1) Your grandmother places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct?
A) The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the interest rate is 5%.
B) The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the interest rate is 7%.
C) The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%.
D) The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the interest rate is 5%.
Answer: C
Explanation: C) The $13,000 is the principal or present value, the interest rate is stated as 7%, the time period is identified as 5 years, and the future value is $18,233.17.
2) The one-time payment of money at a future date is often called a ________.
A) lump-sum payment
B) present value
C) principal amount
D) perpetuity payment
Answer: A
3) A $100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.
A) $100
B) $120
C) $121
D) $122
Answer: C
4) An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment?
A) The interest earned in year one is $8.32 and the interest earned in year two is $8.32.
B) The interest earned in year one is $8.00 and the interest earned in year two is $8.64.
C) The interest earned in year one is $8.64 and the interest earned in year two is $8.00.
D) There is not enough information to solve this problem.
Answer: B
5) ________ is simply the interest earned in subsequent periods on the interest earned in prior periods.
A) Quoted interest
B) Anticipated...