Exam 3: Understanding and Appreciating the Time Value of Money

Suppose that you want to create a "college fund" for your newborn child and place $300 in a bank account at the end of each of the next 20 years. If that account earns an annual rate of return of 7%, how much will be in that account at the end of the twentieth year?

A perpetuity is an annuity where the payments

An investment earning twelve percent interest per year should double in value in approximately four years.

Suppose that you want to purchase a car today. You can afford payments of $400 per month and want to pay the loan back over the next five years. Assuming no down payment is required, how much can you borrow if the bank will charge you an annual percentage rate of 12% compounded monthly?

When a loan is paid off in equal installments, this is called a(n) ________ loan.

Assuming that you can afford a car payment of $400 for 36 months, which of the following is closest to the annual interest rate you would need on a loan to borrow $12,000 for a new car?

It is not realistic for a 20-year-old person to ever accumulate one million dollars by the time they reach 65 years of age.

You invest $1,000 at age 20 at an annual rate of return of 12%. By the time you are 62 you will have amassed approximately ________.

What is the maximum that you would be willing to loan your brother for a $100 IOU if he promises to pay you back at the end of the year? You want to earn an annual rate of return of 12%.

Using the Rule of 72, approximately how long will it take to double your money if you invest it at 8% compounded annually?

Suppose that you place $450 in a bank account each year for the next 20 years. How much would be in your bank account at the end of the twentieth year if the deposits earned an annual rate of return of 6% each year?

Who will end up with the largest amount of money invested at an annual rate of return of 9% over the next 42 years?

What is the present value of an annual payment of $1,500 discounted back 15 years at an annual rate of return of 3%?

It is really pretty easy to create a valuable personal financial plan without understanding the time value of money principle.

A series of equal dollar payments at the end of each period for "x" number of time periods is

What are some practical uses of present and future values?

What is the annual interest rate earned on a deposit that grew from $60 to $111.06 over the last 8 years?

Describe the effects and benefits of compound interest.

As a future graduation present, you uncle has just placed $6,000 in a bank account that will earn an annual rate of return of 6%. How much will be in that account when you graduate in four years?

The ________ Principle states that a dollar today is worth more than a dollar in the future.