Chapter 5 - Time Value of Money Flashcards
On 1 September 2015 Anna invested £15,000 in a fixed rate investment paying 4% for four years; on 1 September 2019 she reinvested the resultant sum for a further two years at a fixed rate of 5%. How much will she receive on 1 September 2021?
Select one:
a. £20,101.
b. £19,140.
c. £19,346.
d. £18,900.
c. £19,346.
FV = PV*(1+r) ^n
chapter reference 5A2
A bank account pays an interest rate of 3.6% per annum, compounded on a monthly basis. What will the annual equivalent rate be?
Select one:
a. 3.96%.
b. 3.62%.
c. 3.66%.
d. 3.72%.
c. 3.66%.
(1 + r/n) ^n - 1
chapter reference 5A3A
Warren invested £8,000 into his unit trust six years ago and it is now worth £12,837. What average annual compound rate of return has he received on this investment?
Select one:
a. 9.92%.
b. 5.47%.
c. 8.2%.
d. 10.08%.
c. 8.2%.
Square root to the power of (FV/PV) - 1
chapter reference 5A2
James invested £6,000 into his unit trust seven years ago and it is now worth £9,954. What average annual compound rate of return has he received on this investment?
Select one:
a. 9.4%.
b. 13.5%.
c. 6.5%.
d. 7.5%.
d. 7.5%.
Square root to the power of (FV/PV)
chapter reference 5A2
On 1 July 2016 Henry invested £20,000 in a fixed rate investment paying 3% for four years. On 1 July 2020 he reinvests the resultant sum for a further three years at a fixed rate of 5%. How much will he receive on 1 July 2023?
Select one:
a. £24,597.
b. £25,760.
c. £28,142.
d. £26,058.
d. £26,058.
FV = PV*(1+r) ^n
A bank account pays an interest rate of 5% per annum, compounded on a quarterly basis. What will the annual equivalent rate be?
Select one:
a. 5.12%.
b. 5.25%.
c. 5.09%.
d. 4.91%.
c. 5.09%.
(1 + r/n) ^n - 1
chapter reference 5A3A
On 1 November 2016 Sally invested £10,000 in a fixed rate investment paying 4% for three years; on 1 November 2019 she reinvested the resultant sum for a further four years at a fixed rate of 6%. How much will she receive on 1 November 2023?
Select one:
a. £15,306.
b. £14,201.
c. £13,933.
d. £23,874.
b. £14,201.
FV = PV*(1+r) ^n
chapter reference 5A2
Henry’s bank is offering a fixed rate deposit of 4% over seven years. How much will he need to invest on day one to accumulate exactly £5,000 at the end of the fixed term?
Select one:
a. £3,799.59.
b. £3,906.25.
c. £3,600.
d. £3,951.57.
a. £3,799.59.
PV = FV / (1 + r) ^n
A building society account pays an interest rate of 4.5% per annum, compounded on a monthly basis. What will the annual equivalent rate be?
Select one:
a. 4.61%.
b. 4.55%.
c. 4.59%.
d. 4.57%.
c. 4.59%.
(1 + r/n) ^n - 1
chapter reference 5A3A
Jim has a structured product that pays 145% of the amount invested at the end of 5 years. What is the AER?
Select one:
a. 9.54%.
b. 7%.
c. 8.83%.
d. 7.71%.
d. 7.71%.
chapter reference 5A2/5A3A
A sum of £2,000 invested over 5 years with an interest rate of 5% compound would be worth how much at the end of the term?
Select one:
a. £2,680.19.
b. £2,552.56.
c. £2,500.
d. £3,000.
b. £2,552.56.
chapter reference 5A2
What amount has to be invested to accumulate £1,000 at the end of 5 years at an annual interest rate of 5% compound?
Select one:
a. £746.27.
b. £942.34.
c. £783.53.
d. £801.24.
c. £783.53.
PV = FV / (1 + r ) ^ n
chapter reference 5A4
What is the effective annual rate of interest, where the nominal rate is 10% and interest is calculated daily?
Select one:
a. 10.47%.
b. 10.52%.
c. 10%.
d. 10.25%.
b. 10.52%.
