PROBLEM SET FOR CLASS SESSION
TOPIC2: Present Value and Future Value
1. A given amount of money is worth less in the future than today because
waiting for the future implies:
a. giving up consumption today.
b. giving up investment opportunities today.
c. a and b are correct
d. a and b are false
2. The price or reward that is paid by the borrower per unit of time and
capital is called:
a. Coupon
b. Principal
c. Interest rate
d. Depreciation
3. You borrowed 57 euros from a friend to be repaid in one year and at an
annual interest rate of 5%. This means that:
a. your friend is indifferent between having 57 euros today and the
promise of receiving 62 euros in one year.
b. your promise to pay 59.85 euros in one year is ''worth'' the same
as 57 euros today.
c. 59.85 euros is the present value (today) of your promise to pay
57 euros in one year.
d. your promised payment of 59.36 euros is the future value of 57
euros in one year.
4. The difference between having simple interest and compound interest is
that with compound interest:
a. interests are charged.
b. interests are charged continuously.
c. interests are accumulated to generate further interests.
d. the principal is returned when the transaction expires.
5. Suppose you lend 10000 euros for four years at a simple interest rate of
3%. Compute how much you receive in interests from this operation.
a. 1200 euros
b. 120 euros
c. 1255 euros
d. 12550 euros
6. If the simple annual interest rate is equal to 3.25%:
a. the 6-month simple interest rate is equal to 1.625%
b. the 3-month simple interest rate is equal to 0.83%
c. the 1-month simple interest rate is equal to 0.24%
d. All of the above are correct.
7. Compute the annual simple interest rate equivalent to a 1-month simple
interest rate of 1%?
a. 2%
b. 6%
c. 8%
d. 12%
8. A loan of 55,000 euros for a period of 5 years at an interest rate of 6%
compounded annually generates a total amount of interest that is equal
to:
a. 13200 euros
b. 73602.40 euros
c. 18602.40 euros
d. None of the above is correct.
9. The total amount obtained after investing for 10 years at 2.5% interest
compounded annually is:
a. 1.28 euros for each euro invested
b. 2.5 euros for each euro invested
c. 9.31 euros for each euro invested
d. 10 euros for each euro invested
10. If the annually compounded interest is equal to 3.25%:
a. the effective six-month interest rate is equal to 1.612%
b. the effective three-month interest rate is equal to 0.8023%
c. the effective monthly interest rate is equal to 0.266%
d. All of the above are correct.
11. Compute the annualized interest rate annually compounded that is
equivalent to an effective monthly interest rate of 1%:
a. 13.87%
b. 12.68%
c. 12.25%
d. 12%
12. The annualized interest rate annually compounded is equal to 2.5%.
Compute the future value of 5,670 euros in two years time.
a. 5957.04 euros
b. 5987.06 euros
c. 6123.54 euros
d. 6334.97 euros
13. The annualized interest rate annually compounded is equal to 2.5%.
Compute the present value of 10000 euros in one year.
a. 9460.33 euros
b. 9756.09 euros
c. 9967.78 euros
d. 10234.07 euros
14. Compute the final value of a fixed term deposit of 9870 euros made
today for a period of two years at a compounded interest rate of 1.75%.
a. 99785 euros
b. 10178.45 euros
c. 10218.47 euros
d. 10286.03 euros
15. The discount factor:
a. is equal to 1/(1+i)N
b. is the number that multiplied by a given amount generates
its value within N periods.
c. is the value within N periods of investing one euro today.
d. always exceeds the discount rate.
16. Compute the present value of a 5-year growing annuity whose first
payment takes place in one year and is equal to 1000 euros and whose
remaining payment grows at an annual rate of 2%. The interest rate is
equal to 4%.
a. 4626.3 euros
b. 4685.24euros
c. 4753.03euros
d. 4766.7 euros
17. Compute the future value of a 7-year annuity whose first payment is
equal to 100000 euros and takes place in one year. The interest rate is
equal to 4%.
a. 756450.73 euros
b. 789829.44euros
c. 79578.35 euros
d. 80123.23 euros