The Basic Tools of Finance

1.The field of finance studies how

a.society manages its scarce resources.

b.people make decisions regarding resource allocation over time and how to handle risk c.people decide whether or not to become risk averse. d.society can reduce aggregate risk.

ANSWER: b.how people make decisions regarding resource allocation over time and how to handle risk TYPE: M DIFFICULTY: 1 SECTION: 14.0

2.If you put $300 in an account paying 2 percent interest, what is the future value of this account in two years? a.$310

b.$312

c.$312.12

d.$314.24

ANSWER: c.$312.12

TYPE: M DIFFICULTY: 1 SECTION: 14.1

3.What is the future value of $500 one year from today if the interest rate is 6 percent? a.$503

b.$515

c.$530

d.None of the above are correct.

ANSWER: c.$530

TYPE: M DIFFICULTY: 1 SECTION: 14.1

4.What is the future value of $750 one year from today if the interest rate is 3 percent? a.772.73

b.772.50

c.773.33

d.None of the above are correct to the nearest penny. ANSWER: b.772.50

TYPE: M DIFFICULTY: 1 SECTION: 14.1

5.What is the future value of $800 one year from today if the interest rate is 7 percent? a.$747.66

b.$756.00

c.$856.00

d.None of the above are correct to the nearest penny. ANSWER: c.$856.00

TYPE: M DIFFICULTY: 1 SECTION: 14.1

6.What is the future value of $333 at an interest rate of 3 percent one year from today? a.$337.39

b.$342.99

c.$343.09

d.None of the above are correct to the nearest penny. ANSWER: b.$342.99

TYPE: M DIFFICULTY: 1 SECTION: 14.1

7.What is the future value of $450 at an interest rate of 11 percent one year from today? a.$495.00

b.$495.40

c.$494.50

d.$499.50

ANSWER: d.$499.50

TYPE: M DIFFICULTY: 1 SECTION: 14.1

8.Two years ago Rudolph put $3,000 in an account paying 3 percent interest. How much does he have in the account today? a.$3,180.00

b.$3,182.70

c.$3,183.62

d.None of the above are correct to the nearest penny. ANSWER: b.$3,182.70

TYPE: M DIFFICULTY: 1 SECTION: 14.1

9.Three years ago Warren put $1,200 in an account paying 2 percent interest. How much is the account worth today? a.$1,225.38

b.$1,248.48

c.$1,264.72

d.$1,273.45

ANSWER: d.$1,273.45

TYPE: M DIFFICULTY: 1 SECTION: 14.1

10.Lisa deposits $250 in an account and one year later has $270; what was the interest rate? a.8 percent

b.9 percent

c.10 percent

d.None of the above are correct.

ANSWER: a.8 percent

TYPE: M DIFFICULTY: 1 SECTION: 14.1

11.Mark puts $500 in an account and one year later has $550; what was the interest rate on the account? a.10 percent

b.9 percent

c.8 percent

d.None of the above are correct.

ANSWER: a.10 percent

TYPE: M DIFFICULTY: 1 SECTION: 14.1

12.Darby puts $75 in an account and one year later has $100; what was the interest rate on the account? a.20 percent

b.25 percent

c.30 percent

d.None of the above are correct.

ANSWER: d.None of the above are correct.

TYPE: M DIFFICULTY: 1 SECTION: 14.1

13.Susan puts $125 into an account and one year later has $135; what was the interest rate? a.5 percent

b.7 percent

c.8 percent

d.10 percent

ANSWER: c.8 percent

TYPE: M DIFFICULTY: 1 SECTION: 14.1

14.Fred puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Fred wait to check his balance? a.3 years

b.3.5 years

c.4 years

d.4.5 years

ANSWER: a.3 years

TYPE: M DIFFICULTY: 2 SECTION: 14.1

15.Brad puts $200 into an account when the interest rate is 8...