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15 BUS MATH Questions: Time Value of Money concepts

1. The terms of a loan indicate how often interest is compounded. ()
True
False

2. To compound daily means to compound 360 times a year. ()
True
False

3. The number of compounding periods for $6,600.00 at 12% compounded quarterly for 15 years is 30 periods. ()
True
False

4. The effective rate of a transaction can be calculated by dividing the interest for one year by the principal. ()
True
False

5. The interest on $4,200.00 at 8% compounded semiannually for 10 years is $6,292.40. ()
True
False

6. The effective rate is: ()
the stated rate
the nominal rate
the true semiannual rate
the true annual rate
none of the above

7. $15,000.00 for 10 years compounded at 10% quarterly results in how many periods? ()
120
20
10
40
none of the above

8. In a loan of 8% compounded quarterly, what is the periodic interest ()
2.5%
6%
2%
4%

9. Present value does not: (
find the present dollar amount
use the tables
know the present dollar amount
know the future value
none of the above

10. $25,000.00 for 15 years compounded at 10% quarterly results in a periodic interest rate of: ( )
10%
7%
5%
2.5%
none of the above

11. The effective rate is: ()
the interest for one year divided by the principal
the interest for one year divided by the principal for three years
the interest for one year divided by the annual rate
never related to the compound table
none of the above

12. Josh is having difficulty deciding whether to put his savings in the Mercantile Bank or the Boatmen's Bank. Mercantile offers a 10% rate compounded quarterly while Boatmen's offers 12% compounded semiannually. Josh has $40,000.00 to invest and expects to withdraw the money at the end of 5 years. (Use Table 10-1 from the textbook.) The best deal is: ()
Mercantile Bank
Mercantile Bank for the last two years
Boatmen's Bank for the first two years
Boatmen's Bank
none of the above

13. Don deposited $27,500.00 in Trader's Bank at an interest rate of 12% compounded quarterly. (Use Table 10-1 from the textbook.) The effective rate was: ()
12.55%
12%
13%
14.0%
none of the above

14. Lisa wants to attend the University of Colorado. She will need to have $80,000.00 five years from today. Lisa is wondering what she will have to put in the bank today so she will have $80,000.00 in five years. Her bank pays 10% compounded quarterly. By using Table 10-3 in the textbook, the amount Lisa will need to deposit is: ()
$48,281.68
$49,113.60
$48,821.60
$49,113.06
none of the above

15. John estimates that he will need $15,000.00 for new equipment in 10 years. John decided that he would put aside the money now so that in 10 years the $15,000.00 will be available. His bank offers him 8% interest compounded semiannually. (Use Table 10-3 from the textbook.) How much must John invest? ()
$6,845.85
$36,175.71
$6,584.80
$6,845.08
none of the above

Solution Summary

This solution is comprised of time value of money multiple choice answers regarding effective rate, compound period, periodic interest, present value, and more.

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