FNAN 301
Test bank problems – time value of money part 1
1. How much will you have in
a.
16 years if you invest $500 today at an annual rate of 5.6%?
b. 14 years if you invest $500 today at an annual rate of 5.6%?
c.
18 years if you invest $500 today at an annual rate of 5.6%?
d. 18 years if you invest $500 today at an annual rate of 6.6%?
e.
18 years if you invest $500 today at an annual rate of 4.6%?
f.
18 years if you invest $600 today at an annual rate of 4.6%?
g. 18 years if you invest $400 today at an annual rate of 4.6%?
h. 18 years if you invest $400 today at an annual rate of -4.6%?
2. Investment A has a return of RA% per year and investment B has a return of RB% per year.
If RA >
RB > 0 and you invest $1,000 today, will you have more money in T years if you invest in investment A
or if you invest in investment B or will both investments be worth the same?
3. Investments A and B have the same return of X% per year.
Investment A pays investors a lump sum in
TA years and investment B pays investors a lump sum in TB years.
If TA > TB > 0, X > 0, and you
invest $1,000 today, will you get more money when investment A pays its lump sum in TA years or when
investment B pays its lump sum in TB years?
4. Silvio just invested $6,200 for 12 years and will earn compound interest of 7.6 percent per year.
Renaldo just invested $7,600 for 12 years and will earn simple interest of 8.0 percent per year.
a.
Who will have more money in 12 years?
b.
In 12 years, what will Silvio’s wealth minus Renaldo’s wealth be?
5. Sheila just invested $4,800 for 7 years and will earn compound interest of 5.2 percent per year.
Today,
Deng can make an investment and earn simple interest of 5.8 percent per year.
If Deng wants to have just
as much as Sheila in 7 years, then how much should Deng invest today?
(http://www.youtube.com/watch?v=0ar44ddrZVA
file: simple and compound interest 001.wmv)
(Fall 2010, quiz 1, question 6)
6. Mariano just deposited $5,000 in an account that will earn 5.0 percent per year in compound interest
for 10 years.
If Paulie deposits $5,300 in an account today that earns simple interest, then how much
simple interest per year must Paulie earn to have the same amount of money in 10 years as Mariano will
have in 10 years?
Answer as an annual rate.
(Spring 2010, quiz 1, question 1)
7. Today, Marjorie invested $10,000 in a security that is expected to earn 7.4 percent per year for 11
years.
Also today, Suzanne invested in a security that is expected to earn 7.2 percent per year and would
pay investors in 11 years from today.
How much money did Suzanne invest today if she expects to have
just as much as Marjorie expects to have in 11 years?
8. You have a piece of art that is worth $23,500 today.
If the piece of art is expected to increase in value
by 0.7% per month, then how much is it expected to be worth in 1 year?
9. How much money is in Niko’s account if he deposited $8,700 in the account 9 years ago, has earned