Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Future value is regarded as the value of a future amount at the present time, calculated by the compounded interest.

Accepted Answer

A) True 
 B)False

Question 3

If you borrow $20 000 as a five-year loan from the bank and the bank requires you to make end-of-year payments of $4878.05, what is the annual interest rate on this loan?

Accepted Answer

A) 8 percent 
B) 6 percent 
C) 7 percent 
D) 9 percent 
A) 8 percent 
B) 6 percent 
C) 7 percent 
D) 9 percent

Question 4

How long will it take Ivy's money to triple in value at 12 percent compounded quarterly?

Accepted Answer

A) 9)2 years 
B) 9)7 years 
C) 9)3 years 
D) It depends on the amount 
A) 9)2 years 
B) 9)7 years 
C) 9)3 years 
D) It depends on the amount

Question 5

ABC Bank offers term deposits with 8 percent compounded quarterly, while XYZ Bank offers term deposits with 7.8 percent compounded annually. We know that ABC Bank offers a higher annualized rate of return.

Accepted Answer

A) True 
 B)False

Question 6

If you want to have $10 000 for a down payment on a new car in three years, assuming an interest rate of 4.5 percent compounded annually, how much money do you need to deposit as a lump sum today?

Accepted Answer

A) $8412 
B) $8712 
C) $8112 
D) $8763 
A) $8412 
B) $8712 
C) $8112 
D) $8763

Question 7

If you borrow money, you will receive interest.

Accepted Answer

A) True 
 B)False

Question 8

What is the highest effective rate attainable with a 12 percent nominal rate?

Accepted Answer

A) 12.85 percent 
B) 12.75 percent 
C) 12.65 percent 
D) 12.55 percent 
A) 12.85 percent 
B) 12.75 percent 
C) 12.65 percent 
D) 12.55 percent

Question 9

John wants to have a $10 000 down payment for his car in three years and he wants to know how much money must be saved today with a given interest rate to achieve this goal. John has to calculate the present value.

Accepted Answer

A) True 
 B)False

Question 10

Your rental payment per month within the contract is an annuity due.

Accepted Answer

A) True 
 B)False

Question 11

John recently sold an antique for $29 311; the antique was purchased by John at nine years of age for
$17 800. John's annual rate of return on this antique is 7.2 percent.

Accepted Answer

A) True 
 B)False

Question 12

What is the term for the interest rate financial institutions quote?

Accepted Answer

A) Nominal 
B) Effective 
C) Annual 
D) Absolute 
A) Nominal 
B) Effective 
C) Annual 
D) Absolute

Question 13

The best way to understand the time value of money is to use timelines to capture all information.

Accepted Answer

A) True 
 B)False

Question 14

Money accumulates when it is invested and earns interest, because of the time value of money.

Accepted Answer

A) True 
 B)False

Question 15

Julian wants to figure out how more it will cost monthly to pay off his student loans if he borrows an extra $4000 a year for four years. This will allow him to rent a nicer place and take a holiday each year. Assume that no interest accrues until he completes his education and begins paying off the loan. The interest rate for the loan amount will be seven percent per year compounded monthly and he will pay it off over five years. What would his additional monthly payment be?

Accepted Answer

A) $374 
B) $267 
C) $271 
D) $317 
A) $374 
B) $267 
C) $271 
D) $317

Question 16

Mary wants to have $150 after four years by depositing $100 today and earning six percent interest compounded annually for the next six years. Can Mary attain her financial goal of having $150 lump sum six years later?

Accepted Answer

A) Yes, future value is more than $150. 
B) Yes, present value is more than $150. 
C) No, present value is less than $150. 
D) No, future value is less than $150. 
A) Yes, future value is more than $150. 
B) Yes, present value is more than $150. 
C) No, present value is less than $150. 
D) No, future value is less than $150.

Question 17

The concept of time value of money will not be applied to many types of financial planning problems.

Accepted Answer

A) True 
 B)False

Question 18

In a recessionary economy, interest rate on deposits can be 0 percent. However, Raymond has an investment of $25 000 now, and in three years it will mature and pay Raymond $32 000. What is the approximate rate of return on his investment?

Accepted Answer

A) 8)3 percent 
B) 8)6 percent 
C) 8)9 percent 
D) Insufficient information to calculate this question 
A) 8)3 percent 
B) 8)6 percent 
C) 8)9 percent 
D) Insufficient information to calculate this question

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Interest = P × r × t × i

Accepted Answer

A) True 
 B)False

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

Future value is regarded as the value of a future amount at the present time, calculated by the compounded interest.

If you borrow $20 000 as a five-year loan from the bank and the bank requires you to make end-of-year payments of $4878.05, what is the annual interest rate on this loan?

How long will it take Ivy's money to triple in value at 12 percent compounded quarterly?

