Exam 2: Tools for Financial Planning - Applying Time Value Concepts

Rebecca is retiring next month when she turns 65.She can select a pension of $1745 monthly guaranteed for the rest of her life,but not indexed for inflation,or take a lump sum of $312 000.Assume she can invest the lump sum at five percent annually and draw the same income as the pension.What age must she reach for the monthly pension to be the better choice?

Your rental payment required at the beginning of each month is an annuity due.

The future value of today's $200 to be received 10 years later with an interest rate of 10 percent per annum is

The concept of time value of money only applies to rare financial planning problems.

If you have an investment that will receive $100 at the end of year one,$200 at the end of year two,and $300 at the end of year three,what is the market value of this investment today if the discount rate is 13 percent annually?

Discount refers to the process of earning interest on interest.

Dividend is the rent charged for the use of money.

The higher the interest rate,the lower the present value interest factor,other things being equal.

Compound interest means earning interest on interest.

The nominal interest rate is also called an annual percentage rate (APR).

John wants to have a $10 000 down payment for his car in three years.If he puts away $7,000 today and gets a 12.6% annual return,he will have the money he needs.

The most important thing to note about an annuity is

The present value interest factor is

The higher the interest rate,the higher the future value interest factor,other things being equal.

The future value of $810 deposited today at 7.71 percent compounded annually for four years is closest to

If Jenn could get a 10 percent annual return on her investment holdings,how long would it take for her to double her money?

Alexis wants to have saved $600 000 by the time she retires at age 60.She is turning 46 in the next week and has accumulated $220 000 in her RRSP accounts.Assuming she can continue to get a 6% annual return on her RRSP investments,how much does she need to keep saving each month to reach her goal?

An antique was originally purchased 50 years ago for $2 and today is worth $600.What is the approximate annual rate of return realized on the sale of this antique?

Jessie won a lottery and was given the following choice.He could either take $5000 at the end of each month for 25 years,or a lump sum of $700 000.Assume annual compounding and determine what interest rate he would have to beat for the lump sum to be the better choice.

Hazel needs to plan the mortgage amount she can afford.How much would she need to pay monthly on a mortgage of $200 000 at six percent interest,calculated semi-annually and amortized over 30 years?