Question 1

To determine how much money you would need to save today to withdraw $10,000 a year for five years, you would use the present value of an annuity tables.

Accepted Answer

A) True 
 B)False

Question 2

An annuity is a stream of equal payments such as a mortgage, social security payments or a pension.

Accepted Answer

A) True 
 B)False

Question 3

Time value of money calculations, such as present and future value amounts, can be applied to many day-to-day decisions.

Accepted Answer

A) True 
 B)False

Question 4

Time value of money computations relate to the future value of lump-sum cash flows only.

Accepted Answer

A) True 
 B)False

Question 5

To determine how much you would need to save each year to reach a specific goal, you would use

Accepted Answer

A)  present value of $1. 
B)  future value of $1. 
C)  present value of an annuity. 
D)  future value of an annuity. 
A)  present value of $1. 
B)  future value of $1. 
C)  present value of an annuity. 
D)  future value of an annuity.

Question 6

Future and present values are dependent upon all of the following, except

Accepted Answer

A)  time. 
B)  the interest rate. 
C)  a present or future value interest factor, depending on the problem. 
D)  annual income. 
A)  time. 
B)  the interest rate. 
C)  a present or future value interest factor, depending on the problem. 
D)  annual income.

Question 7

The time value of money concept can help you determine how much money you need to save over a period of time to achieve a specific savings goal.

Accepted Answer

A) True 
 B)False

Question 8

In the tables for the future value of a single sum, the future value factors are all less than one.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following it not an annuity?

Accepted Answer

A)  Equal monthly payments to your investment account 
B)  Lottery winnings of $100 per month for life 
C)  Mortgage payments for a fixed-rate loan 
D)  Monthly utility bills 
A)  Equal monthly payments to your investment account 
B)  Lottery winnings of $100 per month for life 
C)  Mortgage payments for a fixed-rate loan 
D)  Monthly utility bills

Question 10

Using the Time Value of Money charts provided, answer the following question. (Note to Instructors: Provide the appropriate tables to students from Personal Finance, Seventh Edition, Appendix C: Financial Tables.) Jack is 35 years old and is planning to retire at age 65. Based on a variety of factors, he is planning a retirement of 20 years. Jack determines that he will need $20,000 per year during his 20 years of retirement. If he can invest at 9%, how much will he need to save each year beginning today to reach his goal?

Accepted Answer

A)  $11,428.57 
B)  $6,086.00 
C)  $1,339.47 
D)  $20,000.00 
A)  $11,428.57 
B)  $6,086.00 
C)  $1,339.47 
D)  $20,000.00

Question 11

Assuming interest rates were 6% per annum, what would be the present value of the $50,000 per year for 30 years payment stream? Use the tables or a financial calculator.

Accepted Answer

A)  $688,242 
B)  $1,500,000 
C)  $700,002 
D)  $693,974 
A)  $688,242 
B)  $1,500,000 
C)  $700,002 
D)  $693,974

Question 12

The state lottery has just informed you that you have won $1 million to be paid out in the amount of $50,000 per year for the next 20 years. With a discount rate of 12%, what is the present value of your winnings?

Accepted Answer

A)  $221,950 
B)  $398,150 
C)  $373,450 
D)  $392,150 
A)  $221,950 
B)  $398,150 
C)  $373,450 
D)  $392,150

Question 13

The concept of the time value of money is based on

Accepted Answer

A)  the level of unemployment. 
B)  taxes. 
C)  interest earned over time. 
D)  the Dow Jones Industrial Average. 
A)  the level of unemployment. 
B)  taxes. 
C)  interest earned over time. 
D)  the Dow Jones Industrial Average.

Question 14

Use the following two columns of items to answer the matching questions below:
-present value interest factor

Accepted Answer

A) the process of obtaining present values 
B) a factor multiplied by a future value to get the present value of that amount 
A) the process of obtaining present values 
B) a factor multiplied by a future value to get the present value of that amount

Question 15

Use the following two columns of items to answer the matching questions below:
-financial calculator
A)a business calculator that performs PV/FV calculations
B)the process of earning interest on interest
C)a series of equal payments received or paid at equal intervals
D)a factor multiplied by today's savings to determine how the savings will accumulate over time

Accepted Answer

The answer of Use the following two columns of items...

