Exam 3: Applying Time Value Concepts

Sandy wants to know how much she needs to save today to have $5,000 in five years at a 7% interest rate. How much should she invest today?

Jerry wants to know how much he needs to save every year to accumulate $15,000 in five years at a 10% interest rate. Which of the following tables should he use?

At what annual rate would $500 grow to $1,948 in 12 years?

If the payment in an ordinary annuity changes over time, you cannot determine the future value of the payment stream using annuity calculations.

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 have if you deposit $1,000 today in an account paying 7% and you leave it on deposit for 5 years?

Which of the following is not an example of a future value?

The higher the rate used in determining the future value of an annuity,

Use the following two columns of items to answer the matching questions below: -timelines

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.) Judy would like to have $200,000 saved in her retirement account in 20 years. Assuming an interest rate of 10%, how much should she contribute each year?

There are two sets of present and future value tables: one set for lump sums and one set for annuities.

Use the following two columns of items to answer the matching questions below: -annuity 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

The ________ the interest rate, the ________ the present value of an annuity.

Money received today is worth more than the same amount of money received in the future. This is true because

Carol would like to have $500,000 saved in her retirement account in 30 years. Assuming an interest rate of 10%, how much should she contribute each year?

The process of earning interest on accumulated interest or paying interest on accumulated interest due is called

Mr. Berkey deposits $10,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much interest will he earn on his investment during this time period?

The cash flows of an annuity due occur at the beginning of each period.

Use the following two columns of items to answer the matching questions below: -annuity due A)a factor multiplied by a periodic savings level (annuity) to get the present value of the annuity B)a series of equal payments that occur at the beginning of each period C)diagrams that show payments over time

The process of earning ________ on interest is referred to as compounding.

Byron is investigating a mutual fund that claims that $1,000 today will be worth $5,000 in five years. What is he solving for?