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Name: ________________________ Class: ___________________ Date: __________

ID: A

Worksheet #4 Chapter 4 Review


Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Find the simple interest on a $500 investment made for 2 yr at an interest rate of 6%/year. What is the accumulated amount? a. b. c. d. e. Simple interest = $60; $565 Simple interest = $65; $560 Simple interest = $60; $560 Simple interest = $55; $560 Simple interest = $67; $555 Accumulated amount = Please round the answer to the nearest cent. Accumulated amount = Accumulated amount = Accumulated amount = Accumulated amount = a. b. c. d. e. $18530.32 $19564.87 $19329.66 $19494.91 $19540.33 4. Six and a half years ago, Chris invested $10000 in a retirement fund that grew at the rate of 10.44%/year compounded quarterly. What is his account worth today?

2. Find the accumulated amount A if the principal P is invested at the interest rate of r per year for t years.

5. Anthony invested a sum of money 4 yr ago in a savings account that has since paid interest at the rate of 8%/year compounded quarterly. His investment is now worth $23,337.37. How much did he originally invest? Please round the answer to the nearest cent. a. b. c. d. e. $17,000.01 $16,000.01 $16,500.01 $15,500.01 $19,000.01

P = 2000, r = 6%, t = 11 , compounded semiannually.


a. b. c. d. e.

$3832.21 $3842.78 $3833.80 $3830.42 $3821.62

3. Today a typical family of four spends $600/month for food. If inflation occurs at the rate of 3%/year over the next 5 yr, how much should the typical family of four expect to spend for food 5 yr from now? Please round the answer to the nearest cent. a. b. c. d. e. $725.63 $694.05 $695.56 $722.54 $695.12

6. Investment A offers a 12% return compounded semiannually, and investment B offers a 11.81% return compounded continuously. Which investment has a higher rate of return over a 4-yr period? a. b. Investment A. Investment B.

Name: ________________________ 7. How long will it take an investment of $5400 to double if the investment earns interest at the rate of 8% compounded continuously? Please round your answer to two decimal places. a. b. c. d. e. 9.86 yr 7.35 yr 8.66 yr 9.90 yr 7.70 yr a. b. c. d. e.

ID: A 11. The Betzes have leased an auto for 5 yr at $400/month. If money is worth 8%/year compounded monthly, what is the equivalent cash payment (present value) of this annuity?

$19,727.37 $19,626.79 $19,827.95 $9,863.69 $39,454.75

12. Find the present value of the ordinary annuity. 8. Find the effective rate corresponding to the given nominal rate. $3,400 a year for 7 yr at 6%/year compounded yearly. a. b. c. d. e.

14% , compounded monthly.


a. b. c. d. e.

15.05% /yr 16.05% /yr 15.16% /yr 14.81% /yr 14.93% /yr

$6,326.70 $12,674.19 $12,653.40 $28,470.15 $18,980.10

13. Find the present value of the ordinary annuity. $4,000 per semiannual period for 4 yr at 14%/year compounded semiannually. Please round the answer to the nearest cent. a. b. c. d. e.

9. Find the amount (future value) of the ordinary annuity. $2,000 per quarter for 6 yr at 6%/year compounded quarterly. a. b. c. d. e.

$38,178.03 $38,197.81 none of these $57,267.04 $22,906.82

P P P P P

= = = = =

$25,298.74 $32,846.09 $29,327.36 $23,885.19 $24,561.62

10. If a merchant deposits $2,300 annually at the end of each tax year in an IRA account paying interest at the rate of 9%/year compounded annually, how much will she have in her account at the end of 25 yr? a. b. c. d. e.

$24,851.13 $175,330.86 $22,591.93 $194,812.06 $214,293.27

14. Joe plans to deposit $200 at the end of each month into a bank account for a period of 3 yr, after which he plans to deposit $300 at the end of each month into the same account for another 4 yr. If the bank pays interest at the rate of 7%/year compounded monthly, how much will Joe have in his account by the end of 7 yr? (Assume no withdrawals are made during the 7-yr period.) a. b. c. d. e.

$19,005.35 $21,600.00 $27,120.72 $24,548.79 $20,905.89

Name: ________________________ 15. Luis has $150,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to roll over his assets to a new account. Luis also plans to put $1,000/quarter into the new account until his retirement 22 yr from now. If the account earns interest at the rate of 9%/year compounded quarterly, how much will Luis have in his account at the time of his retirement? Please round the answer to the nearest cent. Hint: Use the compound interest formula and the annuity formula. a. b. c. d. e. $1,422,905.90 $1,333,296.00 $1,265,608.57 $1,278,870.83 $1,191,930.45

ID: A 18. Suppose payments were made at the end of each quarter into an ordinary annuity earning interest at the rate of 10%/year compounded quarterly. If the future value of the annuity after 8 yr is $50,000, what was the size of each payment? a. b. c. d. e.

$524.45 $415.37 $1,059.61 $519.21 $1,038.42

19. Suppose payments will be made for 7

3 yr at the 4 end of each month into an ordinary annuity earning interest at the rate of 6.65%/year compounded monthly. If the present value of the annuity is $40,000, what should be the size of each payment?
Please round the answer to the nearest cent. a. b. c. d. e. $545.79 $551.58 $552.66 $529.12 $566.50

16. Find the periodic payment R required to accumulate a sum of S dollars over t years with interest earned at the rate of r % /year compounded m times a year.

S = 20,000,
a. b. c. d. e.

r = 5,

t = 4,

m = 2
20. The Flemings secured a bank loan of $97,000 to help finance the purchase of a house. The bank charges interest at a rate of 11%/year on the unpaid balance, and interest computations are made at the end of each month. The Flemings have agreed to repay the loan in equal monthly installments over 28 yr. What should be the size of each repayment if the loan is to be amortized at the end of the term? Please round the answer to the nearest cent. a. b. c. d. e. $932.64 $817.22 $932.49 $929.96 $971.11

R R R R R

= = = = =

$1,526.23 $4,441.34 $2,289.35 $1,262.25 $1,144.68

17. Find the periodic payment R required to amortize a loan of P dollars over t years with interest earned at the rate of r %/year compounded m times a year. Please round the answer to the nearest cent.

P = 90,000,
a. b. c. d. e.

r = 11.5,

t = 25,

m = 12

R R R R R

= = = = =

$719.40 $914.82 $876.35 $914.97 $917.50

Name: ________________________ 21. The management of Gibraltar Brokerage Services anticipates a capital expenditure of $27,000 in 3 years' time for the purpose of purchasing new fax machines and has decided to set up a sinking fund to finance this purchase. If the fund earns interest at the rate of 9%/year compounded quarterly, determine the size of each (equal) quarterly installment that should be deposited in the fund. Please round the answer to the nearest cent. a. b. c. d. e. $1,990.65 $1,832.64 $1,984.97 $1,968.31 $1,920.00

ID: A

22. Five years ago, Diane secured a bank loan of $300,000 to help finance the purchase of a loft in the San Francisco Bay area. The term of the mortgage was 35 yr, and the interest rate was 12%/year compounded monthly on the unpaid balance. Because the interest rate for a conventional 35-yr home mortgage has now dropped to 10%/year compounded monthly, Diane is thinking of refinancing her property. How much less would Diane's monthly mortgage payment be if she refinances? Please round the answer to the nearest cent. a. b. c. d. e. $500.38 $501.43 $494.40 $483.96 $522.25

ID: A

Worksheet #4 Chapter 4 Review Answer Section


MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: C A C E A B C E D D A E D C B C B E B A C A PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

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