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Multiple Choice Quiz
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1
You are planning to move next year. You recently told your best friend that you have decided to sell all of your current furniture just prior to moving as you do not want to pay to transport it across the country. Your friend offered to pay you $2,000 next year for this furniture. What is your friend's offer worth today if you can earn 6 percent on your money?
A)$1,779.99
B)$1,818.22
C)$1,886.79
D)$2,000.00
E)$2,120.00
2
All else constant, the present value _____ when the discount rate increases.
A)increases
B)decreases
C)remains constant
D)can either increase or decrease
E)can either remain constant or decrease
3
Terry is considering purchasing a used tractor and restoring it. He estimates that his total restoration cost including his labor, in today's dollars, will be $21,400. He also estimates that he can resell the tractor 1 year from now at a price of $24,000. Should Terry undertake this project if he requires a 9.5 percent rate of return? Why or why not?
A)Yes; because the price of $24,000 provides a return in excess of 9.5 percent
B)Yes; because the selling price is greater than the cost
C)No; because the present value of the sales price is less than $21,400
D)No; because the net present value is -$102.16
E)No; because the net present value is $517.81
4
Paul is considering a business investment which is guaranteed to pay $4,000 one year from today. What is the maximum amount Paul should pay today for this investment if he wants to earn a 9.75 percent rate of return?
A)$3,411.68
B)$3,644.65
C)$3,661.67
D)$3,689.02
E)$3,701.08
5
Ann is considering buying an office building at a cost of $199,900. She estimates that she can resell the building after one year at a price of $229,500. What discount rate approximately equates those two prices?
A)83 percent
B)60 percent
C)14.81 percent
D)10 percent
E)33 percent
6
The Corner Art Store owns a painting which they display in their showroom. The painting is currently valued at $1,350 but is currently not for sale. The value of the painting is increasing by 7.4 percent annually. Which one of the following prices best represents the value of the painting next year should the store decide to sell it at that time?
A)$1,350
B)$1,400
C)$1,450
D)$1,500
E)$1,550
7
On your 5th birthday, your grandparents opened an investment account in your name and made an initial deposit of $2,500. The account pays 4.5 percent interest. How much will you have in the account on your 21st birthday if you don't add or withdraw any money before then?
A)$4,711.68
B)$5,002.10
C)$5,055.93
D)$5,207.19
E)$5,211.14
8
Today, you are investing $27,500 infs a new project. The project will return $8,000, $9,500, and $11,000 at the end of each of the next three years, respectively. What is the net present value of this project at a 9 percent discount rate?
A)-$3,670.57
B)-$3,209.11
C)$3,711.09
D)$3,787.88
E)$3,901.11
9
Your goal is to have $15,000 in your savings account 3 years from now so that you can purchase a home. Which one of the following statements is correct given this situation? Assume that you only make one initial deposit into the savings account.
A)The higher the interest rate on your savings, the larger the amount that you need to deposit today to fund this account.
B)If you deposit $7,500 today and earn 7 percent interest, you will reach your goal in 3 years.
C)If you have $10,000 to deposit today, you will need to earn at least 15 percent interest to reach your goal.
D)The less money you have to deposit today into the account, the greater the interest rate must be if you are to reach your goal of $15,000.
E)You will have to deposit $12,460 today if the interest you can earn is 4.7 percent.
10
What is the future value of $12,000 received today if it is invested at 10.5 percent compounded annually for 25 years?
A)$131,484.77
B)$145,625.76
C)$147,475.83
D)$152,521.75
E)$153,374.89





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