Question 1

The future value of a current investment earning a positive rate of return is always greater than the present value of the investment.

Accepted Answer

A) True 
 B)False

Question 2

One day as you were going through some old memorabilia, you discovered an old savings account in which you placed $100 twenty years ago. When you checked out the account, it currently had a balance of $320.71. What annual rate of interest did you earn?

Accepted Answer

A)  12% 
B)  10% 
C)  8% 
D)  6% 
A)  12% 
B)  10% 
C)  8% 
D)  6%

Question 3

Adrian is a single man and wants to save up enough money to put as a down payment on a new house in 5 years. He has read that the best way to purchase a house is with a 20% down payment. He has a large income and very little debt right now so he can afford to save a substantial amount of money every month. He is asking you for some advice to help him reach his goal.
-It is now 5 years later and Adrian has saved up enough money to make a 20% downpayment on a new house. He will have to borrow $135,000 at an annual rate 6% for 30 years, compounded monthly. What will his monthly mortgage payment be?

Accepted Answer

A)  $1,199.55 
B)  $809.39 
C)  $779.98 
D)  $397.50 
A)  $1,199.55 
B)  $809.39 
C)  $779.98 
D)  $397.50

Question 4

A compound annuity involves depositing or investing an equal sum of money at the end of each time period for a certain number of time periods and allowing it to grow.

Accepted Answer

A) True 
 B)False

Question 5

What would be the interest rate on a loan of $9,981.78 that you paid off with annual payments of $2,500 for each of the next five years?

Accepted Answer

A)  8.0% 
B)  10% 
C)  15% 
D)  21% 
E)  26% 
A)  8.0% 
B)  10% 
C)  15% 
D)  21% 
E)  26%

Question 6

The discount rate is the interest rate used to bring ________ back to ________.

Accepted Answer

A)  current dollars; present dollars 
B)  future dollars; present dollars 
C)  current interest rate; present present interest rate 
D)  future interest rate; present interest rate 
A)  current dollars; present dollars 
B)  future dollars; present dollars 
C)  current interest rate; present present interest rate 
D)  future interest rate; present interest rate

Question 7

Consider that you are paying back a fully amortized loan. Which of the following statements is most correct?

Accepted Answer

A)  Later loan payments involve larger amounts of principal repayment. 
B)  The actual loan payments vary from year to year. 
C)  After the last loan payment is made, there is still a large principal repayment remaining. 
D)  Early loan payments include smaller amounts of interest payments. 
E)  None of the above statements are true. 
A)  Later loan payments involve larger amounts of principal repayment. 
B)  The actual loan payments vary from year to year. 
C)  After the last loan payment is made, there is still a large principal repayment remaining. 
D)  Early loan payments include smaller amounts of interest payments. 
E)  None of the above statements are true.

Question 8

Generally speaking, saving a little money on a regular basis when you are young can result in a large final payoff.

Accepted Answer

A) True 
 B)False

Question 9

If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that you invested $100 in a bank account that earned an annual rate of return of 10%. How much would you have in that bank account at the end of 10 years?

Accepted Answer

A)  $259.37 
B)  $238.55 
C)  $293.74 
D)  $214.46 
E)  $279.23 
A)  $259.37 
B)  $238.55 
C)  $293.74 
D)  $214.46 
E)  $279.23

Question 11

Your money will grow or compound ________ as the number of compounding periods per year becomes ________.

Accepted Answer

A)  faster; smaller 
B)  faster; larger 
C)  slower; larger 
D)  slower; compounded 
E)  none of the above are correct 
A)  faster; smaller 
B)  faster; larger 
C)  slower; larger 
D)  slower; compounded 
E)  none of the above are correct

Question 12

Your daughter has been saving $500 a year for each of the last 10 years for her "sweet sixteen" party. How much is now in her party account (at the end of the tenth year) if she earned an annual rate of return of 6%?

