment?
a. an increase in the size of the payment
c. a decrease in the interest rate
86. Which of the following changes would increase the present value of a future payment?
a. a decrease in the size of the payment
c. a decrease in the interest rate
87. The present value of a payment to be made in the future falls as

a. the interest rate rises and the time until the payment is made increases.
b. the interest rate rises and the time until the payment is made decreases.
c. the interest rate falls and the time until the payment is made increases.
d. the interest rate falls and the time until the payment is made decreases.
88. You are expecting to receive $750 at some time in the future. Which of the following would
unambiguously decrease the present value of this future payment?
a. Interest rates rise and you get the payment sooner.
b. Interest rates rise and you have to wait longer for the payment.
c. Interest rates fall and you get the payment sooner.
d. Interest rates fall and you have to wait longer to get the payment.
89. You are expecting to receive $3,500 at some time in the future. Which of the following
would unambiguously increase the present value of this future payment?
a. Interest rates rise and you get the payment sooner.
b. Interest rates rise and you have to wait longer for the payment.
c. Interest rates fall and you get the payment sooner.
d. Interest rates fall and you have to wait longer to get the payment.
90. You have been promised a payment of $250,000 in the future. In which case is the present
value of this payment highest?
a. You receive the payment 3 years from now and the interest rate is 8 percent.
b. You receive the payment 3 years from now and the interest rate is 6 percent.
c. You receive the payment 2 years from now and the interest rate is 8 percent.
d. You receive the payment 2 years from now and the interest rate is 6 percent.
91. You have been promised a payment of $400 in the future. In which of the following cases is
the present value of this payment the lowest?
92. At which interest rate is the present value of $80.25 one year from today equal to $75 today?
a. 4 percent
b. 5 percent
c. 6 percent
d. 7 percent
93. At which interest rate is the present value of $95.40 one year from today equal to $90 today?
a. 4 percent
b. 5 percent
c. 6 percent
d. 7 percent
94. At which interest rate is the present value of $168.54 two years from today equal to $150
today?
a. 4 percent
b. 5 percent
c. 6 percent
d. None of the above would give a present value within a cent of $162.24.
95. At which interest rate is the present value of $196.85 three years from today equal to $175
today?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
96. What is the present value of a payment of $100 one year from today if the interest rate is 5
percent?
a. $95.50
b. $95.24
c. $95.00
percent?
a. $141.11
b. $141.36
c. $141.75
percent?
a. $240.38
b. $242.24
c. $244.40
today?
a. 2 percent
b. 3 percent
c. 4 percent
d. 5 percent
today?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
101. At which interest rate is the present value of $35.00 two years from today equal to about
$30.00 today?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
102. What is the present value of a payment of $100 to be made one year from today if the
interest rate is 6 percent?
a. $105.26
b. $105.00
c. $97.24
d. $94.34
103. Of the following interest rates, which is the highest one at which you would prefer to have
$170 ten years from today instead of $100 today?
a. 3 percent
b. 5 percent
c. 7 percent
d. 9 percent
104. What is the present value of a payment of $200 to be made one year from today if the
interest rate is 10 percent?
a. $180
b. $181.82
c. $220
d. $222.22
105. If the interest rate is 4.5 percent, what is the present value of a payment of $500 to be made
one year from today?
a. $457.14
b. $468.02
c. $478.47
106. Of the following interest rates, which is the highest one at which the present value of $200
ten years from today is greater than $150?
a. 2 percent
b. 4 percent
c. 6 percent
d. 8 percent
107. You have a bond that entitles you to a one-time payment of $10,000 one year from now.
The interest rate is 10 percent per year. How much is the bond worth today?
a. $9,090.91
b. $10,000.00
c. $8,264.46
d. $9,523.81
108. Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent,
then how much is this future payment worth today?
a. $924.56
b. $931.44
c. $937.87
109. At which interest rate is the present value of $183.60 two years from today equal to about
$173.06 today?
a. 2 percent
b. 3 percent
c. 4 percent
d. 5 percent
110. At which interest rate is the present value of $360 three years from today equal to about
$310 today?
a. 4.7 percent
b. 5.1 percent
c. 5.5 percent
d. 5.9 percent
111. Assuming the interest rate is 6 percent, which of the following has the greatest present
value?
a. $300 paid in two years
b. $150 paid in one year plus $140 paid in two years
c. $100 paid today plus $100 paid in one year plus $100 paid in two years
d. $285 today
112. Assuming the interest rate is 5 percent, which of the following has the greatest present
value?
a. $240 paid in three years
b. $225 paid in two years
c. $210 paid in one year
d. $200 today
113. Suppose the interest rate is 4 percent. Which of the following has the greatest present value?
a. $100 today plus $190 one year from today
b. $150 today plus $140 one year from today
c. $200 today plus $90 one year from today
d. $250 today plus $40 one year from today
114. Suppose the interest rate is 7 percent. Consider four payment options:
Option A: $500 today.
Option B: $550 one year from today.
Option C: $575 two years from today.
Option D: $600 three years from today.
Which of the payments has the highest present value today?

