Exam 5: The Time Value of Money

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Lori Willis plans to invest for retirement, which she hopes will be in 20 years. She is planning to invest $25,000 today in U.S. Treasury bonds that will earn interest at 6.25 percent annually. How much will she have at the end of 20 years? (Round to the nearest dollar.)

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Juan and Rachel Burpo plan to buy a time-share in six years of $16,860. In order to have adequate funds to do so, the Burpo want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Rachel need to deposit today to achieve their goal? (Round off to the nearest dollar.)

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Camille Noah is investing $5,000 in an account paying 6.75 percent annually for three years. What is the interest on interest if interest is compounded?

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The higher the rate of interest, the more likely you will elect to invest your funds and forgo current consumption.

(True/False)
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