FIN 301_SP17_Mock Exam 2.docx

# FIN 301_SP17_Mock Exam 2.docx - March 14th 2017...

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March 14 th , 2017 Pennsylvania State University – Abington Spring 2017 FIN 301 – Mock Exam II Please write your first and last name in the space provided : _________________________________________________________ Note: Formula Sheet is on the last page. 1. Interest earned on both the initial principal and the interest reinvested from prior periods is called: A. Dual interest. B. Simple interest. C. Interest on interest. D. Compound interest. 2. True or False. The amount of compound interest you earn gets bigger every year, whereas the amount of simple interest is constant each year. A. True B. False 3. Katie invested \$12,000 in an account that pays 10 percent interest. At the end of year 5, Katie will have \$________ in her account assuming the account pays simple interest, or \$________ assuming the account pays compound interest. 4. Today, you earn a salary of \$28,000. What will be your annual salary 12 years from now if you earn annual raises of 2.6 percent? 1

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March 14 th , 2017 5. You own a classic car that is currently valued at \$64,000. If the value increases by 2.5 percent annually, how much will the car be worth 15 years from now? 6. 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? A. 6.67 percent fv=pv(1+r)^t B. 11.71 percent C. 7.90 percent D. 10.40 percent 7. An annuity is best defined by which one of the following? 8. Suppose you will invest \$600 in a mutual fund today, \$500 in one year, and \$400 in three years. The fund pays 8% annually. Draw a timeline for this example. 9. Use information provided in Question 8. On the above timeline , demonstrate calculations you would do for each cash flow to know how much you will have in 4 years . fv=pv(1+r)^t 2
March 14 th , 2017 10. Use information provided in Question 8. How much will you have in 4 years ?

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