Question 1

It is really pretty easy to create a valuable personal financial plan without understanding the time value of money principle.

Accepted Answer

A) True 
 B)False  False

Question 2

Compounding is when the interest you have already earned on an investment earns interest.

Accepted Answer

A) True 
 B)False  True

Question 3

What is the present value of a $150,000 cash flow to be received at the end of each of the next 20 years from an account that earns an annual rate of 9%?

Accepted Answer

A) $3,000,000 
B) $7,674,018 
C) $1,369,282 
D) $2,324,169 
A) $3,000,000 
B) $7,674,018 
C) $1,369,282 
D) $2,324,169 C

Question 4

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?

Accepted Answer

A) $16,726.68 
B) $18,220.18 
C) $24,667.87 
D) $25,008.90 
E) $17,982.02 
A) $16,726.68 
B) $18,220.18 
C) $24,667.87 
D) $25,008.90 
E) $17,982.02

Question 5

Sam can afford to pay $450 a month for a new car.The bank will give her a 60 month,6% annual rate loan with no down payment.Approximately how much can she afford to borrow?

Accepted Answer

A) $23,276 
B) $7,272 
C) $17,015 
D) $32,090 
A) $23,276 
B) $7,272 
C) $17,015 
D) $32,090

Question 6

What is the annual interest rate earned on a deposit that grew from $250 to $502.84 over the last 5 years?

Accepted Answer

A) 15% 
B) 13% 
C) 11% 
D) 9% 
A) 15% 
B) 13% 
C) 11% 
D) 9%

Question 7

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%?

Accepted Answer

A) $1,223.44 
B) $2,176.65 
C) $2,818.50 
D) $3,309.76 
A) $1,223.44 
B) $2,176.65 
C) $2,818.50 
D) $3,309.76

Question 8

Why is the time value of money an important concept in financial planning?

Accepted Answer

The time value of money allows us to see

Question 9

Suppose that you want to create a "retirement party fund" for yourself and place $50 in a bank account for each of the next 20 years.If that account earns an annual rate of return of 7%,how much will be in your retirement party fund at the end of the twentieth year?

Accepted Answer

A) $1,529.70 
B) $2,679.22 
C) $1,032.57 
D) $2,049.77 
A) $1,529.70 
B) $2,679.22 
C) $1,032.57 
D) $2,049.77

Question 10

What would be the interest rate on a loan of $9,981.78 that you paid off with annual payments of $2,500 for each of the next five years?

Accepted Answer

A) 8.0% 
B) 10% 
C) 15% 
D) 21% 
E) 26% 
A) 8.0% 
B) 10% 
C) 15% 
D) 21% 
E) 26%

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

A) $14,872 
B) $108,569 
C) $8,291 
D) $35,551 
A) $14,872 
B) $108,569 
C) $8,291 
D) $35,551

Question 13

Your money grows faster as the compounding period becomes longer.

Accepted Answer

A) True 
 B)False

Question 14

As a future graduation present,you uncle has just placed $6,000 in a bank account that will earn an annual rate of return of 6%.How much will be in that account when you graduate in four years?

Accepted Answer

A) $7,731.55 
B) $6,752.56 
C) $6,247.70 
D) $7,790.63 
E) $7,574.86 
A) $7,731.55 
B) $6,752.56 
C) $6,247.70 
D) $7,790.63 
E) $7,574.86

Question 15

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?

Accepted Answer

A) $12,977.19 
B) $31,907.71 
C) $45,360.00 
D) $57,301.66 
A) $12,977.19 
B) $31,907.71 
C) $45,360.00 
D) $57,301.66

Question 16

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?

Accepted Answer

A) $2,364 
B) $2,849 
C) $2,544 
D) $2,436 
A) $2,364 
B) $2,849 
C) $2,544 
D) $2,436

Question 17

If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period.

Accepted Answer

A) True 
 B)False

Question 18

if you can save $10,000 per year for the next 25 years,what annual rate of return would you have to have to turn it into $847,009?

Accepted Answer

A) 11% 
B) 9% 
C) 7% 
D) 14% 
A) 11% 
B) 9% 
C) 7% 
D) 14%

Question 19

A one-time investment of $1,500 at a 10 percent annual rate of return yields $2,196 in two years.The $2,196 is known as the

Accepted Answer

A) present value. 
B) compound value. 
C) principal plus interest. 
D) future value. 
E) annuity value 
A) present value. 
B) compound value. 
C) principal plus interest. 
D) future value. 
E) annuity value

Question 20

Who will end up with the largest amount of money invested at an annual rate of return of 9% over the next 42 years?

