Question 1

Molly Scupper wants to attend Clarke University. She will need $90,000 eight years from today. Assume Molly's bank pays 6% interest compounded quarterly. What must Molly deposit today to have $90,000 in eight years? Verify your answer.

Accepted Answer

The answer of Molly Scupper wants to attend Clarke University....

Question 2

Interest = principal × rate divided by the time.

Accepted Answer

A) True 
 B)False

Question 3

The number of periods in compounding is found by multiplying the number of years times the number of times compounded per year.

Accepted Answer

A) True 
 B)False

Question 4

Compounding interest daily is seldom used in comparison to compounding once a year.

Accepted Answer

A) True 
 B)False

Question 5

Mia Kaminsky wants to attend Riverside Community College. She will need to have $25,000 six years from today. Mia is wondering what she will have to put in the bank today so that she will have $25,000 six years from now. Her bank pays 5% compounded semiannually. Using the tables in the handbook, the amount Mia will have to deposit is:

Accepted Answer

A)  $18,950 
B)  $33,226 
C)  $18,590 
D)  $33,622 
E)  None of these

Question 6

Al Derover wants to buy a used jeep in five years. He estimates the cost will be $12,000. If he invests $8,500 now at a rate of 10% compounded semiannually, will he have enough money to buy the jeep at the end of five years? Show your work.

Accepted Answer

The answer of Al Derover wants to buy a used...

Question 7

Al Safe deposited $15,000 at Q Bank at an interest rate of 16%, compounded quarterly. What was the effective rate (APY)?

Accepted Answer

The answer of Al Safe deposited $15,000 at Q Bank...

Question 8

Pete Sist wants to buy a new Chevrolet in five years. He estimates the car will cost $24,000. Assuming Pete invests $15,000 now at 10% interest compounded semiannually, will he have enough money to buy the car at the end of five years?
He will have $24,433.50; yes

Accepted Answer

The answer of Pete Sist wants to buy a new...

Question 9

Trisha Long wants to buy a boat in five years. She estimates the boat will cost $15,000 at that time. What must Trisha deposit today in an account earning 5% annually to have enough to buy the boat in five years?

Accepted Answer

A)  $12,328.50 
B)  $11,527.50 
C)  $11,752.50 
D)  $11,077.50 
E)  None of these

Question 10

Using the table in your handbook, $6,000 for six years at 8½% compounded daily will grow to:

Accepted Answer

A)  $8,991.02 
B)  $8,950.10 
C)  $9,991.20 
D)  $9,990.02 
E)  None of these

Question 11

Using the interest for daily compounding (in your handbook), $700 would grow to $790 at the end of three years at 8% interest.

Accepted Answer

A) True 
 B)False

Question 12

Compounding looks into the present when we know what we have in the future.

Accepted Answer

A) True 
 B)False

Question 13

Lisa Richter deposited $5,000 at 4% compounded semiannually for three years. At the beginning of the fourth year, Lisa deposited $2,500. What would her balance be at the end of five years assuming she is still earning 4% compounded semiannually?

Accepted Answer

A)  $5,131 
B)  $8,131 
C)  $8,800 
D)  $8,800.99 
E)  None of these

Question 14

In tables for calculating compound interest, the number of periods is equal to:

Accepted Answer

A)  Number of years divided by rate 
B)  Number of years × rate 
C)  Number of years × number of times compounded per year 
D)  Number of years divided by number of times compounded per year 
E)  None of these

Question 15

Gracie Shay wants to buy a new Hummer in five years. Gracie estimates the cost of the Hummer will be $28,000. If she invests $12,000 now at a rate of 6% compounded semiannually, she:

Accepted Answer

A)  Will have enough money 
B)  Will have exactly $16,000 
C)  Will have $18,000 
D)  Will have $16,126.80 
E)  None of these

Question 16

The effective rate (APY) can be calculated by the interest for one year divided by the principal.

Accepted Answer

A) True 
 B)False

Question 17

Anne Katz, the owner of Katz Sport Shop, lends $8,000 to Shelley Slater to help her open an art shop. Shelley plans to repay Anne at the end of eight years with interest compounded semiannually at 8%. At the end of eight years, Anne will receive (use the tables in the handbook):

Accepted Answer

A)  $14,984 
B)  $16,857 
C)  $16,587 
D)  $14,484 
E)  None of these

Question 18

Present value does not:

Accepted Answer

A)  Know future amount 
B)  Know the present dollar amount 
C)  Find present dollar amount 
D)  Use tables 
E)  None of these

Question 19

A table factor of .7513 from a present value table means that if $.75 is invested at a certain rate of interest for a certain number of periods, it would be worth $1 in the past.

Accepted Answer

A) True 
 B)False

Question 20

The nominal rate is really the true rate.

Accepted Answer

A) True 
 B)False

Exam 12: Compound Interest and Present Value

Molly Scupper wants to attend Clarke University. She will need $90,000 eight years from today. Assume Molly's bank pays 6% interest compounded quarterly. What must Molly deposit today to have $90,000 in eight years? Verify your answer.

Interest = principal × rate divided by the time.

The number of periods in compounding is found by multiplying the number of years times the number of times compounded per year.

Compounding interest daily is seldom used in comparison to compounding once a year.

Al Derover wants to buy a used jeep in five years. He estimates the cost will be $12,000. If he invests $8,500 now at a rate of 10% compounded semiannually, will he have enough money to buy the jeep at the end of five years? Show your work.

Al Safe deposited $15,000 at Q Bank at an interest rate of 16%, compounded quarterly. What was the effective rate (APY)?

Pete Sist wants to buy a new Chevrolet in five years. He estimates the car will cost $24,000. Assuming Pete invests $15,000 now at 10% interest compounded semiannually, will he have enough money to buy the car at the end of five years? He will have $24,433.50; yes

Trisha Long wants to buy a boat in five years. She estimates the boat will cost $15,000 at that time. What must Trisha deposit today in an account earning 5% annually to have enough to buy the boat in five years?

Using the table in your handbook, $6,000 for six years at 8½% compounded daily will grow to:

Using the interest for daily compounding (in your handbook), $700 would grow to $790 at the end of three years at 8% interest.

Compounding looks into the present when we know what we have in the future.

Lisa Richter deposited $5,000 at 4% compounded semiannually for three years. At the beginning of the fourth year, Lisa deposited $2,500. What would her balance be at the end of five years assuming she is still earning 4% compounded semiannually?

In tables for calculating compound interest, the number of periods is equal to:

Gracie Shay wants to buy a new Hummer in five years. Gracie estimates the cost of the Hummer will be $28,000. If she invests $12,000 now at a rate of 6% compounded semiannually, she:

The effective rate (APY) can be calculated by the interest for one year divided by the principal.

Anne Katz, the owner of Katz Sport Shop, lends $8,000 to Shelley Slater to help her open an art shop. Shelley plans to repay Anne at the end of eight years with interest compounded semiannually at 8%. At the end of eight years, Anne will receive (use the tables in the handbook) :

Present value does not:

A table factor of .7513 from a present value table means that if $.75 is invested at a certain rate of interest for a certain number of periods, it would be worth $1 in the past.

The nominal rate is really the true rate.