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Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:


A) simple interest.
B) interest on interest.
C) discounted interest.
D) complex interest.
E) compound interest.

F) B) and C)
G) A) and C)

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Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years?


A) Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years? A) B) C) D) E)
B) Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years? A) B) C) D) E)
C) Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years? A) B) C) D) E)
D) Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years? A) B) C) D) E)
E) Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years? A) B) C) D) E)

F) A) and E)
G) A) and B)

Correct Answer

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Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000 back some time in the future. Which one of the following statements is correct?


A) The period of time she has to wait until she reaches her goal is unaffected by the compounding of interest.
B) The lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal.
C) She will have to wait longer if she earns 6 percent compound interest instead of 6 percent simple interest.
D) The length of time she has to wait to reach her goal is directly related to the interest rate she earns.
E) The period of time she has to wait decreases as the amount she invests today increases.

F) C) and D)
G) A) and B)

Correct Answer

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You and your brother are planning a large anniversary party 3 years from today for your grandparents' 50th wedding anniversary. You have estimated that you will need $2,500 for this party. You can earn 3.5 percent compounded annually on your savings. How much would you and your brother have to deposit today in one lump sum to pay for the entire party?


A) $2,199.74
B) $2,254.86
C) $2,308.16
D) $2,334.90
E) $2,368.81

F) A) and B)
G) C) and E)

Correct Answer

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Draw a graph that illustrates the relationship between interest rates and the present value of $1,000 to be received in one year.

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Students should illu...

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Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent.


A) Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent. A) B) C) D) E)
B) Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent. A) B) C) D) E)
C) Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent. A) B) C) D) E)
D) Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent. A) B) C) D) E)
E) Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent. A) B) C) D) E)

F) A) and C)
G) A) and B)

Correct Answer

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The interest rate used to compute the present value of a future cash flow is called the:


A) prime rate.
B) current rate.
C) discount rate.
D) compound rate.
E) simple rate.

F) B) and E)
G) B) and D)

Correct Answer

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At 14 percent interest, how long does it take to quadruple your money?


A) 10.42 years
B) 10.58 years
C) 11.03 years
D) 11.21 years
E) 11.36 years

F) C) and E)
G) A) and D)

Correct Answer

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