Economics Homework Help

Learning Goal: I’m working on a finance multi-part question and need an explanation and answer to help me learn.

Complete the following questions:

HOMEWORK CH.5

1.The process of converting an amount given at the present time into a future value is called

A)capital budgeting.

B)annualizing.

C)discounting.

D)compounding.

2.Patrick Smith has $6,800 to invest in a small business venture. His partner has promised to pay him back $8,300 in five years. What is the return earned on this investment?

A)11.1%

B)10.4%

C)3.3%

D)4.1%

3.Joseph Harris is considering an investment that pays 6.8 percent annually. How much must he invest today such that he will have $32,000 in seven years? (Round to the nearest dollar.)

A)$16,088

B)$17,667

C)$20,191

D)$18,083

4.Lori Willis plans to invest for retirement, which she hopes will be in 20 years. She is planning to invest $23,000 today in U.S. Treasury bonds that will earn interest at 6.50 percent annually. How much will she have at the end of 20 years? (Round to the nearest dollar.)

A)$81,044

B)$68,870

C)$50,625

D)$75,000

5.Which of the following is true of the future value of an investment?

A)The higher the inflation rate, the lower the future value of an investment.

B)The higher the interest rate, the higher the future value of an investment

C)The lower the number of compounding periods, the higher the future value of an investment.

D)The lower the present value of an investment, the higher the future value of an investment.

6.Dynoxo Textiles has a cash inflow of $2 million, which it needs for a long-term investment, at the end of one year. It plans to deposit the money in a bank CD that pays daily interest at 6.50 percent. What will be the value of the investment at the end of the year? (Round to the nearest dollar.)

A)$2,033,536

B)$2,151,875

C)$2,134,306

D)$2,031,103

7.Jack Palomo has deposited $2,700 today in an account paying 6.25 percent interest annually. What would be the simple interest earned on this investment in five years? If the account paid compound interest, what would be the interest on interest in five years?

A)$160; $845.56

B)$160; $112.27

C)$844; $112.27

D)$844; $956.02

8.Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which will have the highest future value if she plans to invest for 15 years? Hint: Round future value to the nearest penny.

A)10.00% compounded daily

B)10.03% compounded monthly

C)10.12% compounded quarterly

D)10.50% compounded annually

9.Richard McLean wants to invest $3,500 in an account paying 5.75 percent compounded quarterly. What is the interest on interest after four years?

A)$923.55

B)$101.45

C)$695.98

D)$92.89

10.Joseph Ray just received an inheritance of $38,777 from his great aunt. He plans to invest the funds for retirement. If Joseph can earn 6.25% per year with quarterly compounding for 35 years, how much will he have accumulated? (Round off to the nearest dollar.)

A)$323,659

B)$339,819

C)$320,115

D)$286,550

11.When discount rate:

A)increases, the present value of a future cash flow decreases.

B)increases, the present value of a future cash flow increases.

C)decreases, the present value of a future cash flow will remain the same.

D)decreases, the present value of a future cash flow decreases.

12.Dat Nguyen is depositing $18,000 in an account paying an annual interest rate of 8 percent compounded monthly. What is the interest on interest after six years?

A)$2,323.44

B)$2,403.04

C)$8,640.00

D)$13,940.66

13.Leroy Diaz plans to invest some money today so that he will receive $8,000 in three years. If the investment he is considering will pay 3.85 percent compounded daily, how much will he have to invest today?

A)$7,143

B)$7,722

C)$7,127

D)$6,276

14.Which of the following statements is true of time value of money?

A)A dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return.

B)A dollar received today is worth more than a dollar to be received in the future because future dollars are not affected by inflation.

C)A dollar received today is worth less than a dollar to be received in the future because future dollars are not affected by inflation.

D)A dollar to be received in the future is worth more than a dollar received today because it would have less risk associated with it.

15.You need to have $20,000 in five years to payoff a home equity loan. You can invest in an account that pays 6 percent compounded quarterly. How much will you have to invest today to attain your target in five years? (Round to the nearest dollar.)

A)$14,849

B)$11,446

C)$12,250

D)$11,367

16.The process of converting future cash flows to what its present value is called:

A)annualizing.

B)discounting.

C)compounding.

D)capital budgeting.

17.Anne Morgan wants to borrow $6,000 for a period of four years. She has two choices. Her bank is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow from her firm and will have to repay a total of $8,130.93 at the end of four years. Should Anne go with her bank or the firm, and what is the interest rate if she borrows from her firm? (Round to the nearest percent.)

A)She should borrow from the bank as the firm is charging a higher interest of 7.89%.

B)She should borrow from the bank as the firm is charging a higher interest of 9%.

C)She should borrow from her firm as it is charging a lower interest of 7%.

D)She should borrow from her firm as it is charging a lower interest of 6%.

18.Future value measures:

A)the value of an investment after subtracting interest earned on it for one or more periods.

B)what one or more cash flows that is to be received in the future will be worth today.

C)what one or more cash flows are worth at the end of a specified period.

D)the value of an investment’s worth today.

19.Celesta Frank wants to go on a cruise in three years. She could earn 7.8 percent compounded monthly in an account if she were to deposit the money today. She needs to have $12,000 in three years. How much will she have to deposit today? (Round to the nearest dollar.)

A)$8,826

B)$9,504

C)$9,589

D)$9,763

20.Which of the following statements is true?

A) The longer the time period that funds are invested, the greater the future value.

B) The lower the discount rate that funds are invested at, the greater the future value.

C) The shorter the time period that funds are invested, the greater the future value.

D) The higher the interest rate, the slower the value of an investment will grow.