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Online Exam 3

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Question 1 5 / 5 points

Which of the following will result in a future value greater than $100?

Question options:

PV = $50, r = an annual interest rate of 10%, and n = 8 years.

PV = $75, r = an annual interest rate of 12%, and n = 3 years.

PV = $90, r = an annual interest rate of 14%, and n = 1 year.

All of the future values are greater than $100.

Question 2 5 / 5 points

Your university is running a special offer on tuition. This year’s tuition cost is $18,000. Next year’s tuition cost is scheduled to be $19,080. The university offers to discount next year’s tuition at a rate of 6% if you agree to pay both years’ tuition in full today. How much is the total tuition bill today if you take the offer?

Question options:

$18,000

$34,981

$37,080

$36,000

Question 3 0 / 5 points

Which of the following formulas is correct for finding the present value

of an investment?

Question options:

PV = FV × (1 + r)n

PV = FVn × (1 + r)

Question 4 5 / 5 points

Gasoline cost $.10 per gallon in 1930. Over the next 60 years, the price rose at an average rate of 4.42% per year. Based on this information, what was the average price of a gallon of gas in 1990?

Question options:

$1.34 per gallon

$1.53 per gallon

$2.65 per gallon

$2.75 per gallon

Question 5 5 / 5 points

You won the state lottery and took the payout as a $1,283,475 lump sum today. Your spouse has decided that you need to invest this money for the next 10 years and can expect it to earn an average annual rate of return of 7.18%. If this comes to pass, how much money will be in the account at the end of the period?

Question options:

$8,471,253

$2,567,586

$1,920,388

$1,890,471

Question 6 5 / 5 points

You could double your money in about 9 years if you could earn an annual rate of return of what? Use the Rule of 72 to determine your answer.

Question options:

You would need to earn an annual rate of return of about 12%.

You would need to earn an annual rate of return of about 10%.

You would need to earn an annual rate of return of about 8%.

There is not enough information to answer this question.

Question 7 5 / 5 points

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is true?

Question options:

The PV is $178.

The FV is $224.

The FV is $224.72.

This question is irrelevant because there are no two-year investments that earn an average of 6% per year.

Question 8 5 / 5 points

An investment promises a payoff of $195 two and one-half years from today. At a discount rate of 7.5% per year, what is the present value of this investment?

Question options:

$162.03

$162.75

$169.47

There is not enough information to answer this question.

Question 9 5 / 5 points

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is true?

Question options:

The future value would be greater if the interest rate was higher.

The present value would be greater if the interest rate was higher.

The future value would be greater if the interest rate was lower.

The future value does not change as the interest rate changes.

Question 10 5 / 5 points

Which of the following investments has a larger future value: Investment A—a $1,000 investment earning 5% per year for 6 years, or Investment B—a $500 investment earning 10% per year for 6 years, with a bonus of an extra $500 added at the end of the sixth year?

Question options:

Investment B, with a future value of $1,386.

Investment A, with a future value of $1,386.

Investment A, with a future value of $1,340.

The investments have equal value.

Question 11 5 / 5 points

Which of the following actions will increase the present value of an investment?

Question options:

Decrease the interest rate.

Decrease the future value.

Increase the amount of time.

All of the above will increase the present value.

Question 12 5 / 5 points

A $100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.

Question options:

$100

$120

$121

$122

Question 13 5 / 5 points

In 1970, before the era of major league baseball free agency, the minimum player salary was $12,000. In 1975, the minimum salary was $16,000. What was the average annual growth in the minimum salary in major league baseball over those five years?

Question options:

13.40%

2.67%

5.92%

15%

Question 14 5 / 5 points

Which of the following is the correct formula for calculating the future value?

Question options:

FV = PV × (1 + r)n

PV = FV × (1 + r)n

Question 15 5 / 5 points

In your first year out of college, you hope to earn $50,000 per year. How many years will you have to work until you earn $100,000 if your income increases at a rate of 10% per year? Use the Rule of 72 to determine your answer.

Question options:

You would need to work for just over 5 years to reach an income level of $100,000 per year.

You would need to work for just over 6 years to reach an income level of $100,000 per year.

You would need to work for just over 7 years to reach an income level of $100,000 per year.

You would need to work for just over 8 years to reach an income level of $100,000 per year.

Question 16 5 / 5 points

Rory has $2,500 but needs $5,000 to purchase a new golf cart. If he can invest his money at a rate of 12% per year, approximately how many years will it take the money in Rory’s account to grow to $5,000? Use the Rule of 72 to determine your answer.

Note: The golf cart’s price may have changed by the time Rory’s account reaches a value of $5,000.

Question options:

2 years

4 years

6 years

8 years

Question 17 5 / 5 points

Which of the following investments has a larger future value? A $100 investment earning 10% per year for 5 years, or a $100 investment earning 5% per year for 10 years?

Question options:

An investment of $100 invested at 10% per year for 5 years because it has a future value of $161.05.

An investment of $100 invested at 10% per year for 5 years because it has a future value of $162.89.

An investment of $100 invested at 5% per year for 10 years because it has a future value of $161.05.

An investment of $100 invested at 5% per year for 10 years because it has a future value of $162.89.

Question 18 5 / 5 points

Your production manager informs you that currently the firm is producing 1,438 heating units per month but has plans to increase production at a rate of 5% per month until the firm is producing 3,000 units per month. How many months will this take?

Question options:

27.33 months

15.07 months

14 months

There is not enough information to answer this question.

Question 19 5 / 5 points

Your aunt places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct?

Question options:

The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the interest rate is 5%.

The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the interest rate is 7%.

The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%.

The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the interest rate is 5%.

Question 20 5 / 5 points

__________ is simply the interest earned in subsequent periods on the interest earned in prior periods.

Question options:

Quoted interest

Anticipated interest

Simple interest

Compound interest

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