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EXAM II Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. In which of the following instances is the present value of the future payment the largest? a. You will receive $1,000 in 5 years and the annual interest rate is 5 percent. b. You will receive $1,000 in 10 years and the annual interest rate is 3 percent. c. You will receive $2,000 in 10 years and the annual interest rate is 10 percent. d. You will receive $2,400 in 15 years and the annual interest rate is 8 percent. ____ 2. Which of the following is the correct way to compute the future value of $ X that earns r percent interest for N years? a. $ X (1 + rN ) N b. $ X (1 + r ) N c. $ X (1 + rN ) d. $ X (1 + r / N ) N ____ 3. At an annual interest rate of 10 percent, about how many years will it take $100 to double in value? a. 5 b. 7 c. 9 d. 11 ____ 4. At an annual interest rate of 10 percent, about how many years will it take $100 to triple in value? a. 8 b. 10 c. 12 d. 14 ____ 5. If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years? a. $320.69 b. $324.00 c. $324.73 d. $327.81 ____ 6. Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance? a. 5 years b. 6 years c. 7 years d. 8 years ____ 7. Alice says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest. a. Both Alice and Beth are correct. b. Both Alice and Beth are incorrect. c. Only Alice is correct. d. Only Beth is correct. ____ 8. Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn? a. 5 percent b. 6 percent c. 7 percent d. 8 percent ____ 9. Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,695.38. What rate of interest did Robert earn? a. 4.5 percent b. 5.5 percent c. 6.5 percent d. 8.0 percent ____ 10. On May 25, 1978 three pals graduated from high school, pooled together $1,000 and put the money into an account promising to pay 8% for the next 30 years. On May 25, 2008 they withdrew all the money from the account. 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.... View Full Document
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