RMI Cumulative Quiz – Review questions with
correct answers
Aisha, a recent FSU graduate, just turned 23 today. She wants to invest
money today that will be worth exactly $5,000 in two years. Assuming a
valuation rate of 0% how much does she need to invest today (to the
nearest whole dollar)? Correct Answer-$5,000
When calculating present value of future salary, we need to use the
future value of annuities with growth rate (FVAG) formula. Correct
Answer-False
Nora has $4,000. If she puts it in the bank today, and receives 4% annual
interest, how much will she have in 15 years (to the nearest whole
dollar)? Correct Answer-$7,204
Jane is retiring today. Her retirement plan allows her to either receive
$50,000 at the end of each year for the next 40 years or a lump sum
today. If the appropriate annual valuation rate is 4 percent, what is the
minimum amount of a lump-sum she will be willing to accept today (to
the nearest whole dollar)? Correct Answer-$989,639
Assume that Eleanor starts working for a large retail company today.
Today is January 1st 2019. She will receive $45,000 every year, paid at
the end of the year. If she spends $15,000 every year and saves the rest
for 4 years, what is the present value of her saving stream today (to the
nearest whole dollar)? Assume a valuation rate of 4%. Neither Eleanor's
salary nor spending changes over time. Correct Answer-$108,897
,Which of the following information is NOT needed to calculate the
present value of an annuity? Correct Answer-The number of periods a
person contributed to the annuity
Susan's current salary is $50,000 per year, paid annually at the end of the
year, and grows steadily at 5% per year. What is her appropriate
valuation rate? Correct Answer-Depends on her personal opportunity
costs and characteristics of the job
Coco's current salary is $40,000 per year, paid annually at the end of the
year. Her salary is growing steadily at 5% per year. Assuming a
valuation rate of 4%, what is the value of your earnings today? Correct
Answer-There is not enough information
Present value of annuities formula (PVA) can be derived from the
present value of annuities with growth formula (PVAG). Correct
Answer-True
Suppose that Jerome will start a job with an annual salary of $25,000
that is paid at the end of each year, with an annual growth rate of 5%.
Today is the beginning of the year. Jerome expects to receive salary for
next 30 years. The appropriate annual valuation rate for Jerome is 4%.
What is the value of Jerome's future salary today (to the nearest whole
dollar)? Correct Answer-$831,339
When calculating future value of a lump sum investment, we do not
need to know the number of periods we will be investing. Correct
Answer-False
,A bank is willing to lend Albert $50,000 for a home improvement loan
to be repaid annually over 5 years based on 7% interest. What is the
amount of each annual payment required to repay the loan (to the nearest
whole dollar)? Correct Answer-$12,195
Assume that Evan starts working for a broker today. He will receive
$50,000 every year, paid at the end of the year. If he also
receives$50,000 bonus every year and saves 50% of his earnings (salary
and bonus combined) for 5 years, what is the present value of his saving
stream today (to the nearest whole dollar)? Assume a valuation rate of
0%. Neither Evan's earnings nor spending changes over time. Correct
Answer-$250,000
Assume that Dede starts working for a large retail company today.
Today is January 1st, 2019. She will receive $50,000 every year, paid at
the end of the year. If she spends $15,000 every year and saves the rest
for 4 years, assuming a valuation rate of 5%, what is the present value of
her saving stream today (to the nearest whole dollar)? Neither Dede 's
salary nor spending changes over time. Correct Answer-$124,108
Present value of annuities formula (PVA) can be derived from the
present value of annuities with growth formula (PVAG). Correct
Answer-TRUE
The difference between annuities and lump sum payments is that you
don't need to know _________________ to calculate the present value
of a lump sum payment in the future, while you need that information
, for the present value of annuities. Correct Answer-number of periodic
payments
Chloe's current salary is $70,000 per year, paid annually at the end of the
year. Her salary is growing steadily at 7% per year. Assuming that she
will be able to keep her job for the next 20 years, what is the value of her
earnings today? Correct Answer-There is not enough information
Jim expects to receive $100,000 in 10 years. Assuming a discount rate of
8%, what is $100,000's worth to Jim today? Correct Answer-$46,319
In 2022, everyone's valuation rate was set equal by the Federal Reserve
Board. Correct Answer-FALSE
When calculating present value of future salary, we need to use the
future value of annuities with growth rate (FVAG) formula. Correct
Answer-FALSE
For most people in early years of life, their most valuable asset is:
Correct Answer-HUMAN CAPITAL
Which of the following is an important input for calculating my implicit
liabilities? Correct Answer-minimum necessary consumption
My gross human capital: Correct Answer-Will decrease throughout my
lifetime
