1. Brian invested $1,000 five years ago and earns 4% interest per annum on his investment. By leaving the interest earnings in the account, he increases the amount of interest he earns each year. What is the term for this effect?
2. Brian wants to know the present value of a bonus he expects to receive next year. This calculation process is known as?
3. Samantha opened a savings account this morning. Her money will earn 5% interest, compounded annually. After five years, her savings account will be worth $5,600. Assume she will not make any withdrawals. Given this, which one of the following statements is true?
A. Samantha deposited more than $5,600 this morning.
B. The present value of Samantha's account is $5,600.
C. Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest.
D. Samantha would have had to deposit more money to have $5,600 in five years if she could have earned 6 percent interest.
E. Samantha will earn an equal amount of interest every year for the next five years.
4. Your grandmother has promised to give you $5,000 when you graduate from college. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now?
A. remains constant
B. increases
C. decreases
D. becomes negative
E. cannot be determined from the information provided
5. Dani is going to receive $20,000 six years from now. Mia is going to receive $20,000 nine years from now. If we apply the same 7% discount rate to these amounts, who's money is worth more today and why?
6. Today, you earn a salary of $45,000 per year. What will be your annual salary 8 years from now if you earn annual raises of 3% per annum?
7. You hope to buy your dream car 5 years from now. Today, that car costs $41,100. You expect the price to increase by an average of 4% per year over the next 5 years. How much will your dream car cost by the time you are ready to buy it?
8. You are depositing $3,200 in a retirement account today and expect to earn an average return of 8% per year on this money. How much additional income will you earn if you leave the money invested for 25 years instead of just 20 years?
9. Your father invested a lump sum 25 years ago which earned 6.5% interest per year. Today, he gave you the proceeds of that investment which totaled $60,346. How much did your father originally invest?
10. What is the present value of $125,000 to be received 10 years from today if the discount rate is 7.5%?
11. Stuart needs $60,000 as a down payment for a house 5 years from now. He earns 3% per year on his savings. Stuart can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today?
12. Two years ago, you invested $2,500. Today it is worth $2,809. What rate of interest per annum did you earn?
13. Twenty years ago, your mother invested $15,000. Today, that investment is worth $76,681. What is the average annual rate of return she earned on this investment?
14. Twelve years ago, APC Logistics set aside $100,000 in case of a financial emergency. Today, that account has increased in value to $230,323. What rate of interest is the firm earning on this money?
15. Fourteen years ago, your parents set aside $37,500 to help fund your college education. Today, that fund is valued at $71,332. What rate of interest is being earned on this account?
16. Some time ago, Vanessa purchased eleven acres of land costing $58,500. Today, that land is valued at $253,167. How long has she owned this land if the price of the land has been increasing at 9% per year?
17. On your ninth birthday, you received $500 which you invested at 4% interest, compounded annually. Your investment is now worth $1,185. How old are you today?
18. Assume the total cost of a college education will be $200,000 when your child enters college in 15 years. You presently have $80,000 to invest. What rate of interest must you earn on your investment to cover the cost of your child's college education?
19. At 7% interest, how long would it take to quadruple your money?
20. You're trying to save to buy a new $135,000 Ferrari. You have $65,000 today that can be invested at your bank. The bank pays 5% annual interest on its accounts. How many years will it be before you have enough to buy the car? Assume the price of the car remains constant.