Question 1

The periodic interest rate, the number of periods in which your money will be invested, and the initial payment amount, must be known to estimate the future value using a financial calculator.

Accepted Answer

A) True 
 B)False

Question 2

The process of obtaining ________ values is referred to as discounting.

Accepted Answer

A)  present 
B)  future 
C)  current 
D)  inflated

Question 3

The same tables can be used to figure future values and present values of $1.

Accepted Answer

A) True 
 B)False

Question 4

If you invest $12,000 today at an interest rate of 10%, how much will you have in 10 years?

Accepted Answer

A)  $31,128 
B)  $25,940 
C)  $13,860 
D)  $40,712

Question 5

Compare using the present value, future value, and annuity tables to using your financial calculator to solve problems. What are some of the advantages and disadvantages of each tool?

Accepted Answer

The answer of Compare using the present value, future value,...

Question 6

Use the following two columns of items to answer the matching questions below:
-discounting
A)the process of obtaining present values
B)a factor multiplied by a future value to get the present value of that amount

Accepted Answer

The answer of Use the following two columns of items...

Question 7

Describe how present and future values concepts apply to your income and expenses and ultimately your personal budget, income statement, and balance sheet.

Accepted Answer

The answer of Describe how present and future values concepts...

Question 8

Lucky Louie just won the lottery! He has a choice of taking $1,000,000 in cash or receiving $50,000 per year for 30 years beginning at the end of this year. The best way to make this choice is to

Accepted Answer

A)  consult an economic advisor. 
B)  consult an oracle. 
C)  calculate the future value of the annuity payments. 
D)  calculate the present value of the annuity payments.

Question 9

It is always better to choose a lump sum rather than to choose periodic payments over time. This is why nearly all lottery winners choose the lump-sum payment.

Accepted Answer

A) True 
 B)False

Question 10

If Sandy has $7,000 today and invests it for five years at a 5% interest rate, how much will she have in five years?

Accepted Answer

A)  $8,750 
B)  $7,850 
C)  $8,932 
D)  $8,857

Question 11

Present and future values concepts are applied in all of the following decisions, except

Accepted Answer

A)  purchase of a home. 
B)  calculation of withdrawals needed during retirement. 
C)  calculation of savings for a large purchase. 
D)  annual cash inflows.

Question 12

If I deposit a sum of money today and want it to double in 10 years, I will need to receive an interest rate of slightly above ________.

Accepted Answer

The answer of If I deposit a sum of money...

Question 13

As the time period until receipt of an amount of money increases, the present value of the amount at a fixed interest rate

Accepted Answer

A)  remains the same. 
B)  increases. 
C)  decreases. 
D)  Not enough information to make a decision.

Question 14

Assuming that you had just won $5,000,000 in the lottery, describe the advantages and disadvantages of receiving a lump sum today versus a ten-year annuity. Discuss other factors that are relevant or needed to make this decision. No interest rate is given, but different interest rates can be assumed, if necessary, to answer this problem.

Accepted Answer

The answer of Assuming that you had just won $5,000,000...

Question 15

When money earns interest on interest, it is said to be compounding.

Accepted Answer

A) True 
 B)False

Question 16

Use the following two columns of items to answer the matching questions below:
-present value interest factor for an annuity
A)a factor multiplied by a periodic savings level (annuity) to get the present value of the annuity
B)a series of equal payments that occur at the beginning of each period
C)diagrams that show payments over time

Accepted Answer

The answer of Use the following two columns of items...

Question 17

Time value of money is important because

Accepted Answer

A)  you do not want to wait a long time to get paid. 
B)  deflation eats away at the value of a dollar. 
C)  the present value of future cash flows is affected by inflation. 
D)  time value of money is not as important to a person's finances as budgeting.

Question 18

Everything else being equal, the ________ the interest rate, the ________ the final accumulation of money.

Accepted Answer

A)  higher; higher 
B)  lower; lower 
C)  higher; lower 
D)  Both A and B are correct.

Exam 3: Applying Time Value Concepts

The periodic interest rate, the number of periods in which your money will be invested, and the initial payment amount, must be known to estimate the future value using a financial calculator.

The process of obtaining ________ values is referred to as discounting.

The same tables can be used to figure future values and present values of $1.

If you invest $12,000 today at an interest rate of 10%, how much will you have in 10 years?

Compare using the present value, future value, and annuity tables to using your financial calculator to solve problems. What are some of the advantages and disadvantages of each tool?

Use the following two columns of items to answer the matching questions below: -discounting A)the process of obtaining present values B)a factor multiplied by a future value to get the present value of that amount

Describe how present and future values concepts apply to your income and expenses and ultimately your personal budget, income statement, and balance sheet.

Lucky Louie just won the lottery! He has a choice of taking $1,000,000 in cash or receiving $50,000 per year for 30 years beginning at the end of this year. The best way to make this choice is to

It is always better to choose a lump sum rather than to choose periodic payments over time. This is why nearly all lottery winners choose the lump-sum payment.

If Sandy has $7,000 today and invests it for five years at a 5% interest rate, how much will she have in five years?

Present and future values concepts are applied in all of the following decisions, except

If I deposit a sum of money today and want it to double in 10 years, I will need to receive an interest rate of slightly above ________.

As the time period until receipt of an amount of money increases, the present value of the amount at a fixed interest rate

When money earns interest on interest, it is said to be compounding.

Time value of money is important because

Everything else being equal, the the interest rate, the the final accumulation of money.