Finance Test #2: Chapters 5 and 6

1) If you invest $10,000 today at 10% interest, how much will you have in 10 years? A) $13,860 B) $25,937 C) $3,860 D) $80,712

B: $25,937

20) After 10 years, some shares of stock originally purchased for $500 total were sold for $900 total. What was the yield on the investment? Choose the closest answer. A) 10% B) 4% C) 8% D) 6%

D

10) Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she can receive $200,000 today. Which should she choose? A) The $200,000 today. B) The $1 million in 20 years. C) Both equal the same value. D) Neither option would be preferred.

A

13) Mr. Fish wants to build a house in ten years. He estimates that the total cost will be $150,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount needed? A) Between 8% and 10% B) Between 6% and 8% C) Above 10% D) Between 4% and 6%

A

14) Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago. What is the annual return on his investment? A) 2% B) Between 3% and 4% C) 10% D) Less than 1%

A

15) Mr. Bubble wants to sell his bubble machine for $1,000,000, but it might take awhile before it is valued that high. He bought it for $149,000 and is earning annual interest of 10% on the machine. How long will Mr. Bubble have to wait before the machine is valued at $1,000,000? A) 20 years B) 10 years C) 5 years D) More than 20 years

A

22) Dan would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest in each of the following years to achieve his goal? A) $13,241 B) $133,239 C) $10,727 D) $52,450

A

24) Luke believes that he can invest $5,000 per year for his retirement in 30 years. How much will he have available for retirement if he can earn 8% on his investment and begins investing one year from now? A) $566,400 B) $681,550 C) $150,000 D) $162,000

A

30) At an annual interest rate of 7%, the present value of $5000 received in five years is closest to: A) $3565 B) $6750 C) $7015 D) $7035

A

18) John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What are John's annual payment amounts? A) $15,000 B) $20,380 C) $15,445 D) $11,453

B

19) A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be? A) $1,584 B) $7,384 C) $15,555 D) $15,588

B

2) How much must you invest today at 8% interest in order to see your investment grow to $8,000 in 10 years? A) $3,070 B) $3,704 C) $3,105 D) $17,272

B

21) Dr. Stein has just invested $10,000 for his son (age 7). The money will be used for his son's education 10 years from now. He calculates that he will need $21,598 for his son's education by the time the boy goes to school. What rate of return will Dr. Stein need to achieve this goal? Choose the closest answer. A) 10% B) 8% C) 4% D) 1%

B

8) Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% compounded for four years. How much total return will his investment earn during this time period? A) $3,675 B) $1,802 C) $6,254 D) $8,570

B

11) Pedro Gonzalez will invest $5,000 at the end of each year. If the interest rate is 8%, what will the value be after three years? A) $12,885 B) $6,300 C) $16,232 D) $15,400

C

12) Dr. J. wants to buy a Dell computer that will cost $3,000 three years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn an 8% annual return. How much should he set aside at the end of each year? A) $879 B) $627 C) $924 D) $9,738

C

16) Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years? A) Greater than 10% B) Between 8% and 10% C) Between 6% and 8% D) Lower than 6%

C

23) Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement in 20 years. How much will she have available for retirement if she can make 8% on her investment? A) $2,150 B) $457,620 C) $46,610 D) $217,250

C

29) At an annual interest rate of 7%, the future value of $5000 in five years is closest to: A) $3565 B) $6750 C) $7015 D) $7035

C

5) To save for a new car, Samuel Smith will invest $3,000 at the end of each year for the next 5 years. The interest rate is 8%. What is the future value? A) $15,000 B) $2,980 C) $17,599 D) $13,518

C

9) Lou Lewis borrows $10,000 to be completely repaid over 10 years at 8%. Repayment of principal in the first year is ________. A) $1,493 B) $693 C) $690 D) $885

C

17) John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What is the principal outstanding after the first loan payment? A) $143,555 B) $134,560 C) $141,200 D) $138,620

D

25) Ian would like to save $2,000,000 by the time he retires in 30 years. If he believes that he can achieve a 6% rate of return, how much does he need to deposit each year, starting one year from now, to achieve his goal? A) $12,065 B) $37,500 C) $5,790 D) $25,298

D

28) Sara would like to evaluate the performance of her portfolio over the past 10 years. What compound annual rate of return has she achieved if she invested $12,000 ten years ago and now has $25,000? A) Between 4% and 6% B) Above 10% C) Between 8% and 10% D) Between 6% and 8%

D

3) How much must you invest today at 10% interest in order to see your investment grow to $5,000 in 3 years? A) $3,050 B) $3,555 C) $7,105 D) $3,756

D

4) To save for her newborn son's college education, Lea Wilson will invest $1,000 at the end of each year for the next 20 years. The interest rate is 10%. What is the future value? A) $8,514 B) $2,980 C) $63,440 D) $57,275

D

6) If you were to put $1,000 in the bank at 6% interest each year for the next 10 years, how much would you have as an ending balance in your account? A) $6,975 B) $15,937 C) $7,716 D) $13,181

D

7) Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 5 years starting one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college? A) $4,212 B) $12,263 C) $5,000 D) $5,637

D