a. Option A
b. Option B
c. Option C
d. Option D
115. Suppose the interest rate is 7 percent. Consider four payment options:
Option A: $500 today.
Option B: $550 one year from today.
Option C: $575 two years from today.
Option D: $600 three years from today.
Which of the payments has the lowest present value today?

a. Option A
b. Option B
c. Option C
d. Option D
116. Suppose the interest rate is 8 percent. Consider three payment options:
1. $200 today.
2. $220 one year from today.
3. $240 two years from today.
Which of the following is correct?

a. Option 1 has the highest present value and Option 2 has the lowest.
b. Option 2 has the highest present value and Option 3 has the lowest.
c. Option 3 has the highest present value and Option 1 has the lowest.
117. Suppose the interest rate is 5 percent. Consider three payment options:
1. $500 today.

a. 1 has the lowest present value and 3 has the highest.
b. 2 has the lowest present value and 1 has the highest.
c. 3 has the lowest present value and 2 has the highest.
118. Which, if any, of the present values below are computed correctly?
a. A payment of $100 to be received one year from today, with a 2 percent interest rate, has a
present value of $98.81.
b. A payment of $200 to be received two years from today, with a 3 percent interest rate, has a
c. A payment of $300 to be received three years from today, with a 4 percent interest rate, has a
119. Suppose the interest rate is 8 percent. Consider three payment options.
1. $300 today.

a. 1 has the highest present value and 2 has the lowest.
b. 2 has the highest present value and 3 has the lowest.
c. 3 has the highest present value and 1 has the lowest.
120. Which, if any, of the present values below are correctly computed?
a. A payment of $1,000 to be received one year from today, with a 8 percent interest rate, has a
b. A payment of $1,000 to be received one year from today, with a 9 percent interest rate, has a
c. A payment of $1,000 to be received one year from today, with a 10 percent interest rate, has a
121. Which of the following has a present value of $100?

a. $109.12 in two years when the interest rate is 4 percent
b. $113.98 in two years when the interest rate is 6 percent
c. $116.64 in two years when the interest rate is 8 percent
d. $123.17 in two years when the interest rate is 10 percent
122. You have a choice among three options. Option 1: receive $900 immediately. Option 2:
receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest
rate is 15 percent. Rank these three options from highest present value to lowest present value.
a. Option 1; Option 2; Option 3
b. Option 3; Option 2; Option 1
c. Option 2; Option 3; Option 1
d. Option 3; Option 1; Option 2
123. Suppose you win a small lottery and you are given the following choice: You can (1)
receive an immediate payment of $10,000 or (2) three annual payments, each in the amount of
$3,600, with the first payment coming one year from now, the second two years from now, and
the third three years from now. You would choose to take the three annual payments if the
interest rate is
a. 2 percent, but not if the interest rate is 3 percent.
b. 3 percent, but not if the interest rate is 4 percent.
c. 4 percent, but not if the interest rate is 5 percent.
d. 5 percent, but not if the interest rate is 6 percent.
124. A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her
either $10,000 today or $12,000 two years from today. Of the following interest rates, which is
the highest one at which Harry would be better off paying the money today?
a. 4 percent
b. 6 percent
c. 9 percent
d. 11 percent
125. A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her
either $10,000 today or $11,000 two years from today. Of the following interest rates, which is
the lowest one at which Harry would be better off paying $11,000 two years from today?
a. 2 percent
b. 3 percent
c. 4 percent
d. 5 percent
126. You have a contract with someone who has agreed to pay you $20,000 in four years. She
offers to pay you now instead. For which of the following interest rates and payments would you
take the money today?.
a. 8 percent, $15,000
b. 7 percent, $16,000
c. 6 percent, $17,000
127. Which of the following is correct if the interest rate is 6 percent?