ABC Bank offers term deposits with 8 percent compounded quarterly, while XYZ Bank offers term deposits with 7.8 percent compounded annually. We know that ABC Bank offers a higher annualized rate of return.

If you want to have $10 000 for a down payment on a new car in three years, assuming an interest rate of 4.5 percent compounded annually, how much money do you need to deposit as a lump sum today?

If you borrow money, you will receive interest.

What is the highest effective rate attainable with a 12 percent nominal rate?

John wants to have a $10 000 down payment for his car in three years and he wants to know how much money must be saved today with a given interest rate to achieve this goal. John has to calculate the present value.

Your rental payment per month within the contract is an annuity due.

John recently sold an antique for $29 311; the antique was purchased by John at nine years of age for $17 800. John's annual rate of return on this antique is 7.2 percent.

What is the term for the interest rate financial institutions quote?

The best way to understand the time value of money is to use timelines to capture all information.

Money accumulates when it is invested and earns interest, because of the time value of money.

Mary wants to have $150 after four years by depositing $100 today and earning six percent interest compounded annually for the next six years. Can Mary attain her financial goal of having $150 lump sum six years later?

The concept of time value of money will not be applied to many types of financial planning problems.

In a recessionary economy, interest rate on deposits can be 0 percent. However, Raymond has an investment of $25 000 now, and in three years it will mature and pay Raymond $32 000. What is the approximate rate of return on his investment?

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

Interest = P × r × t × i

Overview of a Financial Plan

Tools for Financial Planning - Planning With Personal Financial Statements

Tools for Financial Planning - Using Tax Concepts for Planning

Banking Services and Managing Your Money

Managing Your Liquidity - Assessing, Managing, and Securing Your Credit

Personal Financing - Personal Loans

Personal Financing - Purchasing and Financing a Home

Protecting Your Wealth - Auto and Homeowners Insurance

Protecting Your Wealth - Health and Life Insurance

Personal Investing - Investing Fundamentals

Personal Investing - Investing in Stocks

Personal Investing - Investing in Bonds

Personal Investing - Investing in Mutual Funds

Retirement and Estate Planning - Retirement Planning

Retirement and Estate Planning - Estate Planning

Synthesis of Financial Planning - Integrating the Components of a Financial Plan

Filters

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

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

Future value is regarded as the value of a future amount at the present time, calculated by the compounded interest.

If you borrow $20 000 as a five-year loan from the bank and the bank requires you to make end-of-year payments of $4878.05, what is the annual interest rate on this loan?

How long will it take Ivy's money to triple in value at 12 percent compounded quarterly?

ABC Bank offers term deposits with 8 percent compounded quarterly, while XYZ Bank offers term deposits with 7.8 percent compounded annually. We know that ABC Bank offers a higher annualized rate of return.

If you want to have $10 000 for a down payment on a new car in three years, assuming an interest rate of 4.5 percent compounded annually, how much money do you need to deposit as a lump sum today?

If you borrow money, you will receive interest.

What is the highest effective rate attainable with a 12 percent nominal rate?

John wants to have a $10 000 down payment for his car in three years and he wants to know how much money must be saved today with a given interest rate to achieve this goal. John has to calculate the present value.

Your rental payment per month within the contract is an annuity due.

John recently sold an antique for $29 311; the antique was purchased by John at nine years of age for $17 800. John's annual rate of return on this antique is 7.2 percent.

What is the term for the interest rate financial institutions quote?

The best way to understand the time value of money is to use timelines to capture all information.

Money accumulates when it is invested and earns interest, because of the time value of money.

Mary wants to have $150 after four years by depositing $100 today and earning six percent interest compounded annually for the next six years. Can Mary attain her financial goal of having $150 lump sum six years later?

The concept of time value of money will not be applied to many types of financial planning problems.

In a recessionary economy, interest rate on deposits can be 0 percent. However, Raymond has an investment of $25 000 now, and in three years it will mature and pay Raymond $32 000. What is the approximate rate of return on his investment?

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

Interest = P × r × t × i

Overview of a Financial Plan

Tools for Financial Planning - Planning With Personal Financial Statements

Tools for Financial Planning - Using Tax Concepts for Planning

Banking Services and Managing Your Money

Managing Your Liquidity - Assessing, Managing, and Securing Your Credit

Personal Financing - Personal Loans

Personal Financing - Purchasing and Financing a Home

Protecting Your Wealth - Auto and Homeowners Insurance

Protecting Your Wealth - Health and Life Insurance

Personal Investing - Investing Fundamentals

Personal Investing - Investing in Stocks

Personal Investing - Investing in Bonds

Personal Investing - Investing in Mutual Funds

Retirement and Estate Planning - Retirement Planning

Retirement and Estate Planning - Estate Planning

Synthesis of Financial Planning - Integrating the Components of a Financial Plan

Filters