Exam 3: Understanding and Appreciating the Time Value of Money

Car loans and mortgage loans are typical annuities in the form of

An annuity is a series of unequal dollar payments coming at the end of each time period for a specified number of time periods.

By the Rule of 72, what annual interest rate would be required to turn $100 into $200 in approximately six years?

Suppose that you had deposited $100 in a bank account for each of the last 5 years. What annual interest rate is attached to this account if there is now (at the end of the fifth year) $758.92 in the account?

At the end of each year for ten years you deposit $750 in an account that earns an annual rate of return of 12%. What is the present value of these deposits?

Arnold learned something very valuable as a teenager from his dad. He was told to invest $1,000 at 12% interest at age 20 and leave it alone until age 65. Arnold's dad knew that one strategy that wealthy people use is to exercise self-discipline to never touch this long-term plan. Arnold is very happy he applied his dad's advice. -If Arnold were to leave his money in the account until he was 68, by approximately what amount would the balance increase between his 62nd and 68th years?

How much did you borrow if your annual payments are $5,000 for the next seven years and the interest rate is 9%?

The I/Y key on a financial calculator stores the information for the interest rate or the discount rate per period.

What is the future value of a stream of $800 annual payments worth to the investor at the end of 10 years if these payments are invested at an annual rate of return of 8.5%?

List at least five common examples of annuities.

Two of the most important factors in reaching your financial goals are the return on your investments and the length of time you have until you need your money.

Charlie is starting to save for his retirement now at age 20. If inflation averages 4% annually until his retirement age and he earns an annual rate of return of 4% on his investments during this period, then he should be able to enjoy a very comfortable retirement when he is retired.

Mark borrows $15,000 to buy a new car. His loan has an annual interest rate of 6.5%, compounded monthly, and his monthly payment is $293.49. How much will he have paid in interest when he has finished repaying his loan in 60 months?

What is the future value of a series of $500 annual payments received at the end of each of the next 5 years' worth if they are invested at an annual rate of return of 6%?

Using the Rule of 72, if it will take approximately 12 years for your money to double, at what annually compounded interest rate is it invested?

Why is the time value of money an important concept in financial planning?

In an amortized loan the earlier payments have a larger portion of the payment going to pay interest and a smaller portion of the payment to pay down the principle.

You currently have $11,167 in your savings account. What interest rate do you need to earn in order to have $20,000 in the account in 10 years?

A one-time investment of $200 at a 10% Annual Rate of Return yields $242 in two years. The $242 is known as the

Mark borrows $15,000 to buy a new car. His loan has an interest rate of 6.5%, compounded monthly, and his monthly payment is $293.49. If instead his loan had an interest rate of 8%, how much more would he have paid in interest by the time he finished repaying his loan in 60 months?