# Managerial Finance Answers

TIME VALUE OF MONEY

(Difficulty: E = Easy, M = Medium, and T = Tough)

Multiple Choice: Problems

Easy:

FV of a single payment Answer: d Diff: E . You deposit $2,000 in a savings account that pays 10 percent interest, compounded annually. How much will your account be worth in 15 years?

a. $2,030.21

b. $5,000.00

c. $8,091.12

d. $8,354.50

e. $9,020.10

FV of a single payment Answer: c Diff: E . You deposit $1,000 in a savings account that pays 9 percent interest, compounded annually. How much will your account be worth in 6 years?

a. $1,054.00

b. $1,199.00

c. $1,677.10

d. $1,689.48

e. $7,523.33

PV of a single payment Answer: b Diff: E . You can earn 8 percent interest, compounded annually. How much must you deposit today to withdraw $10,000 in 6 years?

a. $5,402.69

b. $6,301.70

c. $6,756.76

d. $8,432.10

e. $9,259.26

PV of a single payment Answer: e Diff: E . You can earn 15 percent interest, compounded annually. How much must you deposit today to withdraw $4,000 in 10 years?

a. $525.11

b. $842.51

c. $869.57

d. $957.57

e. $988.74

Growth rate Answer: d Diff: E . In 1958 the average tuition for one year at an Ivy League school was $1,800. Thirty years later, in 1988, the average cost was $13,700. What was the growth rate in tuition over the 30-year period?

a. 12%

b. 9%

c. 6%

d. 7%

e. 8%

Solving for the interest rate for a single payment Answer: e Diff: E . Suppose you invested $1,000 in stocks 10 years ago. If your account is now worth $2,839.42, what rate of return did your stocks earn?

a. 15%

b. 14%

c. 13%

d. 12%

e. 11%

Time for a sum to double Answer: d Diff: E . You are currently investing your money in a bank account which has a nominal annual rate of 7.23 percent, compounded annually. How many years will it take for you to double your money?

a. 8.67 years

b. 9.15 years

c. 9.50 years

d. 9.93 years

e. 10.25 years

Solving for N