QUIZ PREPARATION BRIEF

The following questions should be used as a guide to the sorts of questions asked on a quiz. You should prepare all of your answers beforehand, making sure that you read carefully the online question, which might be slightly different. You may be asked other questions that you should know based on your reading and lectures.

1.

A bank is paying an interest rate of 12% per year for deposits. How much will accumulate in the account after ten years if a deposit of £1000 is made?

2.

Select the correct option. What is the effective annual interest rate of 5.75% if the interest payments are accumulated monthly rather than annually?

3.

An investment of £5000 pays £800 per year for 10 years (without repayment of the initial investment). What is the internal rate of return (IRR)?

4.

Investment Question. A £100,000 investment pays £15,000 after the first year, £13,000 after the second year, £11,000 after the third year and £10,000 after the fourth year. What is the approximate internal rate of return for this investment over these four years?

5.

In planning the construction of a building, you must make a choice between Option A, a two year build programme or Option B a one year build project. Option B costs 10% more than Option A. If the interest rate you must pay for the loan is 12%, which is the preferred option?

6.

Car Ownership Question. You are evaluating the relative cost of car ownership. Option “A” is a Mercedes that costs £10,000 and has an annual maintenance cost of £500. The Mercedes can be sold after 10 years for £5000. Option “B” costs only £5000, and has lower annual maintenance costs of £250. The Ford failed after 6 years with a residual value (“for parts only”) of £500. Which of these two options is the most economical?

7.

Refer to the Car Ownership Question. What is the annual depreciation rate for the Mercedes?

8.

A 10 year investment of £1,500 earning (simple) interest at 5.75% per annum will pay how much per year?

9.

A five year investment of £550 in a bank 5.05% per year will pay out how much per year (assuming simple interest only)

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