Question

1. What is the present value of $1000 to be received ten years from today, assuming an interest rate of nine percent per annum?

Select one:

a. $422.

b. $470.

c. $488.

d. $402.

2. Cash inflows from wages tend to be the highest in which of the following?

Select one:

a. Early earning stage

b. Retirement

c. Prime earning stage

d. First career stage

3. How long will it take Ivy's money to triple in value at 12 percent compounded quarterly?

Select one:

a. It depends on the amount

b. 9.2 years

c. 9.7 years

d. 9.3 years

4. All of the following are types of taxable income except

Select one:

a. the use of a company car.

b. life insurance benefits.

c. government benefits.

d. rental income.

5. If you borrow $20,000 as a five-year loan from the bank and the bank requires you to make end-of-year payments of $4878.05, what is the annual interest rate on this loan?

Select one:

a. 7 percent

b. 6 percent

Answer 1

Q1. Answer is a

This question is an application of time value of money basic function: FV = PV * (1 + r)ⁿ

1000 = PV * (1 + 9%)¹⁰

PV = 1000/2.3674

PV = $422

Q2. Answer is c

Prime earning stage is the stage of life when a person will have the maximum cash inflows from wages or salary. In earlier stages of career as well as during retirement, the inflow from wages will be lower than anyother stages of life mentioned in question.

Q3. Answer is c

This question is again an application of basic TVM function: FV = PV * (1 + r)ⁿ

Now, assume $1 is invested and we need to find when will it triple to $3.

$3 = $1 * (1 + 12%)ⁿ

3 = (1.12)ⁿ

Take logairth on both sides

LN(3) = nLN(1.12)

n = LN(3)/LN(1.12)

n = 1.0986/0.1133 = 9.7 years

Q4. Answer is c

Government benefits are not taxable. The use of a company car, life insurance benefits and rental income are all taxable.

Q5. Answer is a

answered by: anonymous