a. $215 to be received a year from today has a present value of over $200; $420 a year from now
has a present value over $400.
b. $215 to be received a year from today has a present value of over $200; $420 a year from now
has a present value under $400.
c. $215 to be received a year from today has a present value of under $200; $420 a year from
now has a present value over $400.
d. $215 to be received a year from today has a present value of under $200; $420 a year from
now has a present value under $400.
128. Other things the same, when the interest rate rises, the present value of future revenues from
investment projects
a. rises, so investment spending rises.
b. falls, so investment spending rises.
c. rises, so investment spending falls.
d. falls, so investment spending falls.
129. Mixster Concrete Company is considering buying a new cement truck. The owners and their
accountants decide that this is the profitable thing to do. Before they can buy the truck, the
interest rate and price of trucks change. In which case do these changes both make them less
likely to buy the truck?
a. Interest rates rise and truck prices rise.
b. Interest rates fall and truck prices rise.
c. Interest rates rise and truck prices fall.
d. Interest rates fall and truck prices fall.
130. Ronaldo’s Foods considered building a store in a new location. The owners and their
accountants decided that this was not the profitable thing to do. However, soon after they made
this decision, both the interest rate and the cost of building the store changed. In which case do
these changes both make it more likely that they will now build the store?
a. Interest rates rise and the cost of building the store rises.
b. Interest rates rise and the cost of building the store falls.
c. Interest rates fall and the cost of building the store rises.
d. Interest rates fall and the cost of building the store falls.
131. Black Oil Company considered building a service station in a new location. The owners and
their accountants decided that this was the profitable thing to do. However, soon after they made
this decision, both the interest rate and the cost of building the station changed. In which case do
these changes both make it less likely that they will now build the station?
a. Interest rates rise and the cost of building the station rises.
b. Interest rates rise and the cost of building the station falls.
c. Interest rates fall and the cost of building the station rises.
d. Interest rates fall and the cost of building the station falls.
132. HydroGrow is considering building a new greenhouse in which to grow tomatoes. The
board meets and decides that this is the right thing to do. Before they can put their plans into
action, the interest rate increases. The present value of the returns from this investment project
a. is now lower than it was before, and so Hydro Grow is less likely to build the building.
b. is now lower than it was before, and so HydroGrow is more likely to build the building.
c. is now higher than it was before, and so HydroGrow is less likely to build the building.
d. is now higher than it was before, and so HydroGrow is more likely to build the building.
133. Happy Trails, a bicycle rental company, is considering purchasing three additional bicycles.
Each bicycle would cost them $249.66. At the end of the first year the increase to their revenues
would be $140 per bicycle. At the end of the second year the increase to their revenues again
would be $140 per bicycle. Thereafter, there are no increases to their revenues. At which of the
following interest rates is the sum of the present values of the additional revenues closest to the
price of a bicycle?
a. 5 percent
b. 6 percent
c. 7 percent
d. 8 percent
134. Halvorson Construction has an investment project that would cost $150,000 today and yield
a one-time payoff of $167,000 in three years. What is the highest interest rate at which
Halvorson would find this project profitable?
a. 7%
b. 6%
c. 5%
d. It is not profitable at any of these interest rates.
135. Dobson Construction has an investment project that would cost $150,000 today and yield a
one-time payoff of $167,000 in three years. Among the following interest rates, which is the
highest one at which Dobson would find this project profitable?
a. 5 percent
b. 4 percent
c. 3 percent
d. 2 percent
136. The K-Nine dog food company is considering the purchase of additional canning
equipment. They expect that adding the equipment will yield $200,000 at the end of the first year
and $250,000 at the end of the second year and then nothing after that. At which of the following
prices and interest rates would K-Nine buy the equipment?
a. $415,000 if the interest rate is 5%
b. $419,000 if the interest rate is 4%
c. K-Nine would buy the equipment in both cases.
d. K-Nine would not buy the equipment in either case.
137. Sometimes On Time (SOT) Airlines is considering buying a new jet. SOT would be more
likely to buy a new jet if there were either
a. a decrease in the price of a new jet or a decrease in the interest rate.
