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Chapter 27
The Basic Tools of Finance
Multiple Choice
1. The field of finance primarily studies
a. how society manages its scarce resources.
b. the implications of time and risk for allocating resources over time.
c. firms decisions concerning how much to produce and what price to charge.
d. how society can reduce market risk.
ANS: B
PTS: 1
DIF: 1
REF: 19-1
TOP: Finance
MSC: Definitional
2. Which of the following is the correct way to figure the future value of $
X
that earns
r
percent for
N
years?
a. $
X
(1 +
rN
)
N
b. $
X
(1 +
r
)
N
c. $
X
(1 +
rN
)
d. $
X
(1 +
r
/
N
)
N
ANS: B
PTS: 1
DIF: 1
REF: 19-1
TOP: Future value
MSC: Definitional
3. Which of the following is the correct way to figure the future value of $1 put in an account that earns 5 percent for
20 years?
a. $1(1 + .05)
20
b. $1(1 + .05
×
20)
20
c. $1(1 + .05
×
20)
d. $1(1 + 20/.05)
20
ANS: A
PTS: 1
DIF: 1
REF: 19-1
TOP: Future value
MSC: Applicative
4. Which of the following is the correct way to figure the future value of $100 put in an account that earns 4 percent
for 10 years?
a. $100(1 + .04
10
)
b. $100(1 + .04
×
10)
c. $100 x 10 x (1 + .04)
d. $100(1 + .04)
10
ANS: D
PTS: 1
DIF: 1
REF: 19-1
TOP: Future value
MSC: Applicative
5. The future value of a deposit in a savings account will be larger
a. the longer a person waits to withdraw the funds.
b. the higher the interest rate is.
c. the larger the initial deposit is.
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 2
REF: 19-1
TOP: Future value
MSC: Analytical
6. The future value of a deposit in a savings account will be smaller
a. the longer a person waits to withdraw the funds.
b. the lower the interest rate is.
c. the larger the initial deposit is.
d. All of the above are correct.
ANS: B
PTS: 1
DIF: 2
REF: 19-1
TOP: Future value
MSC: Analytical
142
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143
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Chapter 27/The Basic Tools of Finance
7. What is the future value of $500 one year from today if the interest rate is 6 percent?
a. $503
b. $515
c. $530
d. None of the above is correct.
ANS: C
PTS: 1
DIF: 1
REF: 19-1
TOP: Future value
MSC: Applicative
8. What is the future value of $750 one year from today if the interest rate is 3 percent?
a. 772.73
b. 772.50
c. 773.33
d. None of the above are correct to the nearest penny.
ANS: B
PTS: 1
DIF: 1
REF: 19-1
TOP: Future value
MSC: Applicative
9. What is the future value of $800 one year from today if the interest rate is 7 percent?
a. $747.66
b. $756.00
c. $856.00
d. None of the above are correct to the nearest penny.
ANS: C
PTS: 1
DIF: 1
REF: 19-1
TOP: Future value
MSC: Applicative
10. What is the future value of $333 at an interest rate of 3 percent one year from today?

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