S U F F O L K U N I V E R S I T Y
Instructor: Ki C. Han
1. ( T or F ) Other things being the same, the future value of an annuity is higher than that of an annuity due.
2. ( T or F ) As the interest rate increases, the future value of a lump sum increases.
3. ( T or F ) Other things being the same, depositors can earn more interest under quarterly compounding than under monthly compounding.
4. If an investor invests $2,500 in a savings account that pays 5% interest, after 20 years he or she will have accumulated _______.
a. $3,442 b. $5,000 c. $6,221 d. $6,633
5. If an investment earns 11% per year, how long would it take for a sum of money to triple in size?
a. between 6 & 7 years b. between 8 & 9 years c. between 10 & 11 years d. between 12 & 13 years
6. You want to retire a millionaire. How much must you invest at the end of each month for the next 40 years to accumulate $1,000,000? The interest rate is 12% per year.
a. $85 b. $162 c. $320 d. $755
7. Your broker offers to sell you a note for $13,250 that will pay $2,500.50 per year for 10 years. If you buy the note, what rate of interest will you be earning?
a. 7.2% b. 10.5% c. 13.6% d. 15.3%
8. If an investment of $10,000 today earns 9% in each of the next two years, and then earns 5% per year for three years after that, how much will the investment be worth at the end of the five years?
a. $13,300 b. $13,754 c. $13,794 d. $14,402
9. You deposit a single amount of $50,000 in a savings account that pays 7.6% annual interest (compounded quarterly). How much will you have at the end of four and one-half years?
a. $68,145 b. $70,163 c. $72,664 d. $75,050
10. You will deposit $5,000 at the end of each of next 5 years. If the interest rate is 8% (annual compounding), how much will you have accumulated in 20 years?
a. $33,460.59 b. $57,667.89 c. $72,894.90 d. $93,049.24
11. You have just been notified that you won the lottery. You will be paid 10 annual payments of $1,000,000, with the first one starting today. Using an interest rate of 8% (annual compounding), how much did you really win (in terms of present value)?
a. $6,345,879.98 b. $7,246,887.91 c. $8,564,778.01 d. $10,000,000.00
12. Ten years ago you invested $10,000. Today you received $25,000. What is your annual return?
a. 9.6% b. 10.5% c. 12.7% d. 13.3%