b. a decrease in the price of a new jet or an increase in the interest rate.
c. an increase in the price of a new jet or a decrease in the interest rate.
d. an increase in the price of a new jet or an increase in the interest rate.
138. A firm has three different investment options, each costing $10 million. Option A will
generate $12 million in revenue at the end of one year. Option B will generate $15 million in
revenue at the end of two years. Option C will generate $18 million in revenue at the end of three
years. Which option should the firm choose?
a. Option A
b. Option B
c. Option C
d. The answer depends on the rate of interest, which is not specified here.
139. A firm has three different investment options. Option A will give the firm $10 million at the
end of one year, $10 million at the end of two years, and $10 million at the end of three years.
Option B will give the firm $15 million at the end of one year, $10 million at the end of two
years, and $5 million at the end of three years. Option C will give the firm $30 million at the end
of one year, and nothing thereafter. Which of these options has the highest present value?
a. Option A
b. Option B
c. Option C
d. The answer depends on the rate of interest, which is not specified here.
140. A firm has four different investment options. Option A will give the firm $10 million at the
end of one year, $10 million at the end of two years, and $10 million at the end of three years.
Option B will give the firm $5 million at the end of one year, $10 million at the end of two years,
and $15 million at the end of three years. Option C will give the firm $15 million at the end of
one year, $10 million at the end of two years, and $5 million at the end of three years. Option D
will give the firm $21 million at the end of one year, nothing at the end of two years, and $9
million at the end of three years. Which of these options has the highest present value if the rate
of interest is 5 percent?
a. Option A
b. Option B
c. Option C
d. Option D
141. Allen Steel Company is considering whether to build a new mill. If the interest rate rises,
a. the present value of the returns from the mill will fall, so Allen will be less likely to build the
mill.
b. the present value of the returns from the mill will fall, so Allen will be more likely to build the
mill.
c. the present value of the returns from the mill will rise, so Allen will be less likely to build the
mill.
d. the present value of the returns from the mill will rise, so Allen will be more likely to build the
mill.
142. A University of Iowa basketball standout is offered a choice of contracts by the New York
Liberty. The first one gives her $100,000 one year from today and $100,000 two years from
today. The second one gives her $132,000 one year from today and $66,000 two years from
today. As her agent, you must compute the present value of each contract. Which of the
following interest rates is the lowest one at which the present value of the second contract
exceeds that of the first?
a. 7 percent
b. 8 percent
c. 9 percent
d. 10 percent
143. A car salesperson gives you four alternative ways to pay for your car. The first is to pay
$18,000 today. The second is to pay $19,000 one year from today. The third is to pay $20,300
two years from today. The fourth is to pay $21,500 three years from today. If the interest rate is 6
percent, which payment option has the lowest present value and which has the highest?
a. The first is lowest; the second is highest.
b. The second is lowest; the third is highest.
c. The third is lowest; the fourth is highest.
d. The fourth is lowest; the first is highest.
144. The You Look Marvelous! cosmetic company is considering building a new shampoo
factory. Its accountants and board of directors meet and decide that it is not a good idea to build
the factory. If interest rates fall after the meeting
a. the present value of the factory rises. It’s more likely the company will build the factory.
b. the present value of the factory rises. It’s less likely the company will build the factory.
c. the present value of the factory falls. It’s more likely the company will build the factory.
d. the present value of the factory falls. It’s less likely the company will build the factory.
145. Markovich Corporation is considering building a new plant. It will cost $1 million today to
build it and it will generate revenues of $1.121 million three years from today. Of the interest
rates below, which is the highest interest rate at which Markovich still would be willing to build
the plant?
a. 3 percent
b. 3.5 percent
c. 4 percent
d. 4.5 percent
146. Yoyo's Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this
will give them $50,000 of additional revenue at the end of one year, $60,000 additional revenue
at the end of two years, and $70,000 in additional revenue at the end of three years. If the interest
rate is 5 percent, Yoyo would be willing to pay
a. $140,000, but not $150,000.
b. $150,000, but not $160,000.
c. $160,000, but not $170,000.
d. $170,000, but not $180,000.
147. The concept of present value helps explain why

