Self Test Quiz Chapter 5
Estimated Time To Complete: 88 minutes
1. Interest on interest is interest earned on the reinvestment of previous interest payments.
A. True
B. False
2. Simple interest is interest earned only in the first year of an investment.
A. True
B. False
3. If a lump sum of $10,000 is invested for three years at 10 percent compounded annually, it will earn a total of
$3,310 in interest over that period.
A. True
B. False
4. All else equal, the higher the interest rate, the higher the future value of an investment will be.
A. True
B. False
5. Suppose you are trying to find the present value of two different cash flows using the same interest rate for each
cash flow. The first cash flow is $1,000 ten years from now. The second is $800 seven years from now. Which one
of the following is true about the discount factors used to value the cash flows?
6.You just won the lottery and want to put some money away for your child's college education. When your child
goes to college 18 years from now, the cost will be $65,000. You can earn 8 percent compounded annually. How
much do you need to invest today?
7. You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5 percent compounded annually,
how long will you have to wait to buy the stereo?
8. You are going to receive $100 four years from today. If the discount rate is 5 percent compounded annually, what
will be the present value of the $100 two years from today?
A. $67.68
B. $68.30
C. $82.27
D. $82.64
E. $90.70
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9. Your best friend gave you $100 as a present six years ago. You invested this money at a 7 percent rate of
interest. How much will this money be worth 10 years from today?
10. In a growing Midwestern town, the number of eating establishments at the end of each of the last five years are
as follows: Year 1 = 143; Year 2 = 149; Year 3 = 162; Year 4 = 171; Year 5 = 178. If the number of eating
establishments is expected to grow in year 6 at the same rate as the percentage increase in year 5, how many new
eating establishments will be added in year 6?
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 Spring '10
 Ackute
 Time Value Of Money, Interest, A. Kristie

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