# Time value of money : 20 questions :

1.

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Find the simple interest on a \$400 investment made for 5 years at an interest rate of 7%/year. What is the accumulated amount?

A) The simple interest is \$140, the accumulated amount is \$540.

B) The simple interest is \$115, the accumulated amount is \$515.

C) The simple interest is \$120, the accumulated amount is \$520.

D) The simple interest is \$125, the accumulated amount is \$555.

2.

If the accumulated amount is \$3,720 at the end of 3 years and the simple rate of interest is 8%/year, what is the principal?

A) The principal is \$3,500.

B) The principal is \$3,360.

C) The principal is \$3,000.

D) The principal is \$3,200.

3.

Find the accumulated amount A if the principal P = \$2,000 is invested at the interest rate of r = 6% per year for t = 6 years, compounded annually.

A) The accumulated amount is \$3,508.28.

B) The accumulated amount is \$3,194.16.

C) The accumulated amount is \$2,837.04.

D) The accumulated amount is \$2,708.89.

4.

Find the accumulated amount A if the principal P = \$11,000 is invested at the interest rate of r = 5% per year for t = 5.5 years, compounded quarterly.

A) The accumulated amount is \$14,585.32.

B) The accumulated amount is \$13,785.93.

C) The accumulated amount is \$14,100.05.

D) The accumulated amount is \$14,457.17.

5.

Determine the simple interest rate at which \$1,500 will grow to \$1,550 in the 8 months. Round your answers to the nearest tenth of percent.

A) The interest rate is 5%/year.

B) The interest rate is 4.33%/year.

C) The interest rate is 4.76%/year.

D) The interest rate is 66.67%/year.

E) The interest rate is 3.06%/year.

6.

Find the present value of \$40,000 due in 4 years at the given rate of interest 8%/year compounded monthly.

A) The present value is \$28,948.67.

B) The present value is \$29,433.94.

C) The present value is \$29,076.82.

D) The present value is \$29,748.06.

7.

In order to help finance the purchase of a new house, the Abdullahs have decided to apply for a short-term loan (a bridge loan) in the amount of \$140,000 for a term of 1 mo. If the bank charges simple interest at the rate of 12%/year, how much will the Abdullahs owe the bank at the end of the term?

A) \$141,400

B)

\$140,012

C) \$146,800

D) \$144,900

8.

The Kwans are planning to buy a house 6 years from now. Housing experts in their area have estimated that the cost of a home will increase at a rate of 6%/year during that period. If this economic prediction holds true, how much can the Kwans expect to pay for a house that currently costs \$160,000?

A) \$218,199

B) \$221,562

C) \$230,490

D) \$226,963

9.

The manager of a money market fund has invested \$4.2 million in certificates of deposit that pay interest at the rate of 5.4%/year compounded quarterly over a period of 5 years. How much will the investment be worth at the end of 5 years?

A) 5,491,921.88

B) 3,211,990.34

C) 1,291,921.88

D) 12,024,347.20

10.

Find the effective rate corresponding to nominal rate 6% / year compounded monthly. Round the answers to the nearest hundredth of percent.

A) 6.538%

B) 5.858%

C) 6.598%

D) 6.168%

11.

Find the interest rate needed for an investment of \$4,000 to grow to an amount of \$5,000 in 4 yr if interest is compounded continuously. Please round the answer to the nearest hundredth of percent.

A) 5.58 %/yr

B) 5.70 %/yr

C) 6.63 %/yr

D) 5.01 %/yr

E) 5.92 %/yr

12.

Anthony invested a sum of money 6 yr ago in a savings account that has since paid interest at the rate of 7%/year compounded quarterly. His investment is now worth \$19,713.77. How much did he originally invest? Please round the answer to the nearest cent.

A) \$13,000.01

B) \$12,500.01

C) \$14,000.01

D) \$11,500.01

E) \$11,000.01

13.

Georgia purchased a house in 1998 for \$220,000. In 2003 she sold the house and made a net profit of \$50,000. Find the effective annual rate of return on her investment over the 5-yr period. Please round the answer to the nearest tenth of percent.

A) 3.7%/yr

B) 3.1%/yr

C) 4.4%/yr

D) 4.2%/yr

E) 5.6%/yr

14.

Find the amount of an ordinary annuity of 10 yearly payments of \$1,800 that earn interest at 10% per year, compounded annually.

A) \$4,668.74

B) \$28,687.36

C) \$87,798.04

D) \$3,600.00

15.

Robin, who is self-employed, contributes \$4,000/year into a Keogh account. How much will he have in the account after 15 years if the account earns interest at the rate of 6.5%/year compounded yearly?

A) \$96,728.68

B) \$10,287.36

C) \$158,267.14

D) \$3,771.28

16.

If a merchant deposits \$1,500 annually at the end of each tax year in an IRA account paying interest at the rate of 10%/year compounded annually, how much will she have in her account at the end of 25 years? Round your answer to two decimal places.

A) \$16,252.06

B) \$147,520.59

C) \$5,250.00

D) \$34,663.65

17.

Find the present value of an ordinary annuity of \$600 payments each made quarterly over 5 years and earning interest at 4% per year compounded quarterly.

A) \$8,154.20

B) \$2,671.09

C) \$10,827.33

D) \$56,916.87

18.

Juan invested \$24,000 in a mutual fund 5 years ago. Today his investment is worth \$34,616. Find the effective annual rate of return on his investment over the 5-year period.

A) 10.3%/year

B) 8%/year

C) 83%/year

D) 8.3%/year

E) 7.6% / year

19.

Find the amount of an ordinary annuity for 5 years of quarterly payments of \$2,200 that earn interest at 4% per year compounded quarterly.

A) \$11,222.21

B) \$65,511.77

C) \$48,441.81

D) \$2,684.42

20.

Find the present value of the ordinary annuity. Please round the answer to the nearest cent.\$2,000 per semiannual period for 7 yr at 12%/year compounded semiannually

A) P = \$18,589.97

B) P = \$17,913.54

C) P = \$20,003.52

D) P = \$13,147.80

E) P = \$9,629.07

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