To determine the present value of a future amount, one should ________ the future cash flows.

• A) annuitize

• B) compound

• C) discount

• D) multiply

Your university is running a special offer on tuition. This year's tuition cost is $18,000. Next year's tuition cost is scheduled to be $19,080. The university offers to discount next year's tuition at a rate of 6% if you agree to pay both years' tuition in full today. How much is the total tuition bill today if you take the offer?

• A) $18,000

• B) $34,981

• C) $37,080

• D) $36,000

What annual rate of return must you earn to double your money in about 9 years? Use the Rule of 72 to determine your answer.

• A) You would need to earn an annual rate of return of about 12%.

• B) You would need to earn an annual rate of return of about 10%.

• C) You would need to earn an annual rate of return of about 8%.

• D) There is not enough information to answer this question.

A manufacturer of LCD televisions has seen sales increase from 125,000 units per year to 500,000 units per year in 8 years. What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.

• A) The average annual rate of change has been between 10% and 11%

• B) The average annual rate of change has been between 18% and 19%.

• C) The average annual rate of change has been between 15% and 16%.

• D) There is not enough information to answer this question.

Your grandmother places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct?

• A) The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the interest rate is 5%.

• B) The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the interest rate is 7%.

• C) The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%.

• D) The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the interest rate is 5%.

A $100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.

• A) $100

• B) $120

• C) $121

• D) $122

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is true?

• A) The interest earned in year two is $12.00 and year one is $12.72.

• B) The interest earned in year one is $12.00 and year two is $12.72.

• C) The FV is $224.00.

• D) The future value would be greater if the interest rate were lower.

Which of the following investments has a larger future value: Investment A, a $1,000 investment earning 5% per year for 6 years, or Investment B, a $500 investment earning 10% per year for 6 years, with a bonus of an extra $500 added at the end of the sixth year?

• A) Investment B, with a future value of $1,386.

• B) Investment A, with a future value of $1,386.

• C) Investment A, with a future value of $1,340.

• D) The investments have equal value.

If you invest $3,650 today, how much money will you have in 4 years?

• A) $3,650

• B) $4,437

• C) This question cannot be answered because it is missing an annual rate of return.

• D) This question cannot be answered because it is missing the type of investment made.

Which of the following actions will DECREASE the present value of an investment?

• A) Decrease the interest rate.

• B) Decrease the future value.

• C) Decrease the amount of time.

• D) All of the above will decrease the present value.