Chapter 04 Test Review
1. Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the:
A. true
... [Show More] value.
B. future value.
C. present value.
D. discounted value.
E. complex value.
2. Tomas earned $89 in interest on his savings account last year and has decided to leave the $86 in his account this coming year so
it will earn interest. This process of earning interest on prior interest earnings is called:
A. discounting.
B. compounding.
C. duplicating.
D. multiplying.
E. indexing.
3. Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can
earn interest on the $14 this year. The interest earned on last year’s interest earnings is called:
A. simple interest.
B. complex interest.
C. accrued interest.
D. interest on interest.
E. discounted interest.
4. Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested
at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even
though the interest rate on the account remained constant. This $282.15 is best described as:
A. simple interest.
B. interest on interest.
C. discounted interest.
D. complex interest.
E. compound interest.
5. By definition, a bank that pays simple interest on a savings account will pay interest:
A. only at the beginning of the investment period.
B. on interest.
C. only on the principal amount originally invested.
D. on both the principal amount and the reinvested interest.
E. only if all previous interest payments are reinvested.
6. Katlyn needs to invest $5,318 today in order for her savings account to be worth $8,000 six years from now. Which one of the
following terms refers to the $5,318?
A. Present value
B. Compound value
C. Future value
D. Complex value
E. Factor value
7. Lucas expects to receive a sales bonus of $7,500 one year from now. The process of determining how much that bonus is worth
today is called:
A. aggregating.
B. discounting.
C. simplifying.
D. compounding.
E. extrapolating.
8. The interest rate used to compute the present value of a future cash flow is called the:
A. prime rate.
B. current rate.
C. discount rate.
D. compound rate.
E. simple rate.
9. Computing the present value of a future cash flow to determine what that cash flow is worth today is called:
A. compounding.
B. factoring.
C. time valuation.
D. simple cash flow valuation.
E. discounted cash flow valuation.
10. Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future
value of that amount? [Show Less]