question

Amanda only has $600 today but needs $1,300 to buy a new laptop. How long will Amanda have to wait to buy the laptop if she earns 8 percent compounded annually on her money?

answer

10.05 years
=NPER(.08,0,-600,1300,0)

question

By definition, a bank that pays simple interest on a savings account will pay interest:

answer

only on the initial investment.

question

Compound interest is defined as the interest earned:

answer

on both the initial principal and all interest earned and reinvested in prior periods.

question

Donald Jones invested $3,500 ten years ago with an insurance company that has paid him 2 percent simple interest on his funds. Darla Ward invested $3,500 ten years ago in a fund that has paid her 2 percent interest, compounded annually. How much more interest has Darla earned than Donald over the 10 years?

answer

$66.48
FV(1)=3500*(1+10*0.2)
FV(1)=4200
FV(2)=-FV(2%,10,0,3500,0)
FV(2)=4266.48
4266.48-4200=66.48

question

Juanita invested $1,000 today in an investment that pays 7.25 percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment?

answer

Juanita will earn more interest in year 4 than she will in year 3.

question

Kate wants to invest $1,000 for five years. Which one of the following will provide her with the largest future value?

answer

7 percent interest, compounded monthly
=-FV(.07/12,5*12,0,1000,0)
fv=1417.63

question

Lisa deposits $2,500 into an account paying 5 percent interest, compounded annually. At the same time, Jill deposits $2,500 into an account paying 2.5 percent interest, compounded annually. At the end of five years:

answer

Lisa will have earned more than twice the amount of interest that Jill earned.

question

The Corner Bank pays 4 percent interest, compounded monthly, on its savings accounts. The Uptown Bank pays 4 percent interest, compounded quarterly, on its savings accounts. You want to deposit sufficient funds today so that you will have $2,400 in your account 3 years from today. The amount you must deposit today:

answer

will be greater if you invest with The Uptown Bank.

question

The Mailbox Co. invested $50,000 at 7.5 percent compounded annually for 2 years. How much interest on interest did the company earn over this period of time?

answer

$281.25
FV(1)=50000*(1+0.075)
FV(1)=53750
interet gained=50000*0.075=3750
interest on interest=3750*0.075=281.25

question

Today, you deposit $10,750 in a bank account that pays 3 percent simple interest. How much interest will you earn over the next 7 years?

answer

$2,257.50
10750*0.03*7=2257.5

question

What is the future value of $4,900 invested for 8 years at 7 percent compounded annually?

answer

$8,419.11
=-FV(0.07,8,0,4900,0)

question

Which of the following will increase the total amount of interest earned on an investment? Assume all interest is reinvested.
I. increasing the frequency of the interest payments;
II. decreasing the frequency of the interest payments;
III. increasing the interest rate;
IV. decreasing the interest rate;

answer

I and III only

question

Thirteen years from now, you will be inheriting $30,000. What is this inheritance worth to you today if you can earn 4 percent interest compounded annually?

answer

$18,017.22

question

Tim needs to borrow $5,000 for two years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Tim?

answer

7.5 percent simple interest

question

Which one of the following is a correct statement, all else held constant?

answer

The present value is inversely related to the interest rate.

question

Which one of the following will increase the future value of a lump sum invested today?

answer

increasing the rate of interest

question

You have just won the lottery and received $10,000. You deposited your winnings into an account that pays 7.5 percent interest compounded annually. How long will you have to wait until your winnings are worth $15,000?

answer

5.61 years
=NPER(7.5%,0,-10000,15000,0)

question

You want to have $15,000 for a down payment on a house 5 years from now. If you can earn 13 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal?

answer

$8,141.40
=-PV(0.13,5,0,15000,0)

question

Your firm has been told that it needs $100,000 today to fund a $150,000 expansion project 8 years from now. What rate of interest was used in the present value computation?

answer

5.20 percent
=RATE(8,0,-100000,150000,0)