# 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.