Question

J Approximately what interest rate is needed to double an investment over six years? A) 17 percent B) 100 percentC) 12 percent D) 6 percent 9) Determine the in Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year. 9) A) 0.89 percent C) 89.00 percent B) 12.00 percent D) 1.12 percent 10) Consider a $1.000 deposit earning 7 percent interest per year for four years. How much total interest is earned on the original deposit (excluding interest earned on interest)? 10) A) $30.00 B) $310.00 C) $280.00 D) $28.00 11) Consider a $200 deposit caming 8 percent interest per year for three years. How much total interest is earned on interest (excluding interest earned on the original deposit)? 11) A) $3.94 B) $51.94 C) $48.00 D) $24.00 12) What is the value in year 3 of a $500 cash flow made in year 5 when interest rates are 6 percent? 12) A) $445 B) S420 C) $440 D) $374 13) What is the value in year 6 of a $900 cash flow made in year 4 when the interest rates are 8 percent? 13) A) $1,428.19 B) $1,044.00 C) $1,332.00 D) $1.049.76 14) What annual rate of return is earned on a $5,000 investment when it grows to $7.000 in six years? A) 40.00 percent C) 5.45 percent B) 5.77 percent D) 1.40 percent 15) How many years will it take $100 to grow to $1,000 with an annual interest rate of 8 percent? 15) A) 29.92 years B) 33.35 years C) 9.00 years D) 10.00 years 16) At age 20 you invest $1,000 that earns 7 percent each year. At age 30 you invest $1.000 that earns 10 percent per year. In which case would you have more money at age 60? 16), A) Both yield the same amount at age 60. B) At age 30 invest $1,000 at 10 percent. C) At age 20 invest $1,000 at 7 percent. D) There is not enough information to determine which case earns the most money at age 60.

Answer 1

Answer to Question 8.

Investment (Present Value) = $x
Value of Investment after 6 years (Future Value) = $2x
Time (n ) = 6
Rate (r ) = ??

Future Value = Present Value * ( 1 + r)^ n
$2x = $x * (1 + r)^ 6
2 = (1 + r)^ 6
2 ^ (1/6) = 1 + r
1.1225 = 1 + r
r = 0.1225
or r = 12%

Option C is Correct.

Answer to Question 9.

Investment (Present Value) = $1,500
Value of Investment after 1 years (Future Value) = $1,680
Time (n ) = 1
Rate (r ) = ??

Future Value = Present Value * ( 1 + r)^ n
$1,680 = $1,500 * (1 + r) ^1
1.12 = (1 + r) ^1
1.12 ^ (1/1) = 1 + r
1.12 = 1 + r
r = 0.12 or 12.00%

Option B is Correct.

Answer to Question 10.

Amount deposited = $1,000
Rate (r ) = 7%
Time (n ) = 4 years

Interest earned = $1,000 * 7% * 4
Interest earned = $280

Option C is Correct.

Answer to Question 11.

Simple Interest:
Amount deposited = $200
Rate (r ) = 8%
Time (n ) = 3 years

Simple Interest = Principal * Rate * Time
Simple Interest = $200 * 8% * 3
Simple Interest = $48

Compound Interest:
Amount deposited (Principal) = $200
Rate (r ) = 8%
Time (n ) = 3 years

Amount = Principal * (1 + r)^ n
Amount = $200 * (1 + 0.08)^ 3
Amount = $200 * 1.2597
Amount = $251.94

Compound Interest = $251.94 - $200
Compound Interest = $51.94

Interest earned on Interest = Compound Interest – Simple Interest
Interest earned on Interest = $51.94 - $48
Interest earned on Interest = $3.94

Option A is Correct.