C4 5 Test Solution

# C4 5 Test Solution - Student Name: Multiple Choice...

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Student Name: Multiple Choice Questions One point for each correct answer for a total of 6 points. No documentation necessary. 1. Today’s value of a cash flow in the future is called the: a. true value b. future value c. present value d. discounted value e. complex value 2. Which one of the following will increase the future value of a lump sum invested today? a. decreasing the amount of the lump sum b. increasing the rate of interest c. paying simple interest rather than compound interest d. paying interest only at the end of the investment period e. shortening the investment time period 3. The Corner Bank pays 4 percent interest, compounded monthly, on its savings accounts. The Uptown Bank pays 4 percent interest, compounded quarterly, on its savings accounts. You want to deposit sufficient funds today so that you will have \$2,400 in your account 3 years from today. The amount you must deposit today: a. is the same regardless of which bank you choose because they both pay 4 percent interest. b. is the same regardless of which bank you choose because they both pay simple interest. c. is the same regardless of which bank you choose because they both pay compound interest. d. will be greater if you invest with The Corner Bank. e. will be greater if you invest with The Uptown Bank. 4. You want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 6 percent interest. Approximately how long must you wait for your investment to double in value? a. 6 years b. 8 years c. 9 years d. 10 years e. 12 years

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Student Name: 5. Which one of the following has the lowest effective annual rate? a.
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## This note was uploaded on 04/05/2011 for the course FIN 350 taught by Professor Debruinne during the Winter '11 term at Grand Valley State.

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C4 5 Test Solution - Student Name: Multiple Choice...

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