a. investment decreases when the interest rate increases, and it also helps explain why the
quantity of loanable funds demanded decreases when the interest rate increases.
b. investment decreases when the interest rate increases, but it is of no help in explaining why the
quantity of loanable funds demanded decreases when the interest rate increases.
c. the quantity of loanable funds demanded decreases when the interest rate increases, but it is of
no help in explaining why investment decreases when the interest rate increases.
d. None of the above are correct; the concept of present value is of no help in explaining why
either investment or the quantity of loanable funds demanded decreases when the interest rate
increases.
148. Which of the following concepts is most helpful in explaining why investment increases
when the interest rate falls?
a. deadweight loss
b. present value
c. economic growth
d. financial intermediation
149. Other things the same, an increase in the interest rate makes the quantity of loanable funds
demanded
a. rise, and investment spending rise.
b. rise, and investment spending fall.
c. fall, and investment spending rise.
d. fall, and investment spending fall.
150. Other things the same, an increase in the interest rate makes the quantity of loanable funds
supplied
a. rise, and investment spending rise.
b. rise, and investment spending fall.
c. fall, and investment spending rise.
d. fall, and investment spending fall.
151. Which of the following is the largest?

a. the future value of $250 with 3% interest for 2 years
b. the future value of $250 at 2% interest for 3 years
c. the present value of $250 to be paid in two years when the interest rate is 3%
d. the present value of $250 to be paid in three years when the interest rate is 2%
152. If the interest rate is r percent, then the rule of 70 says that your savings will double about
every
a. 70/(1 - r) years.
b. 70/(1 + r) years.
c. 70/r years.
d. 70(1 + r)/r years.
153. Rita puts $10,000 into each of two different assets. The first asset pays 10 percent interest
and the second pays 5 percent. According to the rule of 70, what is the approximate difference in
the value of the two assets after 14 years?
a. $12,000
b. $14,000
c. $15,500
d. $20,000
154. The rule of 70 can be stated as follows: A variable with a growth rate of X percent per year
a. doubles every 70/X years.
b. doubles every 70(1 - 1/X) years.
c. doubles every 70/X2 years.
d. doubles every 70/(1 - X) years.
155. According to the rule of 70, if the interest rate is 10 percent, about how long will it take for
the value of a savings account to double?
a. about 6.3 years
b. about 7 years
c. about 7.7 years
d. about 10 years
156. According to the rule of 70, if the interest rate is 5 percent, how long will it take for the
value of a savings account to double?
a. about 3.5 years
b. about 6.3 years
c. about 12 years
d. about 14 years
157. Sari puts $100 into an account with an interest rate of 10 percent. According to the rule of
70, about how much does she have at the end of 21 years?
a. $210
b. $300
c. $800
d. $1,010
158. Nancy would like to double the money in her retirement account in five years. According to
the rule of 70, what rate of interest would she need to earn to attain her objective?
a. 5 percent
b. 7 percent
c. 10 percent
d. 14 percent
159. Twenty years ago, Dr. Montgomery borrowed money from her parents to pay her tuition at
graduate school. Now she wants to pay them back. She gives them double what they gave her.
According to the rule of 70, what interest rate would have given her parents the same amount of
money if they had put it in the bank rather than lending it to their daughter?
a. 3.5 percent
b. 4.5 percent
c. 5 percent
d. 7 percent
160. Fourteen years ago William put money in his account at First National Bank. William
decides to cash in his account and is told that his money has quadrupled. According to the rule of
70, what rate of interest did Alfred earn?
a. 5 percent
b. 7 percent
c. 10 percent
d. 14 percent
161. You are tearing down a building and find $1 in change that someone lost when working on
the building 140 years ago. If, instead of being careless with the $1 in change, this person had
deposited it into a bank and earned 2 percent interest every year for 140 years, how much would
be in the account today according to the rule of 70?
a. $4
b. $8
c. $16
d. $32
162. Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate
were 7 percent?
a. $400
b. $800
c. $1,600
d. $3,200
163. According to the rule of 70, if a person’s saving doubles in 10 years, what interest rate were
they earning?
a. 3.5
b. 7
c. 14
164. Will is risk averse and has $1,000 with which to make a financial investment. He has three
options. Option A is a risk-free government bond that pays 5 percent interest each year for two
years. Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.
Option C is a high-risk stock that is expected to be worth about $1,200 in four years. Will should
choose
a. option A.
b. option B.
c. option C.
d. either option A or option B because Will is indifferent between those two options and they are
superior to option C.
165. If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?
a. $2,000(1.06)
b. $1,000 + $(1.06)2
c. $1,000(1.06)2
d. None of the above are correct.
166. The future value of $500 saved for two years at an interest rate of 5% is
a. $550.25.
b. $550.00.
c. $551.25.
167. If you deposit $900 into an account for two years and the interest rate is 4%, how much do
you have at the end of the two years?
a. $972.00
b. $973.44
c. $974.19
168. Which of the following has the highest future value?

