Exam 3: Understanding and Appreciating the Time Value of Money

John Madrid put $1,000 into a mutual fund yielding an 18% annual rate of return.Using the Rule of 72,calculate approximately how long it will take for the investment to double in value.

As a teenager, Enrique learned a valuable lesson from his dad, who told him to invest $1,000 at 8 percent interest at age 20 and leave the money alone until age 65. Enrique's dad knew that one strategy used by wealthy people is to exercise self-discipline and never touch a long-term savings plan. Enrique is happy to apply his dad's advice. -Approximately how long will it take Enrique's investment to grow into $2,000?

Your money grows faster as the compounding period becomes longer.

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

Suppose you borrowed $12,000 at an annual rate of 6 percent interest to buy a car and wish to repay it in five equal payments at the end of each of the next five years.Which of the following is the closest to the amount of each of these payments?

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. -Suppose the investment rate of return were 18%.At this rate,when would Arnold reach the $1,000,000 mark?

The earlier you begin saving for your retirement,the easier it will be to reach your financial goals for retirement.

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?

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%?

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.

If Monica invests $15,750 at 8 percent annual interest,how much would she have after eight years?

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%?

What is the present value today of $150 that will be received in four years from now if the discount rate is 12%?

Your great-aunt wants to help with your college graduation party.She has just placed $5,000 dollars in a bank account that will earn an annual rate of return of 6%.If you graduate in four years,how much will be in your party account?

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?

What is the price you would be willing to pay today for an IOU for $500 due in one year if you want to earn at least 16%?

The present value of a financial asset is what you should be willing to pay today for that financial asset.

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.

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

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%?