FUTURE VALUE

d 20. What is the future value of $2,896 invested for twelve years at 6.5 percent
compounded annually?
a. $5,827.32
b. $6,023.44
c. $6,049.45
d. $6,165.86
e. $6,218.03

FUTURE VALUE
c 21. Today you earn a salary of $28,500. What will be your annual salary fifteen years from
now if you earn annual raises of 3.5 percent?
a. $47,035.35
b. $47,522.89
c. $47,747.44
d. $48,091.91
e. $48,201.60
PRESENT VALUE
b 24. Your grandmother invested one lump sum 17 years ago at 4.25 percent interest.
Today, she gave you the proceeds of that investment which totaled $5,539.92. How
much did your grandmother originally invest?
a. $2,700.00
b. $2,730.30
c. $2,750.00
d. $2,768.40
e. $2,774.90

PRESENT VALUE
b 25. What is the present value of $13,450 to be received four years from today if the
discount rate is 5.25 percent?
a. $10,854.20
b. $10,960.59
c. $10,974.21
d. $10,982.18
e. $11,003.14

INTEREST RATE FOR MULTIPLE PERIODS

d 28. Forty years ago, your father invested $2,500. Today that investment is worth $107,921.
What is the average rate of return your father earned on his investment?
a. 8.50 percent
b. 9.33 percent
c. 9.50 percent
d. 9.87 percent
e. 9.99 percent
INTEREST RATE FOR MULTIPLE PERIODS
d 29. Ten years ago, Joe invested $5,000. Five years ago, Marie invested $2,500. Today,
both Joe and Marie’s investments are each worth $8,500. Which one of the following
statements is correct concerning their investments?
a. Three years from today, Joe’s investment will be worth more than Marie’s.
b. Last year, Marie’s investment was worth more than Joe’s.
c. Joe has earned more interest on interest than Marie.
d. Marie earned an annual interest rate of 27.73 percent.
e. Joe earned an annual interest rate of 6.45 percent.

INTEREST RATE FOR MULTIPLE PERIODS

c 30. Alpha, Inc. is saving money to build a new factory. Six years ago they set aside
$250,000 for this purpose. Today, that account is worth $306,958. What rate of interest
is Alpha earning on this money?
a. 3.43 percent
b. 3.45 percent
c. 3.48 percent
d. 3.52 percent
e. 3.55 percent

NUMBER OF TIME PERIODS

e 32. On your tenth birthday, you received $100 which you invested at 4.5 percent interest,
compounded annually. That investment is now worth $3,000. How old are you today?
a. age 77
b. age 82
c. age 84
d. age 86
e. age 87

PRESENT VALUE AND RATE CHANGES

e 34. Your older sister deposited $5,000 today at 8 percent interest for five years. You would
like to have just as much money at the end of the next five years as your sister.
However, you can only earn 6 percent interest. How much more money must you
deposit today than your sister if you are to have the same amount at the end of five
years?
a. $201.80
b. $367.32
c. $399.05
d. $423.81
e. $489.84

PRESENT VALUE AND TIME CHANGES

d 35. When you retire forty years from now, you want to have $1 million. You think you can
earn an average of 8.5 percent on your money. To meet this goal, you are trying to
decide whether to deposit a lump sum today, or to wait and deposit a
lump sum five years from today. How much more will you have to deposit as a lump
sum if you wait for five years before making the deposit?
a. $18,001.06
b. $18,677.78
c. $18,998.03
d. $19,272.81
 e. $21,036.83

PRESENT VALUE AND TIME CHANGES

b 36. Antonette needs $20,000 as a down payment for a house five years from now. She
earns 4 percent on her savings. Antonette can either deposit one lump sum today for
this purpose or she can wait a year and deposit a lump sum. How much additional
money must Antonette deposit if she waits for one year rather than making the deposit
today?
a. $639.19
b. $657.54
c. $658.23
d. $659.04
e. $800.00

