Quiz 2

Gasoline cost $.10 per gallon in 1930. Over the next 70 years, the price rose at an average rate of 4.00% per year. Based on this information, what was the average price of a gallon of gas in 1990?

$1.56 per gallon

If you invest $5,000 today at an annual interest rate of 5.35%, how much money will you have for your daughter's college education in 18 years?

$12,776

A $200 deposit today that earns an annual interest rate of 5% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.

$220.50

Rick decided he was tired of being a poor college student when he visited a local electronics store and experienced its finest home theatre system. He determined that he would invest today a portion of the remaining money he earned last summer cleaning animal cages at the veterinary clinic. He plans to invest the money into an international mutual fund for 2.5 years and expects to earn an average annual rate of return of 15%. If Rick wants to have $5,000 in the account at the end of this time, how much must he invest today?

$3,526

You intend to buy a vacation home in eight years and plan to have saved $75,000 for a down payment. How much money would you have to place today into an investment that earns 9% per year to have enough for your desired down payment?

$37,640

Lance has $3,500 but needs $7,000 to purchase a new golf cart. If he can invest his money at a rate of 12% per year, approximately how many years will it take the money in Lance's account to grow to $7,000? Use the Rule of 72 to determine your answer.Note: The bicycle's price may have changed by the time Lance's account reaches a value of $7,000.

6 years

In 1930, the highest paid player in major league baseball was Babe Ruth of the New York Yankees, with an annual salary of $80,000. In 2017, the highest paid player in major league baseball was Clayton Kershaw of the Los Angeles Dodgers with a salary of $35,571,000. What was the average annual rate of growth in the top baseball salary over this time period?

7.26%

Five years ago, Maria's annual salary was $73,500. Today, she earns $91,900. What has been the average annual percentage rate of growth of Maria's salary?

4.57%

You have saved $1,250 for a used motorcycle that has a current price of $1,550. If your money is sitting in an account earning 2.25% per year, how long will it take for this account to grow to $1,550? Note: The motorcycle's price may have changed by the time your account reaches a value of $1,550.

9.67 years

The survey results from the National Association of Colleges and Employers (NACE) show the average annual increases in salaries for new accounting graduates to be 3.42% since the year 2000. If new starting salaries in accounting were $36,919 in 2000, what were they in 2016?

$63,230

A furniture store has a love seat on sale for $699.00, with the payment due one year from today. The store is willing to discount the price at an annual rate of 5% if you pay today. What is the amount if you pay today?

$665.71

Which of the following will result in a future value greater than $100? PV = $50, r = an annual interest rate of 10%, and n = 8 years PV = $75, r = an annual interest rate of 12%, and n = 3 years PV = $90, r = an annual interest rate of 14%, and n = 1 year

All of the future values are greater than $100.

________ is simply the interest earned in subsequent periods on the interest earned in prior periods.

Compound interest

Which of the following is the CORRECT formula for calculating the future value?

FV = PV × (1 + r)n

In the equation r = (FV/PV)1/n - 1, the r is sometimes referred to as the ________.

Interest rate Discount rate Growth rate All of these

Your grandmother places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is CORRECT?

The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%.

If you invest $3,650 today, how much money will you have in 4 years?

This question cannot be answered because it is missing an annual rate of return.

What annual rate of return must you earn to double your money in about 9 years? Use the Rule of 72 to determine your answer.

You would need to earn an annual rate of return of about 8%.