Question 16

Compounding is the process of obtaining present values; discounting is the process of obtaining future values.

Accepted Answer

A) True 
 B)False

Question 17

The present value interest factor (PVIF) becomes lower as the number of years increases.

Accepted Answer

A) True 
 B)False

Question 18

How many years will it take for $35 to grow to $53.87 if it is invested at 9% compounded annually?

Accepted Answer

A)  6.0 
B)  5.5 
C)  5.0 
D)  4.0 
A)  6.0 
B)  5.5 
C)  5.0 
D)  4.0

Question 19

Which of the following decisions would involve the use of the present value of $1?

Accepted Answer

A)  Your brother buys your car and offers to pay you $500 per year for three years 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 per year for three years 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 20

When money accumulates interest, it is said to be discounting.

Accepted Answer

A) True 
 B)False

To determine how much money you would need to save today to withdraw $10,000 a year for five years, you would use the present value of an annuity tables.

An annuity is a stream of equal payments such as a mortgage, social security payments or a pension.

Time value of money calculations, such as present and future value amounts, can be applied to many day-to-day decisions.

Time value of money computations relate to the future value of lump-sum cash flows only.

To determine how much you would need to save each year to reach a specific goal, you would use

Future and present values are dependent upon all of the following, except

The time value of money concept can help you determine how much money you need to save over a period of time to achieve a specific savings goal.

In the tables for the future value of a single sum, the future value factors are all less than one.

Which of the following it not an annuity?

Assuming interest rates were 6% per annum, what would be the present value of the $50,000 per year for 30 years payment stream? Use the tables or a financial calculator.

The state lottery has just informed you that you have won $1 million to be paid out in the amount of $50,000 per year for the next 20 years. With a discount rate of 12%, what is the present value of your winnings?

The concept of the time value of money is based on

Use the following two columns of items to answer the matching questions below: -present value interest factor

Compounding is the process of obtaining present values; discounting is the process of obtaining future values.

The present value interest factor (PVIF) becomes lower as the number of years increases.

How many years will it take for $35 to grow to $53.87 if it is invested at 9% compounded annually?

Which of the following decisions would involve the use of the present value of $1?

When money accumulates interest, it is said to be discounting.

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

Filters

Exam 3: Applying Time Value Concepts

To determine how much money you would need to save today to withdraw $10,000 a year for five years, you would use the present value of an annuity tables.

An annuity is a stream of equal payments such as a mortgage, social security payments or a pension.

Time value of money calculations, such as present and future value amounts, can be applied to many day-to-day decisions.

Time value of money computations relate to the future value of lump-sum cash flows only.

To determine how much you would need to save each year to reach a specific goal, you would use

Future and present values are dependent upon all of the following, except

The time value of money concept can help you determine how much money you need to save over a period of time to achieve a specific savings goal.

In the tables for the future value of a single sum, the future value factors are all less than one.

Which of the following it not an annuity?

Assuming interest rates were 6% per annum, what would be the present value of the $50,000 per year for 30 years payment stream? Use the tables or a financial calculator.

The state lottery has just informed you that you have won $1 million to be paid out in the amount of $50,000 per year for the next 20 years. With a discount rate of 12%, what is the present value of your winnings?

The concept of the time value of money is based on

Use the following two columns of items to answer the matching questions below: -present value interest factor

Compounding is the process of obtaining present values; discounting is the process of obtaining future values.

The present value interest factor (PVIF) becomes lower as the number of years increases.

How many years will it take for $35 to grow to $53.87 if it is invested at 9% compounded annually?

Which of the following decisions would involve the use of the present value of $1?

When money accumulates interest, it is said to be discounting.

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

Filters