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Chapter 2+3-MCQ

This document contains 12 multiple choice questions about topics related to finance, including compound interest, present value, internal rate of return, and time value of money. The questions cover calculating future and present values under different interest rates, rule of 72, impacts of interest rates and time on present value, discount rates, and criteria for evaluating investments based on internal rate of return versus opportunity cost of funds.

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Nguyễn Việt Lê
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399 views

Chapter 2+3-MCQ

This document contains 12 multiple choice questions about topics related to finance, including compound interest, present value, internal rate of return, and time value of money. The questions cover calculating future and present values under different interest rates, rule of 72, impacts of interest rates and time on present value, discount rates, and criteria for evaluating investments based on internal rate of return versus opportunity cost of funds.

Uploaded by

Nguyễn Việt Lê
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 2+3 Multiple choice questions

1. $5,000 invested at 6%, compounded quarterly, will be worth how much after 5 years?
a. $6,691 b. $16,036 c. $6,734 d. $5,386
2. Tom deposits $10,000 in a savings deposit paying 4%, compounded monthly. What amount
would he have at the end of seven years?
a. $13,225 b. $13,159 c. $13,179 d. $13,325
3. Judy would like to accumulate $70,000 by the time her son starts college in ten years. What
amount would she need to deposit now in a deposit account earning 6%,
compounded yearly, to accumulate her savings goal?
a. $4,200 b. $39,513 c. $39,088 d. $125,359
4. Suppose that Joe receives a one-year simple loan from Bank A for $9,000.00. At the end of the
year Joe repays $9,720.00 to Bank A. The interest rate on Joe's loan was:
a. $800. b. 7.2%. c. 8.0%. d. None of the above is correct.
5. An individual is promised a $1,000 payment one year from today. If she faces an interest rate of
5%, how much would she would be willing to accept today in exchange for this future payment?
a. $1005.00 b. $1050.00 c. $950.00 d. $952.38
6. Rule 72 says that at 6% interest rate an initial balance of $500 should become $1,000 in about:
a. 7 years. b. 8 years. c. 12 years. d. 6.94 years.
7. The longer the time (n) until the payment:
a. the lower the present value.
b. the higher the present value because time is valuable.
c. the lower must be the interest rate.
d. None of the above.
8. A change in the interest rate has:
a. larger impact on the present value of a payment to be made far into the future than one to be
made sooner.
b. will not have a difference on the present value of two equal payments to be made at different
times.
c. a smaller impact on the present value of a payment to be made far into the future than one to be
made sooner.
d. None of the above.
9. People with a high discount rate will require:
a. a higher interest rate to entice them to save.
b. investment options with longer maturities.
c. a lower interest rate to entice them to save.
d. a and b
10. If the internal rate of return from an investment is less than the opportunity cost of funds:
a. the firm should make the investment.
b. the firm should not make the investment.
c. the firm should only make the investment using retained earnings.
d. None of the above.
11. An investment carrying a current cost of $130,000 is going to generate $70,000 of revenue in
each of the next three years. To calculate the internal rate of return we need to:
a. calculate the present value of each of the $70,000 payments and multiply these and set this equal
to $130,000.
b. take the present value of $210,000 for three years from now and set this equal to $130,000.
c. set the sum of the present value of $70,000 for each of the next three years equal to $130,000.
d. subtract $130,000 from $210,000 and set this difference equal to the interest rate.
12. Suppose that $1,000 is deposited in an interest-bearing account for 3 years when the annual
interest rate is 5%. At the end of this three-year period, the value of the balance will equal:
a. $863.84.
b. $1,000.00.
c. $1,050.00.
d. $1,150.00.
e. $1,157.62.

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