Finance Quiz: Pv And Fv Single Cash Flows
6 questions · exam conditions
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Pv And Fv Single Cash FlowsQuestion 1 of 6

A rare coin was purchased for $5,000. Exactly ten years later, it was sold for $13,000. Assuming the value of the coin grew at a constant annual rate, what was the annually compounded rate of return earned on this investment?

10.03%
16.00%
9.59%
10.47%
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Finance Quiz

Finance Quiz: Pv And Fv Single Cash Flows

Practice Pv And Fv Single Cash Flows in Finance with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Pv And Fv Single Cash Flows, giving you a quick way to practice the rules, question types, and explanations that matter most for Finance.

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Question 1

A rare coin was purchased for $5,000. Exactly ten years later, it was sold for $13,000. Assuming the value of the coin grew at a constant annual rate, what was the annually compounded rate of return earned on this investment?

  1. 10.03% (correct answer)
  2. 16.00%
  3. 9.59%
  4. 10.47%
Explanation: This problem requires solving for the interest rate (r) in the future value formula. FV = PV × (1 + r)ⁿ. So, $13,000 = 5,000×(1+r)10.Rearranginggives(1+r)=(5,000 × (1 + r)¹⁰. Rearranging gives (1 + r) = (13,000 / $5,000)^(1/10) = (2.6)^(0.1) ≈ 1.1003. Therefore, r ≈ 0.1003 or 10.03%.

Question 2

A legal settlement offers a choice between receiving $500,000 today or receiving a single payment of $800,000 in five years. At what approximate discount rate would an individual be financially indifferent between the two options?

  1. 9.24%
  2. 12.00%
  3. 10.42%
  4. 9.86% (correct answer)
Explanation: Indifference means the present value of the future payment is equal to the payment offered today. We need to solve for the interest rate (r) where PV = FV / (1+r)ⁿ. So, $500,000 = $800,000 / (1+r)⁵. Rearranging gives (1+r)⁵ = $800,000 / $500,000 = 1.6. Then, (1+r) = (1.6)^(1/5) ≈ 1.09856. Therefore, r ≈ 0.09856 or 9.86%.

Question 3

An investor deposits $50,000 today. The investment is expected to earn a nominal annual return of 10%. If the average annual inflation rate over the investment period is 3%, what is the expected future value of the investment in 7 years, expressed in today's (real) dollars?

  1. $97,436
  2. $79,160 (correct answer)
  3. $68,205
  4. $70,000
Explanation: This is a two-step problem. First, calculate the nominal future value: FV_nominal = $50,000 × (1 + 0.10)⁷ ≈ $97,435.86. Second, discount this nominal future value back to today's dollars using the inflation rate to find the real future value: FV_real = FV_nominal / (1 + inflation)⁷ = $97,435.86 / (1.03)⁷ ≈ $79,160.03.

Question 4

An entrepreneur invests $25,000 in a startup, aiming to triple the investment. If the investment grows at a rate of 12% per year, compounded annually, approximately how many years will it take for the investment to reach the $75,000 target?

  1. 6.12 years
  2. 9.69 years (correct answer)
  3. 8.33 years
  4. 9.22 years
Explanation: This problem requires solving for the number of periods (N). The formula is FV = PV × (1 + r)ⁿ. $75,000 = $25,000 × (1 + 0.12)ⁿ. This simplifies to 3 = (1.12)ⁿ. To solve for N, use logarithms: N = ln(3) / ln(1.12) ≈ 9.69 years.

Question 5

An investment doubles in value in exactly 10 years. If this same annually compounded rate of return continues, what will be the value of a $100,000 investment after 30 years?

  1. $300,000
  2. $600,000
  3. $800,000 (correct answer)
  4. $900,000
Explanation: If the investment doubles in 10 years, it means the value is multiplied by 2 every 10 years. A 30-year period contains three 10-year doubling periods. Therefore, the initial investment will double three times. Value = $100,000 × 2 × 2 × 2 = $100,000 × 2³ = $100,000 × 8 = $800,000.

Question 6

An investment of $15,000 is made into an account that earns an annual interest rate of 5%, compounded continuously. What will be the value of the investment after exactly 8 years?

  1. $22,289
  2. $22,213
  3. $22,055
  4. $22,377 (correct answer)
Explanation: This problem requires the formula for continuous compounding: FV = PV × e^(rt). Here, PV = $15,000, r = 0.05, and t = 8. FV = $15,000 × e^(0.05 × 8) = $15,000 × e^(0.4) ≈ $15,000 × 1.49182 ≈ $22,377.37.