FUTURE VALUE AND RATE CHANGES

e 37. Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for
eight years from now. How much additional money will they have eight years from
now if they can earn 9 percent rather than 7 percent on this money?
a. $58,829.69
b. $86,991.91
c. $118,009.42
d. $126,745.19
e. $137,188.23

ORDINARY ANNUITY AND PRESENT VALUE

b 25. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you
can earn 8 percent on your money, what is this prize worth to you today?
a. $87,003.69
b. $87,380.23
c. $87,962.77
d. $88,104.26
e. $90,723.76

ORDINARY ANNUITY AND PRESENT VALUE

b 26. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9 percent, how
much can Todd afford to borrow to buy a car?
a. $6,961.36
b. $8,499.13
c. $8,533.84
d. $8,686.82
e. $9,588.05
ORDINARY ANNUITY VERSUS ANNUITY DUE
a 33. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your
discount rate is 8.5 percent. What is the difference in the present value if you receive these
payments at the beginning of each year rather than at the end of each year?
a. $8,699
b. $9,217
c. $9,706
d. $10,000
e. $10,850
ORDINARY ANNUITY VERSUS ANNUITY DUE
d 34. You are comparing two annuities with equal present values. The applicable discount rate is 7.5
percent. One annuity pays $5,000 on the first day of each year for twenty years. How much
does the second annuity pay each year for twenty years if it pays at the end of each year?
a. $4,651
b. $5,075
c. $5,000
d. $5,375
e. $5,405

ORDINARY ANNUITY AND FUTURE VALUE

c 38. Janet plans on saving $3,000 a year and expects to earn 8.5 percent. How much will Janet have
at the end of twenty-five years if she earns what she expects?
a. $219,317.82
b. $230,702.57
c. $236,003.38
d. $244,868.92
e. $256,063.66

ANNUITY DUE VERSUS ORDINARY ANNUITY

b 39. Toni adds $3,000 to her savings on the first day of each year. Tim adds $3,000 to his savings on
the last day of each year. They both earn a 9 percent rate of return. What is the difference in
their savings account balances at the end of thirty years?
a. $35,822.73
b. $36,803.03
c. $38,911.21
d. $39,803.04
e. $40,115.31

ORDINARY ANNUITY PAYMENTS

d 40. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years
at a 5.9 percent rate of interest. What is the amount of each payment?
a. $103.22
b. $103.73
c. $130.62
d. $131.26
e. $133.04
ANNUITY DUE PAYMENTS AND FUTURE VALUE
a 51. Your firm wants to save $250,000 to buy some new equipment three years from now. The plan
is to set aside an equal amount of money on the first day of each year starting today. The firm
can earn a 4.7 percent rate of return. How much does the firm have to save each year to achieve
their goal?
a. $75,966.14
b. $76,896.16
c. $78,004.67
d. $81.414.14
e. $83,333.33

UNEVEN CASH FLOWS AND PRESENT VALUE

a 65. You are considering two savings options. Both options offer a 4 percent rate of return. The first
option is to save $1,200, $1,500, and $2,000 a year over the next three years, respectively. The
 other option is to save one lump sum amount today. If you want to have the same balance in
your savings at the end of the three years, regardless of the savings method you select, how
much do you need to save today if you select the lump sum option?
a. $4,318.67
b. $4,491.42
c. $4,551.78
d. $4,607.23
e. $4,857.92

UNEVEN CASH FLOWS AND PRESENT VALUE

b 66. You are considering two insurance settlement offers. The first offer includes annual payments
of $5,000, $7,500, and $10,000 over the next three years, respectively. The other offer is the
payment of one lump sum amount today. You are trying to decide which offer to accept given
the fact that your discount rate is 5 percent. What is the minimum amount that you will accept
today if you are to select the lump sum offer?
a. $19,877.67
b. $20,203.00
c. $21,213.15
d. $23,387.50