Exam 27: the Time Value of Money: Future Amounts and Present Values

Joe Notsosmart invested $10,000 at 8% simple interest for 5 years.How much more would he have received if he had received compound interest annually at the same rate? Use Table FA-1.

Financial instruments do not include:

A note that does not include an interest rate should be recorded at:

Anthony Driver wants to buy a new car in 4 years.He knows that he can earn 10% interest compounded semi-annually.How much must he deposit now in order to have $26,000 at the end of 4 years? Use Table PV-1.

A future amount is the dollar amount to which a present value will ________ over time.

Judy Bright has just won the lottery.She can elect to receive her winnings in equal payments of $200,000 a year for the next ten years on December 31 or to receive $2,000,000 immediately.If the current interest rate is 6%,which choice will provide the highest amount? Use Table PV-2.

The present value of an investment is:

Explain what is meant by the "time value of money." Provide examples.

If I invest $100 at the end of each year for four years at 6% how much will I have at the end of the fourth year? Use Table FA-2.

Discounting a future amount of a cash receipt will determine the present value of that receipt.

The future amount of an annuity is calculated by multiplying the periodic payment amount by the discounted factor from the future value of an annuity table.

Future value is the amount that must be invested today at a specific interest rate to receive a particular amount at some future date.

An interest rate of 12% a year is the same as 6% for 2 months.

Annuities may provide equal amounts to an investor at fixed periods of time over the life of an investment.

Financial instruments are recorded at:

Joan is 70 years old and wishes to retire.She needs to have $48,000 a year plus her social security to live in the style she is accustomed to.She would like to have enough money in her retirement account,which earns 5% compounded annually,to support her for the next 20 years.How much must be in the fund if she takes the first payment at year-end?

The future value of an investment gradually increases toward the present amount.

The present value of a cash amount:

Belle invests $200 at the end of each year in a savings account that pays 5% annually.How much will Belle have at the end of 5 years? Use Table FA-2.

Sam Rivers has $3,000 to invest.He must decide whether to invest this money for five years at 10% compounded semi-annually or at 12% compounded annually.Which option should he select?