California Investors recently advertised the following claim: Invest your money with us at 21%, compounded annually, and we guarantee to double your money sooner than you imagine. Ignoring taxes, how long would it take to double your money at a nominal rate of 21%, compounded annually? Round off to the nearest year.
A) Approximately two years
B) Approximately four years
C) Approximately six years
D) Approximately eight years
Using a financial calculator, which of the following would be a correct way to find how long it would take for a sum to triple at a rate of 3%?
A) i=5, PV=-1, PMT = 0, FV=3, solve for N
B) i=5, PV=1, PMT = 0, FV=3, solve for N
C) i=.05, PV=-1, PMT = 0, FV=3, solve for N
D) Financial calculators cannot be used to solve this problem.
Stephen's grandmother deposited $100 in an investment account for him when he was born, 25 years ago. The account is now worth $1,500. What was the average rate of return on the account?
A) 6.00%
B) 16.67%
C) 15.00%
D) 11.44%
Stephen's grandmother deposited $100 in an investment account for him when he was born, 25 years ago. The account is now worth $1,500. What was the average rate of return on the account? Which of the following is a correct way to solve this problem using EXCEL?
A) =PV(25,i,-100,1500)
B) =rate(25,0,100,1500)
C) =rate(25,0,-100,1500)
D) =rate(0,-100,1500,25)
The present value of $400 to be received at the end of 10 years, if the discount rate is 5%, is
A) $400.00.
B) $248.40.
C) $313.60.
D) $245.60.
The present value of $1,000 to be received at the end of five years, if the discount rate is 10%, is
A) $621.
B) $784.
C) $614.
D) $500.
What is the present value of an investment that pays $400 at the end of three years and $700 at the end of 10 years if the discount rate is 5%?
A) $1,100.00
B) $675.30
C) $775.40
D) $424.60
The present value of a single sum
A) increases as the discount rate decreases.
B) decreases as the discount rate decreases.
C) increases as the number of discount periods increases.
D) increases as the discount rate increases.
E) none of the above.
As the discount rate increases, the present value of future cash flows increases.
Answer: FALSE
As the compound interest rate increases, the present value of future cash flows decreases.
Answer: TRUE
The present value of a future sum of money increases as the number of years before the payment is received increases.
Answer: FALSE
When calculating either discount rates or the number of periods using a financial calculator, the PV and FV must have opposite signs.
Answer: TRUE