a. $100 saved for 2 years at 10 percent interest
b. $110 saved for 2 years at 9 percent interest
c. $120 saved for 2 years at 8 percent interest
d. $130 saved for 2 years at 7 percent interest
169. On the Internet you find the following offers for opening an online account. Which of them
is the best offer if you have $2,000 to save for two years?
a. an interest rate of 5 percent, with the bank charging you a $15 processing fee at the time you
open your account
b. an interest rate of 3.5 percent, with the bank giving you a $35 bonus to open your account
c. an interest rate of 4 percent, with the bank giving you a $20 bonus at the time you open your
account
d. an interest rate of 4.5 percent, with no processing fee and no bonus
170. On the Internet you find the following offers for opening an online account. Which of them
is the best offer if you have $5,000 to save for two years?
a. an interest rate of 5 percent, with the bank charging you a $50 processing fee at the time you
open your account
b. an interest rate of 4 percent, with the bank giving you a $65 bonus at the time you open your
account
c. an interest rate of 3.5 percent, with the bank giving you a $100 bonus to open your account
d. an interest rate of 4.5 percent, with no processing fee and no bonus
171. What is the present value of a payment of $1,000 two years from now if the interest rate is
6%?
a. $2,000/1.06
b. $1000/(1.06)2
c. $1000/(1 + 0.062)
172. What is the present value of a payment of $2,000 to be received two years from today if the
interest rate is 5%?
a. $2205
b. $2200
c. $1818.18
d. $1814.06
173. You receive $500 today which you plan to save for two years. Also, in two years you will
be given another $500. If the interest rate is 5 percent, what is the present value of the payment
of $500 today and the $500 in two years?
a. $500(1.05)2 + $500/(1.05)2
b. $500(1.05)2 + $500
c. $500 + $500/(1.05)2
d. $500 + $500
174. Albert Einstein once referred to compounding as

