California Investors recently advertised the following claim: Invest your money with us at 21%, compounded annually

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

Three years from now, Barbara Waters will purchase a laptop computer that will cost $2,250. Assume that Barbara

Three years from now, Barbara Waters will purchase a laptop computer that will cost $2,250. Assume that Barbara can earn 6.25% (compounded monthly) on her money. How much should she set aside today for the purchase? Round off to the nearest $1.

A) $1,250

B) $900

C) $1,866

D) $3,775

If you want to have $875 in 32 months, how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10).

A) $630

B) $570

C) $650

D) $660

Which of the following is the formula for present value?

A) FVn = P(1 + i)n 

B) FVn = (1 + i)/P

C) FVn = P/(1 + i)n 

D) FVn = P(1 + i)-n 

All else constant, the present value of an investment will increase if

A) the investment is discounted at a higher interest rate. 

B) the investment is discounted for fewer years.

C) the investment is discounted at a lower interest rate.

D) both B and C.

Answer:  D

To find the present value of $1000 discounted for 20 years at 8%, when using a financial calculator, the correct entry is

A) N=20, i=.08,PMT = 0, FV=1000 solve for PV

B) N=20, i=8,PMT = 0, FV=1000 solve for PMT

C) N=20, i=.08,PMT = 0, PV=1000 solve for FV

D) N=20, i=8,PMT = 0, FV=1000 solve for PV

What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5%

What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1).

A) $893

B) $3,106

C) $429

D) $833

The present value of a single future sum

A) increases as the number of discount periods increases.

B) is generally larger than the future sum.

C) depends upon the number of discount periods.

D) increases as the discount rate increases.

Assuming two investments have equal lives, a high discount rate tends to favor

A) the investment with large cash flow early.

B) the investment with large cash flow late.

C) the investment with even cash flow.

D) neither investment since they have equal lives.

High discount rates favor

A) neither long-term nor short-term investments.

B) both long-term and short-term investments.

C) long-term investments.

D) short-term investments.

An increase in ________ will decrease present value.

A) the discount rate per period

B) the original amount invested

C) the number of periods

D) both A and C

What is the present value of $12,500 to be received 10 years from today? Assume a discount rate of 8% compounded annually and round to the nearest $10.

A) $5,790

B) $11,574

C) $9,210

D) $17,010

A company is deciding between two options: (1) purchase a piece of equipment for $10,000 or (2) lease the same piece of equipment for three years

A company is deciding between two options: (1) purchase a piece of equipment for $10,000 or (2) lease the same piece of equipment for three years and then return the equipment to the owner. The lease payments are $182.53 per month and have a present value of $6,000. If the company decides to lease, for what amount would the leased asset be recorded at the beginning of the lease?

A) $10,000.

B) $6,000.

C) $4,000.

D) $6,571.

Answer: B

Before signing a lease, a company reports total assets of $500,000 and total liabilities of $300,000. The company then signs a 30-month lease for equipment with payments of $922.21 each month. The lease payments have a present value of $25,000. After recording the inception of the lease, the company would report which of the following?

A) Total assets of $527,666.30, and total liabilities of $325,000.00.

B) Total assets of $525,000.00, and total liabilities of $327,666.30.

C) Total assets of $527,666.30, and total liabilities of $327,666.30.

D) Total assets of $525,000.00, and total liabilities of $325,000.00.

Answer: D