Exam 3: Understanding and Appreciating the Time Value of Money

By allowing the interest that you earn on an investment to stay in the investment and to earn interest on the interest you have already earned is called what?

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 his savings account had earned a more conservative 9% annual rate of return, Arnold's savings would be approximately ________ less by age 68.

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. -Adrian just found a very nice house today that is currently selling for $150,000. Based on an inflation rate of 5% in the local real estate market, how much will this house sell for in 5 years?

The current value in today's dollars of a future sum of money is called

Jah-Malya can afford a car payment of $400 per month for 48 months at an annual rate of 8.25 percent interest. Which of the following is closest to the amount she will be able to borrow for a new car?