Financial Problems Quiz! Trivia

1. You can afford monthly deposits of $300 into an account that pays 6% compounded monthly to buy a used car. How long before you will have $9000 to purchase the used car?

Single Payment: A = P(1 + i)^n

Multiple Payments: Future Value Equation: in which FV = 9000 and you solve for the exponent "t"

Multiple Payments: Future Value Equation in which PMT = 300 and you solve for FV

Single Payment: A = Pe^(rt)

Multiple Payments/ Future Value: The buyer is trying to save up for a purchase of a used car which he will buy in the future when he has enough money. FV = 9000, PMT = 300, i = .06/12 and n = 12*t. You must solve for "t" using by eventually taking the log of both sides.

Explanation

Multiple Payments/ Future Value: The buyer is trying to save up for a purchase of a used car which he will buy in the future when he has enough money. FV = 9000, PMT = 300, i = .06/12 and n = 12*t. You must solve for "t" using by eventually taking the log of both sides.

2. Lucy buys a $110,000 home with a 30-year mortgage at 5.4% interest compounded monthly. What is her monthly payment?

Single Payment: A = P(1+i)^ n

Multiple Payments: Solve for Payment(PMT) amount using the FUTURE VALUE EQUATION

Multiple Payments: Solve for Payment(PMT) amount using the PRESENT VALUE EQUATION

This is a present value problem in which you must find the payment using the present value equation. For this equation, PV = 110,000, n = 360, i = .054/12 and PMT is unknown.

Explanation

This is a present value problem in which you must find the payment using the present value equation. For this equation, PV = 110,000, n = 360, i = .054/12 and PMT is unknown.

3. You want to accumulate $40000 by your daughter's 18^th birthday by investing in an account that will pay 5.2% interest compounded quarterly. You make a one-time payment on the day she is born. How much do you need to invest?

Multiple Payments: FUTURE VALUE EQUATION

Single Payment: 40,000 = P(1+i)^ n

Single Payment: A = 40000 (1+i)^ n

Multiple Payments: PRESENT VALUE EQUATION

The father only makes one payment of the unknown amount so that he can accumulate interest and have $40000 in 18 years. A = 40000, i = .052/4 and n = 18 * 4

Explanation

The father only makes one payment of the unknown amount so that he can accumulate interest and have $40000 in 18 years. A = 40000, i = .052/4 and n = 18 * 4

4. Debra has made 120 payments of $100 to repay a loan of $9000 that she received 10 years ago. How much did she pay in interest?

$45.00

$2,789.00

$3,000.00

$12,000

Debra was loaned $9000. Over the course of the 10 year repayment period, Debra paid 120 * 100 = $12,000. So for the use of $9000, she paid 12000 - 9000 = $3000 in interest.

Explanation

Debra was loaned $9000. Over the course of the 10 year repayment period, Debra paid 120 * 100 = $12,000. So for the use of $9000, she paid 12000 - 9000 = $3000 in interest.

5. For 45 years, Richard deposits $2000 a year into an IRA. How much will be in the account if the account earns 10% compounded annually?

Multiple Payments: Future Value; Solve for FV

Single Payment: Solve for A in A = P(1 + i)^n

Multiple Payments: Present Value: Solve for PV

Multiple Payments: Future Value; Solve for PMT

This is a multiple payments, future value problem. Richard will have the money and interest that he saved up in the future, in 45 years when he is ready to retire. Solve for FV where PMT = $2000 n = 45 and i = .10/1

Explanation

This is a multiple payments, future value problem. Richard will have the money and interest that he saved up in the future, in 45 years when he is ready to retire. Solve for FV where PMT = $2000 n = 45 and i = .10/1

6. If you buy a computer from the manufacturer for $2500 and agree to pay it back in 48 installments at 1.25% per month on the unpaid balance, how much are your monthly payments?

Single Payment: A = P(1+i) n

Multiple Payments: Future Value Equation

Single Payment: A = Pe^(rt)

Multiple Payments: Present Value Equation

This is multiple payments and you use the present value equation in which you solve for PMT. PV = 2500 i = .0125/12, n=48,m = 12, PMT = ? It is a present value because you purchase the computer and get it right away. The computer is worth $2500 now in the present.

Explanation

This is multiple payments and you use the present value equation in which you solve for PMT. PV = 2500 i = .0125/12, n=48,m = 12, PMT = ? It is a present value because you purchase the computer and get it right away. The computer is worth $2500 now in the present.

7. Michael invests $2795 into an account that earns 5.25% interest compounded continuously. In 10 years, how much will he have in the account?

Single Payment: A = P(1+i)^n P = $2795, A = ?

Multiple Payments: Future Value Equation

Single Payment: A = Pe^(rt) P = $2795, A = ?

Multiple Payments: Present Value Equation

This was a single payment equation because he invested the $2795 one time. You are solving for the "A", the amount that will be in the account after you earn 10 years' worth of compounded interest. The interest is compounding CONTINUOUSLY so it is A = Pe^(rt) where P = 2795, r = .0525, t = 10

Explanation

This was a single payment equation because he invested the $2795 one time. You are solving for the "A", the amount that will be in the account after you earn 10 years' worth of compounded interest. The interest is compounding CONTINUOUSLY so it is A = Pe^(rt) where P = 2795, r = .0525, t = 10

8. Annual payments of $5000 are made for 5 years to repay a loan that was received for an unknown amount at 4.75% compounded annually. How much was the original loan for?

Single Payment: A = Pe^(rt)

Single Payment: A = P(1 + +i) ^n

Multiple Payment: Future Value: Solve for FV

Multiple Payment: Present Value: Solve for PV

This is a present value problem. Money was loaned to someone, they got their money right away, and he/she has to pay it back. The PMT = 5000, and the unknown is FV.

Explanation

This is a present value problem. Money was loaned to someone, they got their money right away, and he/she has to pay it back. The PMT = 5000, and the unknown is FV.

9. You buy a boat for $40,000 since the dealer offers you a loan that you will pay back at 6% interest compounded monthly for 4 years. Find your monthly payment.

Multiple payments with FV equation and solve for PMT with FV = 40000

Single Payment with A = Pe^(rt) and P = 40000

Multiple payments with PV equation and solve for PMT with PV = 40000 and

Single payment with A = P(1 + i)^n and A = 40000

This is a multiple payment, present value equation. You get the boat right away, and repay it with interest i = .06/12, n=4*12= 48. m = 12. PV = 40000, and you use the PV equation to solve for PMT.

Explanation

This is a multiple payment, present value equation. You get the boat right away, and repay it with interest i = .06/12, n=4*12= 48. m = 12. PV = 40000, and you use the PV equation to solve for PMT.

10. How much should a face value zero-coupon bond (or treasury bill or savings bond..) maturing in five years be sold for now, if the rate of return is to be 6% compounded annually? The face value of the bond is $2000.00

Single Payment: in which the unknown is "A = 2000" in A = P(1+i)^n

Single Payment: in which the unknown is "P = 2000" in A = P(1+i)^n

Multiple Payments: Future Value Equation

Multiple Payments: Present Value Equation

This is a single payment that is paid when the purchaser buys the bond. Even though he face value of the bond says $2000 when it is purchased, it will not be worth $2000 for 5 years. A = 2000, i = .06/1 and n = 5, with with P, purchase price unknown.

Explanation

This is a single payment that is paid when the purchaser buys the bond. Even though he face value of the bond says $2000 when it is purchased, it will not be worth $2000 for 5 years. A = 2000, i = .06/1 and n = 5, with with P, purchase price unknown.