FNAN 522 CH 5 (Exam 1)

You just received a $5,000 gift from your grandmother which you have decided to save and then gift to your grandchildren 50 years from now. How much additional money will you gift if you earn 7.5 percent interest rather than 7 percent interest over the next 50 years? Multiple Choice $39,318.09 $39,464.79 $38,211.16 $37,811.99 $38,663.60

$38,663.60

Some time ago, Tracie purchased two acres of land costing $67,900. Today, that land is valued at $64,800. How long has she owned this land if the price of the land has been decreasing by 1.5 percent per year? Multiple Choice 3.33 years 2.48 years 3.09 years 2.97 years 2.08 years

3.09 years

Sixty years ago, your mother invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment? Multiple Choice 6.67 percent 11.71 percent 7.90 percent 10.40 percent 12.02 percent

7.90 percent

You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually? $1,049.22 $930.11 $1,182.19 $1,201.15 $1,240.51

$1,240.51

Suppose the first comic book of a classic series was sold in 1954. In 2017, the estimated price for this comic book was $310,000, which is an annual return of 22 percent. For this to be true, what was the original price of the comic book in 1954? Multiple Choice $1.00 $.97 $1.33 $1.12 $1.20

$1.12

When you retire 45 years from now, you want to have $1.25 million saved. You think you can earn an average of 7.6 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today to fund this goal. How much more will you have to deposit if you wait for five years before making the deposit? Multiple Choice $17,414.14 $21,319.47 $19,891.11 $20,468.85 $13,406.78

$20,468.85

You collect old coins. Today, you have two coins each of which is valued at $300. One coin is expected to increase in value by 6 percent annually while the other coin is expected to increase in value by 4.5 percent annually. What will be the difference in the value of the two coins 15 years from now? A. $138.38 B. $208.04 C. $241.79 D. $254.24 E. $280.15

A. $138.38

Sixteen years ago, Alicia invested $500. Eight years ago, Travis invested $900. Today, both Alicia's and Travis' investments are each worth $2,400. Assume that both Alicia and Travis continue to earn their respective rates of return. Which one of the following statements is correct concerning these investments? A. Three years from today, Travis' investment will be worth more than Alicia's. B. One year ago, Alicia's investment was worth more than Travis' investment. C. Travis earns a higher rate of return than Alicia. D. Travis has earned an average annual interest rate of 3.37 percent. E. Alicia has earned an average annual interest rate of 6.01 percent.

A. Three years from today, Travis' investment will be worth more than Alicia's. & C. Travis earns a higher rate of return than Alicia.

This morning, TL Trucking invested $75,000 to help fund a company expansion project planned for 4 years from now. How much additional money will the firm have 4 years from now if it can earn 5 percent rather than 4 percent on its savings? A. $2,940.09 B. $3,423.58 C. $4,008.17 D. $4,219.68 E. $4,711.08

B. $3,423.58

Travis invested $9,250 in an account that pays 6 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually? A. $741.41 B. $773.58 C. $802.16 D. $833.33 E. $858.09

B. $773.58

Theo needs $40,000 as a down payment for a house 6 years from now. He earns 2.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today? A. $778.98 B. $811.13 C. $862.30 D. $948.03 E. $1,020.18

C. $862.30

You expect to receive $9,000 at graduation in 2 years. You plan on investing this money at 10 percent until you have $60,000. How many years will it be until this occurs? A. 18.78 years B. 19.96 years C. 21.90 years D. 23.08 years E. 25.00 years

C. 21.90 years

Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true? A. Barb will earn more interest the first year than Andy will. B. Andy will earn more interest in year three than Barb will. C. Barb will earn interest on interest. D. After five years, Andy and Barb will both have earned the same amount of interest. E. Andy will earn compound interest.

C. Barb will earn interest on interest.

Luis is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts? A. The present values of Luis and Soo Lee's monies are equal. B. In future dollars, Soo Lee's money is worth more than Luis' money. C. In today's dollars, Luis' money is worth more than Soo Lee's. D. Twenty years from now, the value of Luis' money will be equal to the value of Soo Lee's money. E. Soo Lee's money is worth more than Luis' money given the 7 percent discount rate.

C. In today's dollars, Luis' money is worth more than Soo Lee's.

Samantha opened a savings account this morning. Her money will earn 5 percent interest, compounded annually. After five years, her savings account will be worth $5,600. Assume she will not make any withdrawals. Given this, which one of the following statements is true? A. Samantha deposited more than $5,600 this morning. B. The present value of Samantha's account is $5,600. C. Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest. D. Samantha would have had to deposit more money to have $5,600 in five years if she could have earned 6 percent interest. E. Samantha will earn an equal amount of interest every year for the next five years.

C. Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest.

You own a classic automobile that is currently valued at $150,000. If the value increases by 6.5 percent annually, how much will the automobile be worth ten years from now? A. $244,035.00 B. $251,008.17 C. $270,013.38 D. $281,570.62 E. $291,480.18

D. $281,570.62

Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct? Nan will have less money when she retires than Neal. Neal will earn more interest on interest than Nan. Neal will earn more compound interest than Nan. If both Nan and Neal wait to age 70 to retire they will have equal amounts of savings. Nan will have more money than Neal at any age.

Nan will have more money than Neal at any age.

This afternoon, you deposited $1,000 into a retirement savings account. The account will compound interest at 6 percent annually. You will not withdraw any principal or interest until you retire in 40 years. Which one of the following statements is correct? The interest you earn in Year 6 will equal the interest you earn in Year 10. The interest amount you earn will double in value every year. The total amount of interest you will earn will equal $1,000 × .06 × 40. The present value of this investment is equal to $1,000. The future value of this amount is equal to $1,000 × (1 + 40).06.

The present value of this investment is equal to $1,000.

Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as: simplifying. compounding. aggregating. accumulating. discounting.

compounding.

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire _____ rather than _____ and earn a _____ rate of interest, then you can deposit a smaller lump sum today. sooner; later; low sooner; later; high later; sooner; high later; sooner; low today; later; high

later; sooner; high