Exam 3: Understanding and Appreciating the Time Value of Money

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?

Suppose the annual rate of return is 15 percent.At this rate,when will Enrique reach the $500,000 mark?

Someone has offered you the opportunity to purchase an IOU.The IOU will pay back a total of $500 in three years.How much would you be willing to pay for that IOU today if you want to earn an annual rate of return of 16%?

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?

Describe the two factors that affect how much we need to save to achieve financial goals.

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.

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

Suppose that you invested $100 in a bank account that earned an annual rate of return of 10%.How much would you have in that bank account at the end of 10 years?

You have saved $120,000 for your child to attend college.If it is in an account earning an annual rate of 8%,how much can you take out in equal payments at the end of each of the next four years to pay for their education?

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?

What is the future value of $121,307 invested today in an account that earns a 7.5% annual rate in 40 years?

Small changes in the interest rate can have a dramatic impact on future values.

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

A compound annuity uses the principles of

An annuity is a series of unequal dollar payments coming at the end of each time period for a specified number of time periods.

A compound interest table is useful in solving a time value of money problem.Name the variables involved.

Generally speaking,regularly saving a little money when you are young can result in a large final payoff.

List at least five common examples of annuities.

Jah-Malya can afford a car payment of $400 per month for 48 months at an annual rate of 8.25 percent interest.Which of the following is closest to the amount she will be able to borrow for a new car?

What is the present value of an IOU for $1,000 due to be paid in two years,if the discount rate is 8%?