Accepted Answer

A) Jim saves $1,200 per year for the first 14 years and then stops putting any new money into the account for the remaining 28 years. 
B) Jeremy saves nothing for the first 14 years and saves $1,200 per year for the next 14 years and then puts no more money into the account during the last 14 years. 
C) Jerry saves nothing for the first 14 years and then saves $1,200 per year for the remaining 28 years. 
D) Joey saves nothing for the first 14 years and then saves $1,500 per year for 14 years then stops putting any new money into the account for the remaining 14 years. 
E) John saves nothing for the first 10 years and saves $1,500 per year for the remaining 32 years. 
A) Jim saves $1,200 per year for the first 14 years and then stops putting any new money into the account for the remaining 28 years. 
B) Jeremy saves nothing for the first 14 years and saves $1,200 per year for the next 14 years and then puts no more money into the account during the last 14 years. 
C) Jerry saves nothing for the first 14 years and then saves $1,200 per year for the remaining 28 years. 
D) Joey saves nothing for the first 14 years and then saves $1,500 per year for 14 years then stops putting any new money into the account for the remaining 14 years. 
E) John saves nothing for the first 10 years and saves $1,500 per year for the remaining 32 years.

It is really pretty easy to create a valuable personal financial plan without understanding the time value of money principle.

Compounding is when the interest you have already earned on an investment earns interest.

What is the present value of a $150,000 cash flow to be received at the end of each of the next 20 years from an account that earns an annual rate of 9%?

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?

Sam can afford to pay $450 a month for a new car.The bank will give her a 60 month,6% annual rate loan with no down payment.Approximately how much can she afford to borrow?

What is the annual interest rate earned on a deposit that grew from $250 to $502.84 over the last 5 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%?

Why is the time value of money an important concept in financial planning?

Suppose that you want to create a "retirement party fund" for yourself and place $50 in a bank account for each of the next 20 years.If that account earns an annual rate of return of 7%,how much will be in your retirement party fund at the end of the twentieth year?

What would be the interest rate on a loan of $9,981.78 that you paid off with annual payments of $2,500 for each of the next five years?

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.

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?

Your money grows faster as the compounding period becomes longer.

As a future graduation present,you uncle has just placed $6,000 in a bank account that will earn an annual rate of return of 6%.How much will be in that account when you graduate in four years?

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?

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?

If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period.

if you can save $10,000 per year for the next 25 years,what annual rate of return would you have to have to turn it into $847,009?

A one-time investment of $1,500 at a 10 percent annual rate of return yields $2,196 in two years.The $2,196 is known as the

Who will end up with the largest amount of money invested at an annual rate of return of 9% over the next 42 years?

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: the Role of Open Credit

Student and Consumer Loans: the Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: an Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Eventsfitting the Pieces Together

Filters

Exam 3: Understanding and Appreciating the Time Value of Money

It is really pretty easy to create a valuable personal financial plan without understanding the time value of money principle.

Compounding is when the interest you have already earned on an investment earns interest.

What is the present value of a $150,000 cash flow to be received at the end of each of the next 20 years from an account that earns an annual rate of 9%?

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?

Sam can afford to pay $450 a month for a new car.The bank will give her a 60 month,6% annual rate loan with no down payment.Approximately how much can she afford to borrow?

What is the annual interest rate earned on a deposit that grew from $250 to $502.84 over the last 5 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%?

Why is the time value of money an important concept in financial planning?

Suppose that you want to create a "retirement party fund" for yourself and place $50 in a bank account for each of the next 20 years.If that account earns an annual rate of return of 7%,how much will be in your retirement party fund at the end of the twentieth year?

What would be the interest rate on a loan of $9,981.78 that you paid off with annual payments of $2,500 for each of the next five years?

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.

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?

Your money grows faster as the compounding period becomes longer.

As a future graduation present,you uncle has just placed $6,000 in a bank account that will earn an annual rate of return of 6%.How much will be in that account when you graduate in four years?

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?

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?

If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period.

if you can save $10,000 per year for the next 25 years,what annual rate of return would you have to have to turn it into $847,009?

A one-time investment of $1,500 at a 10 percent annual rate of return yields $2,196 in two years.The $2,196 is known as the

Who will end up with the largest amount of money invested at an annual rate of return of 9% over the next 42 years?

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: the Role of Open Credit

Student and Consumer Loans: the Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: an Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Eventsfitting the Pieces Together

Filters