# Ashworth C09 Exam 3/Ashworth C09 Exam 3

Question Part 1 of 1 – 95.0/ 100.0 Points Question 1 of 20 5.0/ 5.0 Points Which of the following actions will INCREASE the present value of an investment? A. decrease the interest rate B. decrease the future value C. increase the amount of time D. All of the above will increase the present value. Question 2 of 20 5.0/ 5.0 Points Which is greater, the present value of a five-year ordinary annuity of \$300 discounted at 10%, or the present value of a five-year ordinary annuity of \$300 discounted at 0% that has its first cash flow six years from today? A. The first annuity because the cash flows occur sooner. B. The second annuity because the cash flows are discounted at a lower interest rate. C. The two annuities are of equal value. D. The answer to this question cannot be determined. Question 3 of 20 5.0/ 5.0 Points Your company just sold a product with the following payment plan: \$50,000 today, \$25,000 next year, and \$10,000 the following year. If your firm places the payments into an account earning 10% per year, how much money will be in the account after collecting the last payment? A. \$99,000 B. \$98,000 C. \$88,500 D. \$85,000 Question 4 of 20 5.0/ 5.0 Points Your grandparents leave on their dream vacation to Antarctica in two years. The cruise vacation will cost them \$25,000. If they have already saved \$23,500 and are investing it at a rate of 2.75% per year, will they have saved enough money for their trip? A. No, because they forgot to factor in long underwear expenses. B. Yes, to have enough money they would have already needed to save \$23,375. C. Yes, to have enough money they would have already needed to save \$23,680. D. No, to have enough money they would have already needed to save \$23,680. Question 5 of 20 5.0/ 5.0 Points 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 Question 6 of 20 5.0/ 5.0 Points Your aunt places \$13,000 into an account earning an interest rate of 7% per year. After five 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 seven 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 five years, the principal is \$18,233.17, and the interest rate is 7%. C. The principal is \$13,000, the time period is five years, the future value is \$18,233.17, and the interest rate is 7%. D. The principal is \$13,000, the time period is seven years, the future value is \$18,233.17, and the interest rate is 5%. Question 7 of 20 5.0/ 5.0 Points To determine the present value of a future amount, one should _________ the future cash flows. A. annuitize B. compound C. discount D. multiply Question 8 of 20 5.0/ 5.0 Points 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 Question 9 of 20 5.0/ 5.0 Points Your trust fund will pay you \$100,000 in six years when you turn 25. A shady financial institution has encouraged you to sign away the rights to your trust fund in exchange for cash today. Would you prefer that the financial institution use a discount rate of 8% or 10% to determine the value of your lump sum payment? Why? A. Use 8% because the lump sum payment of \$62,741 is greater than the 10% discounted value of \$55,839. B. Use 10% because the lump sum payment of \$62,741 is greater than the 10% discounted value of \$55,839. C. Use 8% because the lump sum payment of \$63,017 is greater than the 10% discounted value of \$56,447. D. Use 10% because the lump sum…

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