Chapter 5

If you invest $100 at 10% compound interest, how much money will have in 10 years? TO CALCULATE: FV=100(1.10)^10

$259.37

What is the future value interest factor for 10% for 2 years?

1.21

What formula represents a present value factor?

1/(1+r)^t

Which of the following investments would result in a higher future value? Investment A-12% APR for 10 years Investment B-12% APR for 12 years

Investment B

The difference between ____ interest and compound interest is that the amount of compound interest earned gets (bigger/smaller) ____ every year.

Simple; Bigger

True or false: Discounting is the opposite of compounding

True

True or false: The formula for a present value factor is 1/(1+r)^t

True

Suppose present value is $100, future value is $1,000, and N is 10 years. What formula is used to find the (decimal) interest rate?

r=(1000/100)^(1/10) -1

True or false: Small changes in the interest rate affect the future value of a small-term investment more than they would affect the value of a long-term investment.

False

If you invest for a single period at an interest rate of r, your money will grow to __________ per dollar invested.

(1+r)

How long will it take $40 to grow to $240 at an interest rate of 6.53% compounded annually? TO CALCULATE SOLVE FOR N: PV=-40 FV=240 I/Y=6.53

28.33 years

Suppose we invest $100 now and get back $236.74 in 10 years. What rate of interest will we achieve? TO CALCULATE: PV=-$100 FV=$236.74 N=10

9%

What is the future value of $100 compounded for 50 years at 10% annual interest? TO CALCULATE: FV=100*(1.10)^50

$11,739.09

What is the future value of $100 at 10% simple interest for 2 years? TO CALCULATE: 100+2(0.10*100)

$120

If $100 earns compound interest for 2 years at 10% per year, future value will be ___. TO CALCULATE COMPOUND INTEREST 100*(1.10)^2

$121

If you invest $100 at 10% simple interest, how much money will you have in 10 years? TO CALCULATE: FV=100+10(100*0.10)

$200

You invest $500 at 10% interest. At the end of 2 years with simple interest, you will have ___ and with compound interest, you will have ___ TO CALCULATE SIMPLE INTEREST: 500+2(0.10*500) TO CALCULATE COMPOUND INTEREST 500*(1.10)^2

$600;$605

If you plan to put a $10,000 down payment on a house in 5 years and you can earn 6% per year, how much will you need to deposit today?

$7,472.58

Which of the following can be determined using the future value approach to compound growth? -Dividend Growth -Sales Growth -Erratic Growth -Population Growth

-Dividend Growth -Sales Growth -Population Growth

The present value interest factor for $1 at 5% compounded annually for 5 years [PVIF(5%,5)] is:

0.7835

Assume the interest rate offered for a 10 year investment plan is same as for a 4 year investment plan. For an investor to achieve the same future value, which of these two plans would require a smaller savings amount to be deposited today?

10 year investment

What is the correct mathematical formula for calculation of the future value of $100 invested today for 3 years at 10% per year?

FV=100*(1.10)^3