Accepted Answer

A)  $6,590.40 
B)  $7,680.04 
C)  $5,300.00 
D)  $8,714.84 
A)  $6,590.40 
B)  $7,680.04 
C)  $5,300.00 
D)  $8,714.84

Question 13

Which one of the following is the "enemy" of compound interest and makes it very difficult to reach your financial goals?

Accepted Answer

A)  inflation 
B)  annuity factor 
C)  simple interest 
D)  compound frequency 
E)  none of the above 
A)  inflation 
B)  annuity factor 
C)  simple interest 
D)  compound frequency 
E)  none of the above

Question 14

Adrian is a single man and wants to save up enough money to put as a down payment on a new house in 5 years. He has read that the best way to purchase a house is with a 20% down payment. He has a large income and very little debt right now so he can afford to save a substantial amount of money every month. He is asking you for some advice to help him reach his goal.
-Assume that Adrian will need $30,000 for his 20% downpayment in 5 years. Which of the following is closest to the amount that he will have to save every year in an investment that pays 9%, compounded annually?

Accepted Answer

A)  $6,003 
B)  $4,884 
C)  $5,187 
D)  $5,013 
A)  $6,003 
B)  $4,884 
C)  $5,187 
D)  $5,013

Question 15

How much can you borrow today if you can make payments of $3,600 a year for the next five years and the interest rate is 10%?

Accepted Answer

A)  $13,646.83 
B)  $12,235.32 
C)  $18,978.36 
D)  $15,797.84 
E)  $17,949.67 
A)  $13,646.83 
B)  $12,235.32 
C)  $18,978.36 
D)  $15,797.84 
E)  $17,949.67

Question 16

For someone who has $100,000 to save for 20 years, would a 4% Certificate of Deposit that compounds annually be a better deal than a 3.94% Certificate of Deposit that compounds quarterly? Why?

Accepted Answer

With the 4% annual compounding, your $10

Question 17

Why should you care about the power of compounding and the time value of money?

Accepted Answer

A)  It is critical to obtaining your future financial goals. 
B)  The sooner you start saving for retirement, the less you have to save each year. 
C)  You may outlive your Social Security and employer's retirement plan. 
D)  It is possible to build a large estate for yourself, spouse, and children. 
E)  all of the above 
A)  It is critical to obtaining your future financial goals. 
B)  The sooner you start saving for retirement, the less you have to save each year. 
C)  You may outlive your Social Security and employer's retirement plan. 
D)  It is possible to build a large estate for yourself, spouse, and children. 
E)  all of the above

Question 18

Suppose that you want to create a "retirement party fund" for yourself and place $50 in a bank account for each of the next 20 years. If that account earns an annual rate of return of 7%, how much will be in your retirement party fund at the end of the twentieth year?

Accepted Answer

A)  $1,529.70 
B)  $2,679.22 
C)  $1,032.57 
D)  $2,049.77 
A)  $1,529.70 
B)  $2,679.22 
C)  $1,032.57 
D)  $2,049.77

Question 19

A compound annuity uses the principles of

Accepted Answer

A)  reinvesting and present value. 
B)  compound interest and future value. 
C)  reinvesting and compound interest. 
D)  compound interest and present value. 
E)  amortization and reinvesting. 
A)  reinvesting and present value. 
B)  compound interest and future value. 
C)  reinvesting and compound interest. 
D)  compound interest and present value. 
E)  amortization and reinvesting.

Question 20

What is the present value of an IOU for $1,000 due to be paid in two years, if the discount rate is 8%?

Accepted Answer

A)  $857.34 
B)  $766.40 
C)  $885.00 
D)  $683.26 
E)  $810.77 
A)  $857.34 
B)  $766.40 
C)  $885.00 
D)  $683.26 
E)  $810.77

The future value of a current investment earning a positive rate of return is always greater than the present value of the investment.

