Practice Quiz Chapter 03

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. You deposit $4,000 in a savings account that earns 7% simple interest per year. What is the minimum number of years you must wait to double your balance? Now suppose you deposit the same amount in another savings account that earns 6% compounded yearly. How many years will it now take to double your balance?

a) 14.3 and 11.9 years correct incorrect

b) 12.9 and 13.1 years correct incorrect

c) 13.9 and 10.1 years correct incorrect

d) 15.1 and 13.3 years correct incorrect

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. Suppose that you are obtaining a personal loan from your uncle in the amount of $18,000 (presently) to be repaid in two years. If your uncle earns 5% interest (annually) on his money, which minimum lump-sum payment two years from now would make your uncle happy?

a) $19,700 correct incorrect

b) $19,845 correct incorrect

c) $21,300 correct incorrect

d) $20,400 correct incorrect

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. Suppose you have the alternative of receiving either $10,000 at the end of five years or P dollars today. Currently you have no need for money, so you would deposit the P dollars in a bank that pays 8% interest. What value of P would make you indifferent in your choice between P dollars today and the promise of $10,000 at the end of 5 years?

a) $6,450 correct incorrect

b) $6,380 correct incorrect

c) $5,520 correct incorrect

d) $6,806 correct incorrect

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. How many years will it take an investment to triple if the interest rate is 7% compounded (a) quarterly and (b) continuously?

a) 12.3 and 12.6 years correct incorrect

b) 13.3 and 13.9 years correct incorrect

c) 15.8 and 15.7 years correct incorrect

d) 14.2 and 14.6 years correct incorrect

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. A dealer will sell goods to his regular customers for $15 immediately or $18 if the payment is deferred one week. What annual nominal interest rate is the dealer receiving?

a) 1040% correct incorrect

b) 340% correct incorrect

c) 560% correct incorrect

d) 970% correct incorrect

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. You hope to make a single deposit today that will earn interest at 8% and that will grow to $20,000 in 10 years. How much should you deposit?

a) $6,364 correct incorrect

b) $7,694 correct incorrect

c) $9,264 correct incorrect

d) $9,334 correct incorrect

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. Suppose Apple's share price has double during the last six years. At what annual rate has it been growing?

a) 33.33% correct incorrect

b) 16.67% correct incorrect

c) 15% correct incorrect

d) 12% correct incorrect

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. Mr. Bean is able to save $5,000 per year. What interest rate should be earned to accumulate $50,000 in 15 years from now?

a) 5.26% correct incorrect

b) 6.13% correct incorrect

c) 8.04% correct incorrect

d) 9.09% correct incorrect

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. Landtech Ltd bought a piece of land for $200,000 ten years ago. The company has just sold it for $1,500,000. What rate of return did the firm make?

a) 7.5% correct incorrect

b) 17.5% correct incorrect

c) 21.75% correct incorrect

d) 22.32% correct incorrect

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. How much would you be willing to pay for a $1,000 par value, 5% coupon bond with 10 years to maturity given your required rate of return is 8%?

a) $625.04 correct incorrect

b) $798.7 correct incorrect

c) $870 correct incorrect

d) $1,000 correct incorrect