Student ID ____________
Alpha Bank pays interest of 4 percent compounded annually. Beta Bank pays 4 percent simple interest.
Which one of the following statements is true if you invest $1,000 in each bank for five years?
a. Alpha Bank will pay you a total of $200 in interest over the five years.
b. Beta Bank will pay you more interest over the five years than Alpha Bank will.
c. Alpha Bank will pay you a total of $216.65 in simple interest.
d. Alpha Bank will pay you $16.65 of interest on interest.
Martha wants to have $10,000 in her investment account ten years from now. How much does she
have to deposit today to achieve her goal if she can earn 8 percent compounded annually?
Jim has $1,650 saved today. He wants to buy a different vehicle as soon as he has $3,200 saved.
How long does Jim have to wait to get his vehicle if he earns 7.5 percent compounded annually?
a. 8.67 years
b. 9.08 years
c. 9.16 years
d. 9.23 years
Linens, Etc. currently pays an annual dividend of $1.60 per share. At what rate must the company increase
their dividend if they want to pay $2.40 a share three years from now?
a. 14.47 percent
b. 16.67 percent
c. 18.88 percent
d. 19.13 percent
Lewis borrows $10,000 today at 8.25 percent compounded annually. The terms of the loan require Lewis to
repay the principal and interest in one lump sum four years from today. How much will Lewis have to pay
in four years?
All else equal, the future value will _____ as the period of time increases.
c. remain constant
You have been offered a business opportunity that will pay you $25,000 in five years if you invest
$10,000 today. What is the expected rate of return on this investment?
a. 20.11 percent
b. 25.74 percent
c. 27.02 percent
d. 30.00 percent
All else equal, the present value will _____ as the rate of return decreases.
c. remain constant
You opened a savings account four years ago and deposited $200 at that time. Three years ago, you added
another $400 to the account. Last year, you deposited an additional $100 into this account. The rate of
return is 5 percent compounded annually. How much is in your account today?
Your grandmother deposited $1,000 into an account for you fifteen years ago. Today, the account is worth
$3,548. If interest is compounded annually, what rate of return have you been earning on this money?
a. 8.75 percent
b. 8.81 percent
c. 8.95 percent
d. 9.06 percent