CH 5 – Practice Multiple Choice

5.1 Marie needs $26,000 as a down payment for a house 4 years from now. She earns 5.25% on her savings. Marie can either
deposit one lump sum today for this purpose or she can wait a year and deposit a lump sum. How much additional money must
Marie deposit if she waits for one year rather than making the deposit today? 
A. $878.98
B. $911.13
C. $1,112.36
D. $1,348.03
E. $1,420.18

5.2 Courtney invests $1,200 today. If she can earn a 13.25% rate of return for the next two years, how much money will she have
at the end of the two years? 
A. $1,203.18
B. $1,232.01
C. $1,359.00
D. $1,539.07
E. $1,742.99

5.3 If you leave the money of $950 in the account for five years and the account earns 8% compounded annually, what will the
balance in the account grow to? 
A. $1,341.05
B. $1,347.82
C. $1,395.86
D. $1,406.23
E. $1,491.15

5.4 You are supposed to receive $2,000 five years from now. At an interest rate of 6%, what is that $2,000 worth today? 
A. $1,491.97
B. $1,492.43
C. $1,494.52
D. $1,497.91
E. $1,499.01

5.5 Dale invests $500 in an account that pays 6% simple interest. How much more could he have earned over a thirty year period
if the interest had compounded annually? 
A. $1,471.75
B. $1,532.50
C. $1,621.25
D. $1,804.25
E. $2,371.75

5.6 You collect model cars. One particular model increases in value at a rate of 5% per year. Today, the model is worth $29.50.
How much additional money can you make if you wait ten years to sell the model rather than selling it five years from now? 
A. $9.98
B. $10.40
C. $10.86
D. $11.03
E. $11.24
5.7 An account was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the account paid interest
compounded annually, how much interest on interest was earned? 
A. $86.20
B. $93.10
C. $102.39
D. $130.28
E. $500.00

5.8 What is the future value of $7,540 invested at 6.5% interest for seven years? 
A. $10,330.45
B. $11,001.93
C. $11,041.26
D. $11,717.06
E. $11,337.37

5.9 You wish to have $200,000 at the end of twenty years. In the last five years, you withdraw $1,000 annually at a rate of 3.8%
compounded quarterly. During the middle ten years, you contribute $500 monthly at a rate of 2.8% compounded semi-annually.
Given this information, determine the initial deposit that has to be made at the start of the first five years at a rate of 4%
compounded monthly. 
A. $13,056.65
B. $12,056.65
C. $11,056.65
D. $10,056.65
E. $9,056.65

5.10 You have just been awarded a $200,000 insurance settlement. The insurance company has offered to invest this amount at a
guaranteed interest rate of 4.5% for ten years. You think you can invest this money yourself and earn an average return of 8%. If
you are able to do that, how much more will your settlement be worth ten years from now than if you had left the funds with the
insurance company? 
A. $78,829.69
B. $86,991.91
C. $118,009.42
D. $121,191.12
E. $137,188.23
Solutions:

5.1 Marie needs $26,000 as a down payment for a house 4 years from now. She earns 5.25% on her savings. Marie can either
deposit one lump sum today for this purpose or she can wait a year and deposit a lump sum. How much additional money must
Marie deposit if she waits for one year rather than making the deposit today? 
A. $878.98
B. $911.13
C. $1,112.36
D. $1,348.03
E. $1,420.18

5.2 Courtney invests $1,200 today. If she can earn a 13.25% rate of return for the next two years, how much money will she have
at the end of the two years? 
A. $1,203.18
B. $1,232.01
C. $1,359.00
D. $1,539.07
E. $1,742.99

5.3 If you leave the money of $950 in the account for five years and the account earns 8% compounded annually, what will the
balance in the account grow to? 
A. $1,341.05
B. $1,347.82
C. $1,395.86
D. $1,406.23
E. $1,491.15

5.4 You are supposed to receive $2,000 five years from now. At an interest rate of 6%, what is that $2,000 worth today? 
A. $1,491.97
B. $1,492.43
C. $1,494.52
D. $1,497.91
E. $1,499.01

5.5 Dale invests $500 in an account that pays 6% simple interest. How much more could he have earned over a thirty year period
if the interest had compounded annually? 
A. $1,471.75
B. $1,532.50
C. $1,621.25
D. $1,804.25
E. $2,371.75

5.6 You collect model cars. One particular model increases in value at a rate of 5% per year. Today, the model is worth $29.50.
How much additional money can you make if you wait ten years to sell the model rather than selling it five years from now? 
A. $9.98
B. $10.40
C. $10.86
D. $11.03
E. $11.24
5.7 An account was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the account paid interest
compounded annually, how much interest on interest was earned? 
A. $86.20
B. $93.10
C. $102.39
D. $130.28
E. $500.00

5.8 What is the future value of $7,540 invested at 6.5% interest for seven years? 
A. $10,330.45
B. $11,001.93
C. $11,041.26
D. $11,717.06
E. $11,337.37

5.9 You wish to have $200,000 at the end of twenty years. In the last five years, you withdraw $1,000 annually at a rate of 3.8%
compounded quarterly. During the middle ten years, you contribute $500 monthly at a rate of 2.8% compounded semi-annually.
Given this information, determine the initial deposit that has to be made at the start of the first five years at a rate of 4%
compounded monthly. 
A. $13,056.65
B. $12,056.65
C. $11,056.65
D. $10,056.65
E. $9,056.65

5.10 You have just been awarded a $200,000 insurance settlement. The insurance company has offered to invest this amount at a
guaranteed interest rate of 4.5% for ten years. You think you can invest this money yourself and earn an average return of 8%. If
you are able to do that, how much more will your settlement be worth ten years from now than if you had left the funds with the
insurance company? 
A. $78,829.69
B. $86,991.91
C. $118,009.42
D. $121,191.12
E. $137,188.23