CH4
Which one of these formulas illustrates the compounding of interest?
$100 x (1+.06) x (1+ .06)
Louisa invested $12,000 in a business venture which returned $4,000, $6,000, and $8,000 over the past three years. Which of these amounts are cash outflows to Louisa?
$12,000 investment
If you want to double your money in five years, what is the approximate annual rate of return you must earn?
14.4 percent
Susette invested $10,000 twenty years ago. Ten years ago, she she invested an additional $5,000. Last year, she withdrew $8,000 to pay for a vacation. If you were to draw a time line of these eveents, which values would be reated as a cash infow(s) to Susette?
$8,000 cash withdrawal
Approximately how long will it take a $2,500 investment to grow to $5,000 at an interest rate of 6 percent?
12 years
Which one of these correctly defines the future value of a $1,000 investment
Future value is the value of the investment at any date after the initial investment date.
Which one of the following best illustrates simple interest?
Ann has a $1,000 savings account that will pay her $40 of interest each year for five years.
Which one of these correctly defines the future value of $1,000 investment?
Future value is the value of the investment at any date after the initial investment date.
How is the future value of $500 invested for one year at 6 percent annual interest computed?
FV = $500 x (1+.06)^1
Which formula computes the value in year 9 of a $10,000 investment in year 2 if the interest rate is 6%?
FV= $10,000 x (1+.06)^7
Several years ago, your grandmother invested $500 for you at 2.5 perceent interest. Today , that investment is worth $1,864. When computing the number of years, the $1,864 should be used as the present value?
False - $1,864 is the future value.. The present value is $500
How is future value best defined?
Future value is the value of an investment after one or more periods.
Which one of these statements is correct concerning the relationship of i to PV, FV and N?
If you increase the interest interest rate, all else held constant, the future value will increase.
Charity House has been promised a $25,000 donation five years from today. How much would that gift be worth next year? Assume an interest rate of 8 percent.
PV = $25,000/(1+0.08)^4
Which of these statements correctly defines the Rule of 72?
The rule of 72 provides an approximation of the number of years needed to double your money given a particular rate of interest.
A project has these cash flows: -$2,000 two years ago, $800 one year ago, and $1,200 one year from ow. Which is the correct formula for computing today's value of these cash flows given a 6 percent rate of interest?
Today's value - -$2,000 x (1+ .06)^2 + $8-- x (1 +.06) + $1,200/(1 + 0.06)
Solving which of the following problems illustrates discounting?
What is a $1000 gift to be received next year worth today if the interest rate is 5 percent? How much do you need to invest to invest today at 7% interest to have $40,000 available for college experience in 17 years?
Two years ago, your investments were worth $11,000. Today, those same investments are only worth $9,800, for an annual loss of 5.61 percent. How do you compute the return needed to increase your investments to $11,000 in the next two years?
i=(11,000/9800)^1/2 - 1
Which one of these formulas correctly defines the Rule of 72?
approximate number of years to double money x Interest rate =72
Sara invested $3,400 six years ago. Today, her investment is worth $4,200. Which formula will correctly compute her rate of return?
i = ($4,200/3,400)^(1/8) -1
Which of these is the correct formula for computing the interest rate on an investment?
i= (FV-/PV)^(1/N)-1
You invested $1,000 and lost 21 percent of that value during the first year. Which formula computes the rate needed to increase your investment back to $1,000 by the end of the second year?
i=$1,0000/[$1,000 x (1*0.21)]^1/1- 1