Professional Documents
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Andy deposited $3,000 this morning into an account that pays 5 percent
interest, compounded annually. Barb also deposited $3,000 this
morning into an account that pays 5 percent interest, compounded
annually. Andy will withdraw his interest earnings and spend it as soon
as possible. Barb will reinvest her interest earnings into her account.
Given this, which one of the following statements is true?
A
A. Barb will earn more interest the first year than Andy will.
B
B. Andy will earn more interest in year three than Barb will.
C
C. Barb will earn more interest the second year than Andy.
D
D. After five years, Andy and Barb will both have earned the same amount of interest.
E
E. Andy will earn compound interest.
Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25
years old. Neal invests $5,000 at 7 percent when he is 30 years old.
Both investments compound interest annually. Both Sue and Neal retire
at age 60. Which one of the following statements is correct assuming
neither Sue nor Neal withdraw any money from their accounts prior to
retiring?
A
A. Sue will have less money when she retires than Neal.
B
B. Neal will earn more interest on interest than Sue.
C
C. Neal will earn more compound interest than Sue.
D
D. If both Sue and Neal wait to age 70 to retire, they will have equal amounts of savings.
E
E. Sue will have more money than Neal at age 60.
This afternoon, you deposited $1,000 into a retirement savings account. The account will
compound interest at 6 percent annually. You will not withdraw any principal or interest until you
retire in 40 years. Which one of the following statements is correct?
Correct Answer:
Today, you earn a salary of $28,000. What will be your annual salary 12
years from now if you earn annual raises of 2.6 percent?
A
A. $38,100.12
B
B. $37,414.06
C
C. $38,235.24
D
D. $37,122.08
E
E. $36,736.00
You hope to buy your dream car four years from now. Today, that car
costs $54,500. You expect the price to increase by an average of 3.1
percent per year over the next four years. How much will your dream
car cost by the time you are ready to buy it?
A
A. $58,340.00
B
B. $58,666.67
C
C. $61,578.79
D
D. $61,818.02
E
E. $61,023.16
You just received a $5,000 gift from your grandmother. You have
decided to save this money so that you can gift it to your grandchildren
50 years from now. How much additional money will you have to gift to
your grandchildren if you can earn an average of 7.5 percent instead of
just 7 percent on your savings?
A
A. $39,318.09
B
B. $39,464.79
C
C. $38,211.16
D
D. $37,811.99
E
E. $38,663.60
Which one of the following compounding periods will yield the lowest
effective annual rate given a stated future value at year 5 and an annual
percentage rate of 10 percent?
A
A. Annual.
B
B. Semiannual.
C
C. Monthly.
D
D. Daily.
E
E. Continuous.
An amortized loan:
A
A. Requires the principal amount to be repaid in even increments over the life of the loan.
B
B. May have equal or increasing amounts applied to the principal from each loan
payment.
C
C. Requires that all interest be repaid on a monthly basis while the principal is repaid at
the end of the loan term.
D
D. Requires that all payments be equal in amount and include both principal and interest.
E
E. Repays both the principal and the interest in one lump sum at the end of the loan term.
A firm has an interval measure of 48. This means that the firm has
sufficient liquid assets to ________________________. Ratios that
measure a firm’s liquidity are known as _______________ratios.
A
Pay all of its debts that are due within the next 48 hours; Asset management.
B
Pay all of its debts that are due within the next 48 days; Long-term solvency.
C
Cover its operating costs for the next 48 hours; Profitability
D
Cover its operating costs for the next 48 days; Short-term solvency.
E
Meet the demands of its customers for the next 48 hours; Book value.