b. $1113.00
c. $1131.33
d. None of the above are correct to the nearest penny.
8. Suppose that the price of a bond is equal to the sum of the present value of its future payments. Suppose
further that this bond pays $50 in one year and $1,050 in two years. What is the price of the bond if the
interest rate is 5 percent?
a. $1,050.00
b. $1,045.35
c. $1,000.00
d. $945.35
9. On May 25, 1975 three pals graduated from high school, pooled together $1000 and put the money into an
account promising to pay 8% for the next 30 years. On May 25, 2005 they withdrew the money? To the
nearest dollar, how much did they withdraw?
a. $2,400
b. $10,063
c. $32,400
d. None of the above are correct to the nearest dollar.
10. Which of the following is the correct expression for finding the present value of a $1,000 payment one year
from today if the interest rate is 6 percent?
a. $1,000
(1.06)
b. $1,000
(1.06)
c. $1,000/(1.06)
d. None of the above is correct.
11. A scholarship gives you $1,000 today and promises to pay you $1,000 one year from today. What is the
present value of these payments?
a. $2,000/(1 +
r
)
2
.
b. $1,000 + $1,000/(1 +
r
)
c. $1,000/(1 +
r
) + $1,000/(1 +
r
)
2
d. $1,000(1 +
r
) + $1,000(1 +
r
)
2
12. Which of the following changes would increase the present value of a future payment?
a. an increase in the size of the payment