Dowbean

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Chapter 5, 6 Review
1. You invested $1,650 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually?  A. $849.22
B. $930.11
C. $982.19
D. $1,021.15
E. $1,077.94
2. Today, you earn a salary of $36,000. What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent?  A. $55,032.54
B. $57,414.06
C. $58,235.24
D. $59,122.08
E. $59,360.45
3. You hope to buy your dream car four years from now. Today, that car costs $82,500. You expect the price to increase by an average of 4.8 percent per year over the next four years. How much will your dream car cost by the time you are ready to buy it?  A. $98,340.00

B. $98,666.67
C. $99,517.41
D. $99,818.02
E. $100,023.16
4. Your father invested a lump sum 26 years ago at 4.25 percent interest. Today, he gave you the proceeds of that investment which totaled $51,480.79. How much did your father originally invest?  A. $15,929.47

B. $16,500.00
C. $17,444.86
D. $17,500.00
E. $17,999.45
5. What is the present value of $150,000 to be received 8 years from today if the discount rate is 11 percent?  A. $65,088.97
B. $71,147.07
C. $74,141.41
D. $79,806.18
E. $83,291.06
 6. You would like to give your daughter $75,000 towards her college education 17 years from now. How much money must you set aside today for this purpose if you can earn 8 percent on your investments?  A. $18,388.19

B. $20,270.17
C. $28,417.67
D. $29,311.13
E. $32,488.37

7. One year ago, you invested $1,800. Today it is worth $1,924.62. What rate of interest did you earn?  A. 6.59 percent
B. 6.67 percent
C. 6.88 percent
D. 6.92 percent
E. 7.01 percent

8. According to the Rule of 72, you can do which one of the following?  A. double your money in five years at 7.2 percent interest
B. double your money in 7.2 years at 8 percent interest
C. double your money in 8 years at 9 percent interest
D. triple your money in 7.2 years at 5 percent interest
E. triple your money at 10 percent interest in 7.2 years

9. Fourteen years ago, your parents set aside $7,500 to help fund your college education. Today, that fund is valued at $26,180. What rate of interest is being earned on this account?  A. 7.99 percent

B. 8.36 percent
C. 8.51 percent
D. 9.34 percent
E. 10.06 percent

10. At 11 percent interest, how long would it take to quadruple your money?  A. 6.55 years
B. 6.64 years
C. 13.09 years
D. 13.28 years
E. 13.56 years

11. Suppose that the first comic book of a classic series was sold in 1954. In 2000, the estimated price for this comic book in good condition was about $340,000. This represented a return of 27 percent per year. For this to be true, what was the original price of the comic book in 1954?  A. $5.00

B. $5.28
C. $5.50
D. $5.71
E. $6.00

12. An ordinary annuity is best defined by which one of the following?  A. increasing payments paid for a definitive period of time B. increasing payments paid forever
C. equal payments paid at regular intervals over a stated time period D. equal payments paid at regular intervals of time on an ongoing basis E. unequal payments that occur at set intervals for a limited period of time

13. Which one of the following accurately defines a perpetuity?  A. a limited number of equal payments paid in even time increments B. payments of equal amounts that are paid irregularly but indefinitely C. varying amounts that are paid at even intervals forever

D. unending equal payments paid at equal time intervals
E. unending equal payments paid at either equal or unequal time intervals

14. Which one of the following terms is used to identify a British perpetuity?  A. ordinary annuity
B. amortized cash flow
C. annuity due
D. discounted loan
E. consol

15. Which one of the following statements concerning interest rates is correct?  A. Savers would prefer annual compounding over monthly compounding. B. The effective...
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