Exam 3: Applying Time Value Concepts

The periodic interest rate, the number of periods in which your money will be invested, and the initial payment amount, must be known to estimate the future value using a financial calculator.

The process of obtaining ________ values is referred to as discounting.

The same tables can be used to figure future values and present values of $1.

If you invest $12,000 today at an interest rate of 10%, how much will you have in 10 years?

Compare using the present value, future value, and annuity tables to using your financial calculator to solve problems. What are some of the advantages and disadvantages of each tool?

Use the following two columns of items to answer the matching questions below: -discounting A)the process of obtaining present values B)a factor multiplied by a future value to get the present value of that amount

Describe how present and future values concepts apply to your income and expenses and ultimately your personal budget, income statement, and balance sheet.

Lucky Louie just won the lottery! He has a choice of taking $1,000,000 in cash or receiving $50,000 per year for 30 years beginning at the end of this year. The best way to make this choice is to

It is always better to choose a lump sum rather than to choose periodic payments over time. This is why nearly all lottery winners choose the lump-sum payment.

If Sandy has $7,000 today and invests it for five years at a 5% interest rate, how much will she have in five years?

Present and future values concepts are applied in all of the following decisions, except

If I deposit a sum of money today and want it to double in 10 years, I will need to receive an interest rate of slightly above ________.

As the time period until receipt of an amount of money increases, the present value of the amount at a fixed interest rate

Assuming that you had just won $5,000,000 in the lottery, describe the advantages and disadvantages of receiving a lump sum today versus a ten-year annuity. Discuss other factors that are relevant or needed to make this decision. No interest rate is given, but different interest rates can be assumed, if necessary, to answer this problem.

When money earns interest on interest, it is said to be compounding.

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

Time value of money is important because

Everything else being equal, the ________ the interest rate, the ________ the final accumulation of money.