Exam 1: Tools for Financial Planning - Applying Time Value Concepts

You make regular monthly life insurance payments at the end of each month.This is an example of an annuity due.

If Jenn could get a 10 percent annual return on her investment holdings,how long would it take for her to double her money?

Compound interest means earning interest on interest.

Approximately how much would you need to invest today,to receive $200 in ten years,if you received an annual interest rate of ten percent?

The future value of $810 deposited today at 7.71 percent compounded annually for four years is closest to

Future value interest factor (FVIF)uses $1.00 to calculate the $1.00 over time with a given interest rate and the number of periods the $1.00 is compounded.

Discount refers to the process of earning interest on interest.

What is the effective interest rate for a car loan advertised at five percent compounded monthly?

The shorter the time period,the lower the future value interest factor,other things being equal.

Selena wants to have enough funds to cover $13 000 per year for four years of her daughter's university expenses and will need the money at the beginning of each year.If her funds get an annual return of 4.3 percent,how much would she need to have in the account when her daughter starts university?

If you invested $10 000 when you turned 20 years of age and received a return of 11 percent annually,you would have over two million dollars when you turned 70.

The process of obtaining a present value is called discounting.

Mary deposits $4000 at the beginning of each year and the money will grow to $1081170 in 30 years with 12 percent compounded annually.

Ishan plans to retire at age 40 with a decent lifestyle.He assumes that he can safely earn a real return of 4% annually on his money and that he would need $4000 a month,paid to him at the end of each month,to last until he turned 90.How much money would he need to have accumulated at age 40 (to the nearest thousand)if he were going to retire and no longer earn any money?

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

Rebecca is retiring next month when she turns 65.She can select a pension that pays $1745 at the end of every month guaranteed for the rest of her life,but not indexed for inflation,or take a lump sum of $312 000.Assume she can invest the lump sum at five percent annually and draw the same income as the pension.What age must she reach for the monthly pension to be the better choice?

Ten percent compounded quarterly with 10 years' investment means 40 compounding periods.

The nominal interest rate is the actual rate of interest you earn or pay.

Joe and Bill are the same age and starting their careers.Each plans to retire at age 65 and each wants to have $600000 in his RRSP account by then.If they both get seven percent annual return on their RRSP savings,which one will be closer to reaching his goal?

If John makes annual year-end payments of $8337.83 on a 20-year loan with an annual interest rate of 7.5 percent,what is the original principal amount for John's loan?