Exam 3: Understanding and Appreciating the Time Value of Money

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. -If Enrique leaves the money in the account until he is 68,by approximately what amount would the balance increase between his 62nd and 68th years?

Car loans and mortgage loans are typical annuities in the form of

You currently have $11,167 in your savings account.What interest rate do you need to earn in order to have $20,000 in the account in 10 years?

If your bank pays you interest in the form of an annual rate of return of 10% over each of the next five years,how much will your balance be if you make annual deposits of $400?

A compound annuity uses the principles of

What is the present value of an annual payment of $3,600 discounted back 12 years at an annual rate of return of 5 percent?

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. -If he sticks to the plan,Enrique's savings will grow to approximately ________ by age 62.

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 Arnold were to leave his money in the account until he was 68,by approximately what amount would the balance increase between his 62nd and 68th years?

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

The dollar value of an investment at some future point in time is also known as

Is it possible to save $585,000 for retirement instead of $310,000 without requiring much more to be invested every month?

Describe the effects and benefits of compound interest.

Adrian, a single man who wants to buy a house in five years, read an article that recommended a down payment of 20 percent. With a large income and little debt, Adrian can afford to save a substantial amount of money every month. He is asking you for advice to help him reach his goal. -Adrian found a nice house today that is selling for $150,000.Assuming an inflation rate of 5 percent in the local real estate market,how much will this house sell for in five years?

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%?

What recommendations would you offer to someone who is trying to break poor financial habits and save money in order to achieve his or her financial goals?

A method by which one can compare cash flows across time-either as what a future cash flow is worth today (present value)or what an investment made today will be worth in the future (future value)-is called

An investment earning 12 percent interest per year should double in value in approximately four years.

A perpetuity is an annuity where the payments

Charlie is starting to save for his retirement now at age 20.If inflation averages 4% annually until his retirement age and he earns an annual rate of return of 4% on his investments during this period,then he should be able to enjoy a very comfortable retirement when he is retired.

At the age of 20,James is starting to save for retirement.If inflation averages 4 percent annually until his retirement age and he earns an average annual rate of return of 13 percent on his investments during this period,he should be able to enjoy a comfortable retirement.