a. “an obsession among economists that defies explanation.”
b. “the greatest mathematical discovery of all time.”
c. his own discovery.
d. John Maynard Keynes’s greatest contribution.
175. Which famous person referred to compounding as “the greatest mathematical discovery of
all time?”
a. Abraham Lincoln
b. Thomas Edison
c. Benjamin Franklin
d. Albert Einstein
176. In answering which of the following questions would you find it necessary to calculate a
present value?
a. Should Jane put $1,000 today into a 5-year certificate of deposit that pays 4 percent annual
interest?
b. Should ABC Corporation buy a factory today for $2 million, knowing that the factory will
yield the corporation $3 million after 5 years?
c. If Jill puts $5,000 today into a bank account that pays 3 percent interest, then how much will
she have in the account after 2 years?
d. You would find it necessary to calculate a present value in order to answer all of these
questions.
177. In answering which of the following questions would you find it necessary to calculate a
future value?
a. If Jill puts $5,000 today into a bank account that pays 3 percent interest, then how much will
she have in the account after 2 years?
b. Should ABC Corporation buy a factory today for $2 million, knowing that the factory will
yield the corporation $3 million after 5 years?
c. As the winner of a lottery, should Michael choose an immediate payment of $250,000 or
should he choose annual payments of $30,000 for each of the next 10 years?
d. You would find it necessary to calculate a future value in order to answer all of these
questions.
178. You deposit $3,000 into an N–year certificate of deposit that pays 4.5 percent annual
interest, and at the end of the N years you have $4,082.59. What is the number of years, N?
a. 4
b. 5
c. 6
d. 7
179. You deposit X dollars into a 3–year certificate of deposit that pays 4.75 percent annual
interest. At the end of the 3 years you have $4,229.70. What number of dollars, X, did you
deposit?
a. $3,680.00
b. $3,712.77
c. $3,750.00
d. $3,772.57
180. You could borrow $1,000 today from Bank A and repay the loan, with interest, by paying
Bank A $1,060 one year from today. Or, you could borrow $1,500 today from Bank B and repay
the loan, with interest, by paying Bank B $1,600 one year from today. Which of the following
statements is correct?
a. The interest rate on the loan from Bank A is higher than the interest rate on the loan from
Bank B.
b. The interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank
B.
c. The interest rates on the two loans are the same.
d. There is not enough information to determine which loan has the higher interest rate.
Bank A $2,154 one year from today. Or, you could borrow X dollars today from Bank B and
repay the loan, with interest, by paying Bank B $2,477.10 one year from today. In order for the
same interest rate to apply to the two loans, X =
a. $2,300.00.
b. $2,450.00.
c. $2,500.00.
d. $2,525.50.
Bank A $2,125 one year from today. Or, you could borrow X dollars today from Bank B and
repay the loan, with interest, by paying Bank B $2,200 two years from today. In order for the
same interest rate to apply to the two loans, X =
a. $1,853.55.
b. $1,898.70.
c. $1,948.79.
d. $2,012.22.
183. Suppose you win a small lottery and you are given the following choice: You can receive
(1) an immediate payment of $5,000 or (2) two annual payments, each in the amount of $2,700,
with the first payment coming one year from now, and the second payment coming two years
from now. You would choose to take the two annual payments if the interest rate is
184. Suppose you win a small lottery and you are given the following choice: You can receive
(1) an immediate payment of $10,000 or (2) two annual payments, each in the amount of $5,200,
with the first payment coming one year from now, and the second payment coming two years
from now. You would choose to take the immediate payment of $10,000 if the interest rate is
185. If you put $400 into a bank account today and it promises to pay 5% interest for 6 years,
how much is in the account at the end of the six years?
a.
b.
c.
d.
186. Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the present
value of this future payment is
a. $725.62. It would be higher if the interest rate were higher.
b. $727.28. It would be higher if the interest rate were higher.
c. $725.62. It would be lower if the interest rate were higher.
d. $727.28. It would be lower if the interest rate were higher.
187. The present value of a future payment to be received in three years is $1,000. If the interest
rate is 5%, what is the amount that will be paid in three years?
a. $1,150.00
b. $1,157.63
c. $1,215.51
d. $1,250.00
188. A company that produces baseball gloves is considering buying some new equipment that it
expects will increase future profits. If the interest rate rises, then the present value of these future
profits
a. rises. The company is more likely to buy the equipment.
b. rises. The company is less likely to buy the equipment.
c. falls. The company is more likely to buy the equipment.
d. falls. The company is less likely to buy the equipment.
189. A company that produces wallpaper is considering buying some new equipment that it
expects will increase future profits. If the interest rate falls, then the present value of these future
earnings
a. rises. The company is more likely to buy the equipment.
b. rises. The company is less likely to buy the equipment.
c. falls. The company is more likely to buy the equipment.
d. falls. The company is less likely to buy the equipment.
190. Greg’s Tasty Ice Cream is considering building a new ice cream factory that costs $8.3
million. The company accountants believe that, not accounting for interest costs, building the
factory will increase profits by $5 million the first year, $4 million the second year and have no
value thereafter. Greg’s Tasty Ice Cream should build the factory if the interest rate is
a. 3% but not if it is 4%.
b. 4% but not if it is 5%.
c. 5% but not if it is 6%.
d. 6% but not if it is 7%.
191. You are better off choosing $100 today rather than $200 in 9 years if the interest rate is
a. lower than about 8 percent.
b. higher than about 8 percent.
c. lower than about 10 percent.
d. higher than about 10 percent.
192. You are better off choosing $400 in 4 years rather than $300 today if the interest rate is
a. lower than about 5.5 percent.
b. higher than about 5.5 percent.
c. lower than about 7.5 percent.
d. higher than about 7.5 percent.
interest rate is 3%. The future value of the $500 in 5 years to the nearest cent is
a. $575.00
b. $578.81
c. $579.64
194. If the interest rate is 4%, in which of the following cases is the future value the largest?
a. An initial value of $1,000 deposited for 5 years.
b. An initial value of $950 deposited for 6 years.
