Finance is a critical aspect of personal and business life, encompassing the management of money, investments, and financial resources. To navigate this complex field, individuals and organizations often grapple with a multitude of questions. Here are the top 15 finance questions and answers to help shed light on some of the most pressing financial matters. Whether you’re looking to secure your financial future, make informed investment decisions, or simply enhance your financial literacy, these answers will provide valuable insights and guidance. From understanding the basics of budgeting to exploring complex investment strategies, this collection of questions and answers offers a broad perspective on the world of finance.
Now, let’s move on to the Top 15 Finance Questions and Answers
Q1. If you deposit $700 in an account today at 4% annual interest rate, 8 years from today you will have __ in your account.
Q2. An average home in Chicago costs $295,000. If house prices are expected to grow at an average rate of 3 percent per year, what will a house cost in 5 years?
Q3. Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years’ supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store the chips?
a. 18.23 percent
b. 6.57 percent
c. 9.54 percent
d. 8.73 percent
Q4. You borrow $10,000 and will pay back the entire amount in 10 years. You are charged 6 percent interest per year. How much interest do you pay on this loan?
Q5. You want to retire in 40 years and you have $40,000 saved in your retirement account. You believe you will need $1,500,000 upon retirement. What rate will you need to earn on the account to achieve this goal?
a. 7.48 percent
b. 9.13 percent
c. 9.48 percent
d. 6.75 percent
Q6. To move a cash flow in time from period 4 to period 6 we would need to
a. Multiply the cash flow by a number greater than one.
b. Square the cash flow.
c. Cut the cash flow in half.
d. Divide the cash flow by a number greater than one.
Q7. Assume we want to move a cash flow from period 7 to period 5. The calculation of the new amount of the cash flow would include
a. Adding the interest rate to number one and raising the result to the power of 2.
b. Adding the interest rate to number one and raising the result to the power of 5.
c. Raising the interest rate to the power of 5.
d. Raising the interest rate to the power of 2.
Q8. Assume you deposit $100 in an account today and that a friend of yours deposits $100 in an account of another bank, also today. In one year, you have $110 in your account and your friend has $108 in his/her account. We can conclude that
a. Your friend earned a lower rate of interest than you.
b. Your friend is getting a compound interest while you are getting a simple interest.
c. Your friend earned a higher rate of interest than you.
d. One of the two banks made a mistake in calculating the interest payment.
Q9. Compounding interest means the following:
a. Interest is earned not only on the initial balance, but also on previously received interest payments.
b. The interest rate is determined by the borrower, not the lender.
c. Dividing the interest into components.
d. Two different interest rates are used for the same loan.
Q10. Which of the following will not increase a present value?
a. None of these answers is correct
b. Increase the interest rate
c. Increase the future value
d. Decrease the number of periods
Q11. A dollar paid (or received) in the future is
a. not comparable to a dollar paid (or received) today.
b. not worth as much as a dollar paid (or received) today.
c. worth more than a dollar paid (or received) today.
d. worth as much as a dollar paid (or received) today.
Q12. The process of figuring out how much an amount that you expect to receive in the future is worth today is called:
Q13. People borrow money because they expect:
a. the time value of money to apply only if they are saving money.
b. interest rates to rise.
c. that consumers don’t need to calculate the impact of interest on their purchases.
d. their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan.
Q14. All of the below are correct EXCEPT:
a. Each individual has his/her own rate of time preference.
b. People that value future consumption less than most of the other people will most likely end up being net lenders in the market.
c. $1 today is more valuable than $1 tomorrow
d. Needing to assign correct values to future cash flows of companies is why we need to be able to adjust for the rate of time preference.
Q15. Assume $500 to be received in year 3 has a present value equal to $400. If we keep the same interest rate assumption, but instead assume that the $500 is received in year 2 we know that the resulting present value must be
a. Equal to $400.
b. Smaller than $400.
c. Larger than $500.
d. Larger than $400.