Intermediate Financial Management -- Chapter 5 exam with complete solutions.
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Course
Financial management
Institution
Financial Management
What is the future value of $10,000 on deposit for 5 years at 6% simple interest?
A. $7,472.58
B. $10,303.62
C. $13,000.00
D. $13,382.26
C. $13,000.00
FV = PV + (PV × r × t)
($10,000) + [($10,000 × .06) × 5] = $13,000.00
Under which of the following conditions will a f...
Under which of the following conditions will a future value calculated with simple interest
exceed a future value calculated with compound interest at the same rate?
A. The interest rate is very high.
B. The investment period is very long.
C. The compounding is annually.
D. This is not possible with positive interest rates. - ANSWER-D. This is not possible
with positive interest rates.
How much interest is earned in just the third year on a $1,000 deposit that earns 7%
interest compounded annually?
,A. $70.00
B. $80.14
C. $105.62
D. $140.00 - ANSWER-B. $80.14
$1000.00 × (1.07)2 = $1,144.90 after 2 years
$1,144.90 × .07 = $80.14
How much interest will be earned in the next year on an investment paying 12%
compounded annually if $100 was just credited to the account for interest?
A. $88
B. $100
C. $112
D. $200 - ANSWER-C. $112
The investment will again pay $100 plus interest on the previous interest:
$100 × 1.12 = $112
The concept of compound interest refers to:
A. earning interest on the original investment.
B. payment of interest on previously earned interest.
C. investing for a multiyear period of time.
D. determining the APR of the investment. - ANSWER-B. payment of interest on
previously earned interest.
When an investment pays only simple interest, this means:
,A. the interest rate is lower than on comparable investments.
B. the future value of the investment will be low.
C. the earned interest is nontaxable to the investor.
D. interest is earned only on the original investment. - ANSWER-D. interest is earned
only on the original investment.
Assume the total expense for your current year in college equals $20,000. How much
would your parents have needed to invest 21 years ago in an account paying 8%
compounded annually to cover this amount?
A. $952.46
B. $1,600.00
C. $1,728.08
D. $3,973.11 - ANSWER-D. $3,973.11
PV = $20,000/(1.08)21
PV = $3,973.11
How long must one wait (to the nearest year) for an initial investment of $1,000 to triple
in value if the investment earns 8% compounded annually?
A. 9.81 years
B. 14.27 years
C. 22.01 years
D. 25.00 years - ANSWER-B. 14.27 years
How much will accumulate in an account with an initial deposit of $100, and which earns
10% interest compounded quarterly for 3 years?
, A. $107.69
B. $133.10
C. $134.49
D. $313.84 - ANSWER-C. $134.49
How much must be deposited today in an account earning 6% annually to accumulate a
20% down payment to use in purchasing a car one year from now, assuming that the
car's current price is $20,000, and inflation will be 4%?
In calculating the present value of $1,000 to be received 5 years from today, the
discount factor has been calculated to be .7008. What is the apparent interest rate?
A. 5.43%
B. 7.37%
C. 8.00%
D. 9.50% - ANSWER-B. 7.37%
FV = PV(1 + r)t
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