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1. In which of the following instances is the present value of the future payment the largest
a. You will receive \$1,000 in 5 years and the annual interest rate is 5 percent.
b. You will receive \$1,000 in 10 years and the annual interest rate is 3 percent.
c. You will receive \$2,000 in 10 years and the annual interest rate is 10 percent.
d. You will receive \$2,400 in 15 years and the annual interest rate is 8 percent.
2. What is the future value of \$500 one year from today if the interest rate is 6 percent?
a. \$515
b. \$520
c. \$530
d. None of the above is correct.
3. Your accountant tells you that if you can continue to earn the current interest rate on your
balance of \$750 for the next three years, you will have \$998.25 in your account. If your
accountant is correct, what is the current interest rate?
a. 9 percent
b. 10 percent
c. 11 percent
d. 12 percent
4.
What is the present value of a payment of \$200 to be made one year from today if the
interest rate is 10 percent?
a. \$180
b. \$181.82
c. \$220
d. \$222.22
5. Allen Steel Company is considering whether to build a new mill. If the interest rate rises
a. the present value of the returns from the mill will fall, so Allen will be less likely to
build the mill.
b. the present value of the returns from the mill will fall, so Allen will be more likely
to build the mill.
c. the present value of the returns from the mill will rise, so Allen will be less likely to
build the mill.
d. the present value of the returns from the mill will rise, so Allen will be more likely
to build the mill.

1.a. You will receive \$1,000 in 5 years and the annual interest rate is 5... View the full answer

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