Question 1

The time value of money concept rests on which of the following principles?

a dollar today is worth more than a dollar in the future

A dollar in the future is worth more than a dollar today

a dollar is always worth the same amount

time is money

a dollar should be spent immediately to get the most value

Question 2

In a rare moment of generosity, you give your nephew $100 on his first birthday. Your nephews mother, however, knows the time value of money, so she invests the money in a 20-year 7% CD. (At maturity the CD pays back the principal plus accumulated interest at 7% a year.) If your nephew cashes in the CD at maturity, how much will he receive?

$107

$358

$387

$2,140

Question 3

In November 2011 you bought 100 shares of Microsoft stock for $35.375 a share. In November 2013, you sold your stock for $92.5625 a share. What was your average annual rate of return on your Microsoft investment? (disregard dividends and commissions)

262%

62%

585%

1.6%

Question 4

How much would you have to deposit each year in an account paying 12% interest annually to accumulate a balance of $5,000 at the end of the fifth year? (Note: the deposits are made at the end of years 1 through 5)

$2,837

$787

$417

$1,387

Question 5

Examining your finances, you decide that you can afford to invest $1,200 each year toward your retirement fund. If you invest the money at the end of each year at 9% interest, and you retire in 20 years, how much will be in your fund at that time?

$6,725

$10,954

$24,000

$61,392

Question 6

Joe's Dockyard is financing a new boat with an amortizing loan of $24,000 which is to be repaid in 10 annual installments of $4,247.62 each. What interest rate is Joe paying on the loan?

18.9%

17.7%

14.0%

12.0%

Question 7

Your friend has given you a hot tip about an investment deal that will pay off $6,000 a year at the end of each of the next three years. If your required rate of return for investments with this degree of risk is 7%, approximately how much is the investment worth to you today?

$4,900

$14,695

$15,745

$19,290

Question 8

You've been offered the opportunity to invest $200,000 for 10 years in return for 10 annual payments of $30,000 each. What annual percent rate return will you get if you take the deal?

Between 20 and 21%

Between 16 and 17%

Between 8 and 9%

15%

Question 9

From a financial point of view, which is the best choice, to receive $800 now, or a note that promises $1,000 three years from now? Interest rates on three-year securities are 7%.

$800 now

$1,000 three years from now

Question 10

Tom's Toyotas has a 2012 4 Runner on sale for $16,995. If you could borrow that amount from Tom's Credit Union at 7% for 4 years, what would be your monthly loan payments?

$232.30

$378.85

$406.97

$5,017.40