Question 1

At what annual rate would $200.00 grow to $497.60 in five years?

Accepted Answer

A)  19% 
B)  18% 
C)  20% 
D)  22% 
A)  19% 
B)  18% 
C)  20% 
D)  22%

Question 2

An ordinary annuity can be defined as

Accepted Answer

A)  a series of unequal payments received or paid at equal intervals at the beginning of each period. 
B)  a series of equal payments received or paid at equal intervals of time at the end of each period. 
C)  a lump sum. 
D)  intermittent payments for ordinary expenses. 
A)  a series of unequal payments received or paid at equal intervals at the beginning of each period. 
B)  a series of equal payments received or paid at equal intervals of time at the end of each period. 
C)  a lump sum. 
D)  intermittent payments for ordinary expenses.

Question 3

Mr. Wolf is borrowing $500,000 to expand his business. The loan will be for ten years at 12% interest and will be repaid in equal quarterly installments. What will the quarterly installments be?

Accepted Answer

A)  $88,496 
B)  $21,631 
C)  $25,510 
D)  $60,650 
A)  $88,496 
B)  $21,631 
C)  $25,510 
D)  $60,650

Question 4

Time value concepts can be applied to lottery winnings. The winner can usually choose an annuity or a lump sum.

Accepted Answer

A) True 
 B)False

Question 5

You utilize present and future value concepts in investment, purchase, and retirement decisions.

Accepted Answer

A) True 
 B)False

Question 6

Assuming constant inflation, the length of the period does not matter when computing future value of an amount today.

Accepted Answer

A) True 
 B)False

Question 7

You wish to retire in 30 years and determine that you will need $1,000,000 to fund your retirement. If you can invest with a return of 8% you will need to invest ________ each year to reach your goal.

Accepted Answer

The answer of You wish to retire in 30 years...

Question 8

You can afford to make monthly payments of $400 for 60 months to buy a new car. Assuming you can borrow at 6% per year interest, how would you figure out how much money you can borrow?

Accepted Answer

A)  Ask your dad 
B)  Use present value of an annuity calculation 
C)  Use future value of annuity calculation 
D)  Not enough information given to determine answer 
A)  Ask your dad 
B)  Use present value of an annuity calculation 
C)  Use future value of annuity calculation 
D)  Not enough information given to determine answer

Question 9

The future value of your savings and debt affect all of the following, except

Accepted Answer

A)  financial planning tools. 
B)  protecting your wealth. 
C)  liquidity management. 
D)  marketing management. 
A)  financial planning tools. 
B)  protecting your wealth. 
C)  liquidity management. 
D)  marketing management.

Question 10

Use the data in table 3.1 to answer the following question(s):
   Table 3.1
-Refer to Table 3.1 above. How much will you need to deposit today to enable you to withdraw $1,000 each year for the next 5 years if the money is invested at 7%?

Accepted Answer

A)  $1,403 
B)  $713 
C)  $5,751 
D)  $4,100 
A)  $1,403 
B)  $713 
C)  $5,751 
D)  $4,100

Question 11

John would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest each year to achieve his goal?

Accepted Answer

A)  $13,242 
B)  $18,900 
C)  $20,518 
D)  None of the above 
A)  $13,242 
B)  $18,900 
C)  $20,518 
D)  None of the above

Question 12

An annuity is a stream of equal payments that are received or paid at equal intervals in time.

Accepted Answer

A) True 
 B)False

Question 13

Time value of money is only applied to single dollar amounts.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following decisions would involve the use of the future value of a $1 ordinary annuity table?

Accepted Answer

A)  Your brother buys your car and offers to pay you $500 now or $1,500 in two years. 
B)  You win a lawsuit and are offered a lump-sum payment today of $100,000 or $15,000 a year for 20 years. 
C)  Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a cruise that will cost $7,000 when you graduate from college in 4 years. 
D)  You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday. 
A)  Your brother buys your car and offers to pay you $500 now or $1,500 in two years. 
B)  You win a lawsuit and are offered a lump-sum payment today of $100,000 or $15,000 a year for 20 years. 
C)  Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a cruise that will cost $7,000 when you graduate from college in 4 years. 
D)  You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday.

Question 15

Which of the following decisions is not financially sound?