c. An initial value of $900 deposited for 7 years.
d. An initial value of $850 deposited for 8 years.
195. Vince says that the present value of $500 to be received one year from today if the interest
rate is 8 percent is more than the present value of $500 to be received two years from today if the
interest rate is 4 percent. Terri says that $500 saved for two years at an interest rate of 3 percent
has a larger future value than $500 saved for one years at an interest rate of 6 percent.
a. Both Vince and Terri are correct.
b. Only Vince is correct.
c. Only Terri is correct.
d. Neither Vince nor Terri is correct.
196. You have been promised a payment of $100,000 in the future. In which case is the present
value of this future payment highest?
197. Suppose the interest rate is 5 percent. Which of the following payment options has the
highest present value today?
a. $550 one year from today.
b. $580 two years from today.
c. $600 three years from today.
d. $615 four years from today.
198. La Rossa Pasta Company is considering expanding its factory. In which case would both the
change in the cost and the change in the interest rate each make it less likely that La Rossa’s
would expand?
a. a decrease in the cost of expanding and a decrease in the interest rate.
b. a decrease in the cost of expanding and an increase in the interest rate.
c. an increase in the cost of expanding and a decrease in the interest rate.
d. an increase in the cost of expanding and an increase in the interest rate.
199. A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way
to find the present value of this bond?
a. $500(1 + r) + $10,500/(1 + r)2
b. $500/(1 + r) + $10,500/(1 + r)2
c. $11,000/(1 + r)2
d. $500(1 + r) + $10,500(1 + r)2
200. If the interest rate is 2.49 percent, then what is the present value of $5,000 to be received in
4 years?
a. $4,531.52
b. $4,878.52
c. $5,124.50
d. $5,516.91
201. Suppose you purchase a savings bond today for $25. In seven years you may cash in the
savings bond for $50. What is the approximate interest rate paid by the savings bond?
a. 5%
b. 10%
c. 15%
d. 20%
202. If you deposit $1,000 into a savings account that pays you 5% interest per year,
approximately how long will it take to double your money?
a. 8 years
b. 10 years
c. 12 years
d. 14 years
203. Suppose the parents of a child born in the year 2000 had invested $5,000 at a 10% interest
rate to be paid out to the child when she turns 21 years old. Approximately how many times will
the investment double by the time it is paid out to the child?
a. 2 times
b. 3 times
c. 4 times
d. 8 times
204. Suppose Emilio offers you $500 today or $X in 10 years. If the interest rate is 6 percent,
then at what value of X would you be indifferent between the two options?
a. X = 809.33
b. X = 855.56
c. X = 895.42
d. X = 916.74
205. Suppose you win the lottery and one of your payment options is to receive $20,000 today,
$20,000 one year from now, and $20,000 two years from now. If the interest rate is 5%, what is
the present value of this option?
a. $51,830.26
b. $54,464.96
c. $57,188.21
d. $58,237.71
206. You receive $2,000 today which you plan to save for 15 years. If the interest rate is 4
percent, what is the future value of this $2,000?
a. $3,494.40
b. $3,585.85
c. $3,601.89
d. $3,676.14
207. Suppose you put $10,000 into a bank account today that pays interest annually at an annual
rate of 0.5%. What is the future value of the $10,000 after 10 years?
a. $10,050.00
b. $10,511.40
c. $10,573.26
d. $16,288.95
208. Suppose you own a savings bond that will pay you $100 in 7 years. If the annual interest
rate is 2%, what is the present value of the savings bond?
a. $27.91
b. $87.06
c. $93.64
d. $87.06
209. Suppose you have a choice between receiving a lump-sum payment of $10,000 today or
four annual payments of $2,750 (with the first payment today). Of the following, which is the
lowest annual interest rate at which you would prefer the lump-sum payment over the four
annual payments?
a. 2%
b. 5%
c. 7%
d. 10%
four annual payments of $2,750 (with the first payment today). Of the following, which is the
highest annual interest rate at which you would prefer the four annual payments over the lump-
sum payment?
a. 2%
b. 5%
c. 7%
d. 10%
four annual payments of $2,750 (with the first payment one year from today). Of the following,
which is the lowest annual interest rate at which you would prefer the lump-sum payment over
the four annual payments?
a. 2%
b. 5%
c. 7%
d. 10%
four annual payments of $2,750 (with the first payment one year from today). Of the following,
which is the highest annual interest rate at which you would prefer the four annual payments
over the lump-sum payment?
a. 2%
b. 5%
c. 7%
d. 10%
213. Suppose a company is considering the construction of a new facility. The construction will
cost $1 million today and will yield a payoff of $1.7 million in 10 years. Assuming a 5% annual
interest rate, which of the following statements is correct?
a. The company should not construct the new facility because the future value of the construction
cost is only $1,628,894.63.
b. The company should not construct the new facility because the future value of the construction
cost is $1,783,267.42.
c. The company should construct the new facility because the present value of the future payoff
is $1,092,734.95.
d. The company should construct the new facility because the present value of the future payoff
is $1,043,652.53.
214. Suppose your grandfather put $10,000 in the bank in 1965 at an annual interest rate of 7%.
Using the Rule of 70, approximately how large should the bank balance be in 2015?
a. $50,000
b. $60,000
c. $80,000
d. $320,000
215. You are considering buying a share of stock in Company ABC. At the end of years 1, 2, and
3 the stock will pay you a dividend of $10. In addition, at the end of the third year you expect to
sell the share of stock for $200. If the interest rate is 5%, how much is the share of ABC stock
worth to you today?
a. $200
b. $210
c. $220
d. $230
216. You are considering buying a share of stock in XYZ Corporation. At the end of years 1, 2,
and 3 the stock will pay you a dividend of $15. In addition, at the end of the third year you
expect to sell the share of stock for $100. If the interest rate is 3%, how much is the share of
XYZ stock worth to you today?
a. $123.14
b. $133.94
c. $137.96
d. $145.00

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16. Discounting refers directly to

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87. The present value of a payment to be made in the future falls as

Which of the payments has the highest present value today?

Which of the payments has the lowest present value today?

Which of the following is correct?

Which of the following is correct?

Which of the following is correct?

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