ENMN 426 – Pop Quiz #2 – 29 January 2021

First and last name: __________________________________________________________

Please circle a letter to indicate your answer to each multiple-choice question. You do not have to show any
calculations.

1. A dollar today is worth more than a dollar tomorrow because:

a) the dollar can be invested and earn interest.

b) there is a risk of loss in investing.
c) there is loss due to inflation.
d) of the opportunity cost of the dollar.
e) All of the above are true.

2. If Sam is indifferent between receiving $1,000 today or $1,100 one year from now, his required rate of
return must be close to:

a) 1.10%
b) 10%
c) 110%
d) 100%

3. Victoria City Bank offers a return of 9% on a savings account for five years using simple interest while BC
Bank offers a return of 9% for five years using compound interest. An investor should choose

a) either option; both are equally good because both have the same interest rate.
b) the compound interest option because it provides a higher overall return.
c) the compound interest option, but only if interest is compounded monthly.
d) the simple interest option, but only if interest is compounded monthly.

4. Hiroko invested $100,000 at a rate of 6% compounded annually. How long will it take for her investment to
grow to $400,000 in value?

a) 231.74 years
b) 4.00 years
c) 23.79 years
d) 12.40 years

5. The present value is always _______ the future value if the required return is _______ zero.

a) less than; greater than

b) equal to; equal to
c) greater than; less than
d) All of the above are true.

6. Pam bought a house for $800,000 fifteen years ago. She has just sold it for $1,700,000. What annual rate of
return did she earn on this investment?
a) 112.50%
b) 5.15%
c) 9.38%
d) 12.50%

7. A lottery prizewinner can choose either Prize A ($1,000,000 today) or Prize B ($1,750,000) at the end of 10
years from now). If the discount rate is 6%, the prizewinner should choose:

a) Prize A, because it is available now.

b) Prize A, because its future value is $1,790,848.
c) Prize B, because its present value is $977,191, which can then be compounded.
d) Prize B, because it pays $1,750,000, which is much more than $1,000,000 from Prize A.