(1 + r/n) ^n - 1
(1 + 0.10 / 365) ^ 365 - 1
chapter reference 5A3
In time value of money calculations, where the present value is £20,000, the interest rate is 8.2% and the time frame for investment is 10 years, ‘n’ is:
Select one:
a. £20,000.
b. 8.2%.
c. 0.082.
d. 10.
d. 10.
chapter reference 5A1
In time value of money calculations, where the present value is £10,000, the interest rate is 5.5% and the time frame for investment is 8 years, ‘r’ is:
Select one:
a. 5.5%.
b. 8.
c. 0.055.
d. £10,000.
c. 0.055.
chapter reference 5A1
What is the APR on a loan where interest is charged at the rate of 24% a year on a monthly basis?
Select one:
a. 26.82%.
b. 48.02%.
c. 24.94%.
d. 12.47%.
a. 26.82%.
chapter reference 5A3A
If £100 is invested at the end of each year at an interest rate of 8% a year for 10 years, what will be the accumulated or future value at the end of 10 years?
Select one:
a. £1,627.39.
b. £1,448.66.
c. £1,564.55.
d. £1,600.
b. £1,448.66.
chapter reference 5A4A
If the nominal rate of return on an investment is 6% and inflation is 3%, what is the approximate real rate of return?
Select one:
a. 4.5%.
b. 4%.
c. 3.5%.
d. 3%.
d. 3%.
chapter reference 5B
Madge has a 3 year loan with an annual interest rate of 23% payable on a monthly basis. What is the APR?
Select one:
a. 25.85%.
b. 25.59%.
c. 24.81%.
d. 30.75%.
b. 25.59%.
chapter reference 5A3A
Simon wishes to invest a sum of money at an interest rate of 3.5% per annum to provide him with a capital lump sum of £8,000 in five years’ time. How much will he need to invest now to achieve this?
Select one:
a. £6,735.70.
b. £6,900.72.
c. £6,971.68.
d. £6,507.77.
a. £6,735.70.
chapter reference 5A4
Michael’s parents plan to gift him £10,000 on his 21st birthday. Assuming they can achieve a net annual return of 5%, how much will they need to invest on his 15th birthday?
Select one:
a. £7,692.
b. £7,462.
c. £7,835.
d. £7,000.
b. £7,462.
chapter reference 5A4
The nominal interest rate on a loan is 10% per annum. Interest charged at which frequency will lead to the highest annual percentage rate?
Select one:
a. Half-yearly.
b. Monthly.
c. Quarterly.
d. Daily.
d. Daily.
chapter reference 5A3
On 1 October 2015 Sarah invested £25,000 in a fixed rate investment paying 4% for three years; on 1 October 2018 she reinvested the resultant sum for a further six years at a fixed rate of 5%. How much will she receive on 1 October 2024, to the nearest pound?
Select one:
a. £36,623.
b. £35,500.
c. £37,686.
d. £36,619.
c. £37,686.
chapter reference 5A2
What is the annual percentage rate on a loan, where interest is charged at the rate of 18% a year on a monthly basis?
Select one:
a. 25.44%.
b. 18%.
c. 19.56%.
d. 22.5%.
c. 19.56%.
chapter reference 5A3A
A deposit account pays an interest rate of 6% per annum, compounded on a monthly basis. What will the annual equivalent rate be?
Select one:
a. 6.7%.
b. 6.13%.
c. 6.17%.
d. 6.96%.
c. 6.17%.
chapter reference 5A3A
A lump sum of £15,000 is invested for three years at 4% and then for a further three years at 3.5%. To the nearest pound, what will the investment be worth at the end of the term?
Select one:
a. £18,075.
b. £18,707.
c. £17,988.
d. £18,978.
b. £18,707.
chapter reference 5A2
Brian’s grandparents plan to gift him £5,000 on his 18th birthday. Assuming they can achieve a net annual return of 4%, how much will they need to invest on his 13th birthday, to the nearest pound?
Select one:
a. £4,110.
b. £4,000.
c. £4,167.
d. £3,951.
a. £4,110.
chapter reference 5A4
Stella invests £20,000 into a unit trust and after five years it is worth £26,263.32. What average annual rate of return has she received on this investment?
Select one:
a. 4.64%.
b. 6.26%.
c. 5.6%.
d. 15.2%.
c. 5.6%.
chapter reference 5A2
