Question 1

Suppose you put $500 into a bank account today.  Interest is paid annually and the annual interest rate is 5.5 percent.  The future value of the $500 is

Accepted Answer

$653.48 after 5 years and $854.07 after 10 years.

Answer

$637.50 after 5 years and $775.00 after 10 years.

Answer

$688.36 after 5 years and $915.56 after 10 years.

Answer

$637.50 after 5 years and $822.09 after 10 years.

Question 2

Toni put $500 into an account and one year later she had $534.  What interest rate was paid on Toni’s deposit?

Accepted Answer

6.8 percent

Answer

5.9 percent

Answer

7.1 percent

Answer

None are correct

Question 3

What is the present value of a payment of $100 one year from today if the interest rate is 5 percent?

Accepted Answer

$95.24

Answer

$95.00

Answer

$95.50

Answer

None are correct to the nearest cent.

Question 4

Suppose the interest rate is 5 percent. Consider three payment options:
	1. $500 today.
	2. $520 one year from today.
	3. $550 two years from today.
		Which of the following is correct?

Accepted Answer

2 has the lowest present value and 1 has the highest.

Answer

1 has the lowest present value and 3 has the highest.

Answer

3 has the lowest present value and 2 has the highest.

Answer

None are correct

Question 5

Suppose you win a small lottery and you are given the following choice:  You can (1) receive an immediate payment of $10,000 or (2) three annual payments, each in the amount of $3,600, with the first payment coming one year from now, the second two years from now, and the third three years from now.  You would choose to take the three annual payments if the interest rate is

Accepted Answer

3 percent, but not if the interest rate is 4 percent.

Answer

4 percent, but not if the interest rate is 5 percent.

Answer

2 percent, but not if the interest rate is 3 percent.

Answer

5 percent, but not if the interest rate is 6 percent.

Question 6

On the Internet you find the following offers for opening an online account.  Which of them is the best offer if you have $5,000 to save for two years?

Accepted Answer

an interest rate of 4 percent, with the bank giving you a $65 bonus at the time you open your account

Answer

an interest rate of 5 percent, with the bank charging you a $50 processing fee at the time you open your account

Answer

an interest rate of 4.5 percent, with no processing fee and no bonus

Answer

an interest rate of 3.5 percent, with the bank giving you a $100 bonus to open your account

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