Answer Key to Midterm 2

Answer Key to Midterm 2 - Midterm 2 Managerial Finance, FRL...

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1 Midterm 2 Managerial Finance, FRL 300 March 1, 2010 Multiple Choices (1 point each) 1. Interest earned on both the initial principal and the interest reinvested from prior periods is called: A. free interest. B. dual interest. C. simple interest. D. interest on interest. E. compound interest. 2. Terry is calculating the present value of a bonus he will receive next year. The process he is using is called: A. growth analysis. B. discounting. C. accumulating. D. compounding. E. reducing. 3. What is the future value of $7,189 invested for 23 years at 9.25 percent compounded annually? A. $22,483.60 B. $27,890.87 C. $38,991.07 D. $51,009.13 E. $54,999.88 Future value = $7,189 × (1 + .0925) 23 = $54,999.88
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2 4. One year ago, you invested $1,800. Today it is worth $1,924.62. What rate of interest did you earn? A. 6.59 percent B. 6.67 percent C. 6.88 percent D. 6.92 percent E. 7.01 percent $1,924.62 = $1,800 × (1 + r) 1 ; r = 6.92 percent 5. Penn Station is saving money to build a new loading platform. Two years ago, they set aside $24,000 for this purpose. Today, that account is worth $28,399. What rate of interest is Penn Station earning on this investment? A. 6.39 percent B. 7.47 percent C. $28,399 = $24,000 × (1 + r) 2 ; r = 8.78 percent 8.78 percent D. 9.23 percent E. 9.67 percent 6. Some time ago, Julie purchased eleven acres of land costing $36,900. Today, that land is valued at $214,800. How long has she owned this land if the price of the land has been increasing at 10.5 percent per year? A. 13.33 years B. 16.98 years C. $214,800 = $36,900 × (1 + .105) t ; t = 17.64 years 17.64 years D. 19.29 years E. 21.08 years 7. At 11 percent interest, how long would it take to quadruple your money? A. 6.55 years B. 6.64 years C. 13.09 years D. $4 = $1 × (1 + .11) t ; t = 13.28 years 13.28 years E. 13.56 years
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3 8. Your coin collection contains fifty-four 1941 silver dollars. Your grandparents purchased them for their face value when they were new. These coins have appreciated at a 10 percent annual rate. How much will your collection be worth when you retire in 2060? A. $3,611,008 B. $3,987,456 C. $4,122,394 D. $4,421,008 E. FV = $54 × (1.10) 119 = $4,551,172 $4,551,172 9. Assume the average vehicle selling price in the United States last year was $41,996. The average price 9 years earlier was $29,000. What was the annual increase in the selling price over this time period? A.
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This note was uploaded on 04/30/2010 for the course FRL 300 taught by Professor Lentz during the Spring '08 term at Cal Poly Pomona.

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Answer Key to Midterm 2 - Midterm 2 Managerial Finance, FRL...

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