Finance Course Test with Answers

Question 1
(5 points) $100 today is worth the SAME as $100 tomorrow.
Your Answer Score Explanation
True
False Correct 5.00 Correct. You understand time value
Total 5.00 / 5.00
Question Explanation

We have assumed that time value of money is positive.
Question 2
(5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest.
Your Answer Score Explanation
True Correct 5.00 Correct. You know the mechanics for calculating FV.
False
Total 5.00 / 5.00
Question Explanation

All about compounding.
Question 3
(5 points) Megan wants to buy a designer handbag and plans to earn the money babysitting. Suppose the interest rate is 6% and she is willing to wait one year to purchase the bag. How much babysitting money (to the nearest whole dollar) will she need to earn today to buy the bag for $400 one year from now? (Enter just the number without the $ sign or a comma)
Answer for Question 3
You entered:

Your Answer Score Explanation
384 Incorrect 0.00
Total 0.00 / 5.00
Question Explanation

Simple PV calculation.
Question 4
(10 points) Johnny and Darren both earn $100 working on their respective neighbors ' big farms. Johnny puts his $100 in the piggy bank that his parents gave him to encourage him to save. Darren puts his money in a savings account his parents set up for him. The savings account pays 3% interest. They both take their money out after 5 years. How much more money does Darren have than Johnny?
Your Answer Score Explanation
10
19
3
16 Correct 10.00 Correct. You know how to calculate FV and intuitively know that the interest has to be only slightly more than $15 because the interest rate is low.
Total 10.00 / 10.00
Question Explanation

A simple future value calculation. You should see that Darren will earn at least $15 even without compounding.
Question 5
(10 points) Your dad invested $25 for you in 1942 in a fund and you have not