(Solution Download) 1 For a given amount interest rate and number of


1. For a given amount, interest rate, and number of years, which of the following will yield the highest number?
a. Future value of a single sum
b. Future value of an annuity
c. Present value of a single sum
d. Present value of an annuity

2. You have purchased an investment at a price of $1,500. It guarantees a 7% return, compounded annually, over its 10-year life. At the end of 10 years, your $1,500 will be returned to you plus all investment profit. Your investment revenue will be
a. larger each year than the year before.
b. smaller each year than the year before.
c. equal each year to the year before.
d. larger than the year before for the first five years and then smaller for the next five years.

3. The present value of an investment is $600. The investment earns a 7% annual rate of return. The investment consists of one payment made at the end of two years. The amount an investor should receive from the investment at the end of the second year would be
a. $600 ÷ (1.07)2.
b. $600 × (1.07)2.
c. $600 × 1.07.
d. $600 ÷ 1.07.

4. The present value of an investment that paid $500 at the end of three years and earned a 6% return would be
a. $419.81.
b. $471.70.
c. $30.00.
d. $470.00.

5. The present value of an investment that paid $100 at the end of each year for five years and earned a 6% return would be
a. $470.00.
b. $471.70.
c. $373.63.
d. $421.24.

6. A company borrowed $100,000 from a bank on July 1, 2004. The company made monthly payments of $5,235 on the note at the end of each month from July through December. Total interest expense on the note for this six-month period was $4,410. If this is the company?s only note, what amount should the company report on its December 31, 2004 balance sheet for notes payable?
a. $100,000
b. $95,590
c. $73,000
d. $68,590

7. You are inspecting a present value table. As the interest rate increases, you should expect the table value to:
a. increase.
b. decrease.
c. increase if it is a present value of a single sum table, but decrease if it is a present value of an annuity table.
d. decrease if it is a present value of a single sum table, but increase if it is a present value of an annuity table.

8. A friend obtained a $7,500 car loan from a local bank at 9% interest. The loan requires 36 equal-sized monthly payments. The portion of the payment that goes to pay interest will
a. increase each month.
b. decrease each month.
c. stay the same each month.
d. decrease for the first 18 months and then increase during the last 18 months.

9. Clementine is part owner of a mining venture. A saver by nature, she puts part of her profits into a 6% savings account every other month. The first month she deposited $50. She has increased each of three subsequent deposits by $10. If she wants to fore- cast what the account balance will be after 10 months, she should use which of the following tables?
a. Future value of a single sum
b. Future value of an annuity
c. Present value of a single sum
d. Present value of an annuity

10. Assume that you borrowed $1,000 from a bank. The bank charges 12% interest and requires that the loan be repaid in 24 monthly installments. The interest expense you would incur for the first year would be:
a. $120.
b. more than $120.
c. less than $120.
d. less than interest expense for the second year.

 







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