Accepted Answer

A)  Defer your student loan payments with no interest accruing 
B)  Defer your student loan payments if the interest rate is 7% per annum 
C)  Take a 60-month zero interest rate car loan 
D)  Prioritize paying off the highest interest rate loans versus lower rate loan 
A)  Defer your student loan payments with no interest accruing 
B)  Defer your student loan payments if the interest rate is 7% per annum 
C)  Take a 60-month zero interest rate car loan 
D)  Prioritize paying off the highest interest rate loans versus lower rate loan

Question 16

If you are presented with an offer to accept payment now or a greater amount in the future, you would use (assuming you can invest the money at a known rate)

Accepted Answer

A)  present value of $1. 
B)  future value of $1. 
C)  present value of an annuity. 
D)  Both A and B can be used for this analysis. 
A)  present value of $1. 
B)  future value of $1. 
C)  present value of an annuity. 
D)  Both A and B can be used for this analysis.

Question 17

The present value of an annuity can be obtained by discounting the individual cash flows of the annuity and then summing the resulting present values.

Accepted Answer

A) True 
 B)False

Question 18

The time period over which you save money has very little impact on its growth.

Accepted Answer

A) True 
 B)False

Question 19

In order to take advantage of the time value of money you should do all of the following, except

Accepted Answer

A)  pay bills electronically so you can delay payments and still ensure on-time payment. 
B)  pay bills a little later than the due dates to take advantage of month-ending interest on your savings account. 
C)  use settings on many bill-paying Web sites that allow you to set a future date for payment once you receive a bill. 
D)  make use of your money while you have it, but always make payments by the due dates. 
A)  pay bills electronically so you can delay payments and still ensure on-time payment. 
B)  pay bills a little later than the due dates to take advantage of month-ending interest on your savings account. 
C)  use settings on many bill-paying Web sites that allow you to set a future date for payment once you receive a bill. 
D)  make use of your money while you have it, but always make payments by the due dates.

Question 20

If Jim wants $25,000 in five years and can earn an 8% interest rate, how much does he need to invest today?

Accepted Answer

A)  $16,108 
B)  $17,025 
C)  $15,158 
D)  $17,829 
A)  $16,108 
B)  $17,025 
C)  $15,158 
D)  $17,829

Exam 3: Applying Time Value Concepts

At what annual rate would $200.00 grow to $497.60 in five years?

An ordinary annuity can be defined as

Mr. Wolf is borrowing $500,000 to expand his business. The loan will be for ten years at 12% interest and will be repaid in equal quarterly installments. What will the quarterly installments be?

Time value concepts can be applied to lottery winnings. The winner can usually choose an annuity or a lump sum.

You utilize present and future value concepts in investment, purchase, and retirement decisions.

Assuming constant inflation, the length of the period does not matter when computing future value of an amount today.

You wish to retire in 30 years and determine that you will need $1,000,000 to fund your retirement. If you can invest with a return of 8% you will need to invest ________ each year to reach your goal.

You can afford to make monthly payments of $400 for 60 months to buy a new car. Assuming you can borrow at 6% per year interest, how would you figure out how much money you can borrow?

The future value of your savings and debt affect all of the following, except

Use the data in table 3.1 to answer the following question(s): Table 3.1 -Refer to Table 3.1 above. How much will you need to deposit today to enable you to withdraw $1,000 each year for the next 5 years if the money is invested at 7%?

John would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest each year to achieve his goal?

An annuity is a stream of equal payments that are received or paid at equal intervals in time.

Time value of money is only applied to single dollar amounts.

Which of the following decisions would involve the use of the future value of a $1 ordinary annuity table?

Which of the following decisions is not financially sound?

If you are presented with an offer to accept payment now or a greater amount in the future, you would use (assuming you can invest the money at a known rate)

The present value of an annuity can be obtained by discounting the individual cash flows of the annuity and then summing the resulting present values.

The time period over which you save money has very little impact on its growth.

In order to take advantage of the time value of money you should do all of the following, except

If Jim wants $25,000 in five years and can earn an 8% interest rate, how much does he need to invest today?

Overview of a Financial Plan

Planning With Personal Financial Statements

Using Tax Concepts for Planning

Banking and Interest Rates

Managing Your Money

Assessing and Securing Your Credit

Managing Your Credit

Personal Loans

Purchasing and Financing a Home

Auto and Homeowners Insurance

Health and Disability Insurance

Life Insurance

Investing Fundamentals

Investing in Stocks

Investing in Bonds

Investing in Mutual Funds

Asset Allocation

Retirement Planning

Estate Planning

Integrating the Components of a Financial Plan

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