One day as you were going through some old memorabilia, you discovered an old savings account in which you placed $100 twenty years ago. When you checked out the account, it currently had a balance of $320.71. What annual rate of interest did you earn?

A compound annuity involves depositing or investing an equal sum of money at the end of each time period for a certain number of time periods and allowing it to grow.

What would be the interest rate on a loan of $9,981.78 that you paid off with annual payments of $2,500 for each of the next five years?

The discount rate is the interest rate used to bring back to .

Consider that you are paying back a fully amortized loan. Which of the following statements is most correct?

Generally speaking, saving a little money on a regular basis when you are young can result in a large final payoff.

If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period.

Suppose that you invested $100 in a bank account that earned an annual rate of return of 10%. How much would you have in that bank account at the end of 10 years?

Your money will grow or compound as the number of compounding periods per year becomes .

Your daughter has been saving $500 a year for each of the last 10 years for her "sweet sixteen" party. How much is now in her party account (at the end of the tenth year) if she earned an annual rate of return of 6%?

Which one of the following is the "enemy" of compound interest and makes it very difficult to reach your financial goals?

How much can you borrow today if you can make payments of $3,600 a year for the next five years and the interest rate is 10%?

For someone who has $100,000 to save for 20 years, would a 4% Certificate of Deposit that compounds annually be a better deal than a 3.94% Certificate of Deposit that compounds quarterly? Why?

Why should you care about the power of compounding and the time value of money?

Suppose that you want to create a "retirement party fund" for yourself and place $50 in a bank account for each of the next 20 years. If that account earns an annual rate of return of 7%, how much will be in your retirement party fund at the end of the twentieth year?

A compound annuity uses the principles of

What is the present value of an IOU for $1,000 due to be paid in two years, if the discount rate is 8%?

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

Using Consumer Loans: The Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Securities Markets

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters

Exam 3: Understanding and Appreciating the Time Value of Money

The future value of a current investment earning a positive rate of return is always greater than the present value of the investment.

One day as you were going through some old memorabilia, you discovered an old savings account in which you placed $100 twenty years ago. When you checked out the account, it currently had a balance of $320.71. What annual rate of interest did you earn?

A compound annuity involves depositing or investing an equal sum of money at the end of each time period for a certain number of time periods and allowing it to grow.

What would be the interest rate on a loan of $9,981.78 that you paid off with annual payments of $2,500 for each of the next five years?

The discount rate is the interest rate used to bring ________ back to ________.

Consider that you are paying back a fully amortized loan. Which of the following statements is most correct?

Generally speaking, saving a little money on a regular basis when you are young can result in a large final payoff.

If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period.

Suppose that you invested $100 in a bank account that earned an annual rate of return of 10%. How much would you have in that bank account at the end of 10 years?

Your money will grow or compound ________ as the number of compounding periods per year becomes ________.

Your daughter has been saving $500 a year for each of the last 10 years for her "sweet sixteen" party. How much is now in her party account (at the end of the tenth year) if she earned an annual rate of return of 6%?

Which one of the following is the "enemy" of compound interest and makes it very difficult to reach your financial goals?

How much can you borrow today if you can make payments of $3,600 a year for the next five years and the interest rate is 10%?

For someone who has $100,000 to save for 20 years, would a 4% Certificate of Deposit that compounds annually be a better deal than a 3.94% Certificate of Deposit that compounds quarterly? Why?

Why should you care about the power of compounding and the time value of money?

Suppose that you want to create a "retirement party fund" for yourself and place $50 in a bank account for each of the next 20 years. If that account earns an annual rate of return of 7%, how much will be in your retirement party fund at the end of the twentieth year?

A compound annuity uses the principles of

What is the present value of an IOU for $1,000 due to be paid in two years, if the discount rate is 8%?

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

Using Consumer Loans: The Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Securities Markets

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters

The discount rate is the interest rate used to bring back to .

Your money will grow or compound as the number of compounding periods per year becomes .