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Exam 3: Understanding and Appreciating the Time Value of Money

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Question 41

Multiple Choice

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Rasheed can afford a monthly car payment of $550 for 72 months at an annual interest rate of 7.5 percent.Which of the following is closest to the amount he will be able to borrow for a new car?

A) $3,984
B) $6,550
C) $31,810
D) $49,818

E) B) and C)
F) All of the above

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Question 42

Multiple Choice

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You currently have $11,167 in your savings account.What interest rate do you need to earn in order to have $20,000 in the account in 10 years?

A) 6%
B) 8%
C) 10%
D) There is not enough information to solve this question.

E) None of the above
F) B) and C)

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Question 43

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Suppose the investment rate of return were 18%.At this rate,when would Arnold reach the $1,000,000 mark?

A perpetuity is an annuity that continues forever.

The present value of a financial asset is what you should be willing to pay today for that financial asset.

You have been saving toward the purchase of a new mountain bike.Five years ago,you placed $600 in a bank account,and you have since earned an annual rate of return of 12 percent.How much do you now have in your account?

Allowing the interest that you earn on an investment to stay in the investment and to earn interest on the interest you have already earned is called what?

The ________ Principle states that a dollar today is worth more than a dollar in the future.

The future value of a current investment earning a positive rate of return is always greater than the present value of the investment.

For someone who has $100,000 to save for 20 years,would a 4% Certificate of Deposit that compounds annually be a better deal than a 3.94% Certificate of Deposit that compounds quarterly? Why?

Suppose that you placed $500 in a bank account at the end of each year for the next 10 years.How much would be in that account at the end of the tenth year if the deposits earned an annual rate of return of 8% each year?

Approximately what percent of Americans do not understand the concept of Time Value of Money?

If his savings account had earned a more conservative 9% annual rate of return,Arnold's savings would be approximately ________ less by age 68.

With a 30-year mortgage loan of $100,000 at an annual interest rate of 7 percent,you will pay less $135,000 in interest before your loan ends.

You just purchased a vacant lot for your future son-in-law's home for $30,000.You financed that amount over 120 months.What would your monthly payment be if your interest rate was 12% compounded monthly?

A compound annuity involves depositing or investing an equal sum of money at the end of each time period for a certain number of time periods and allowing it to grow.

Sam's uncle promised to give him $7,000 when he graduates from college three years from now.Assuming an interest rate of 8 percent compounded annually,what is the value of Sam's gift right now?

Which financial planning concepts should be helpful to a couple planning for how much money to start saving for their retirement?

Approximately how long will it take Arnold's savings to grow into $2,000?

What is the present value of a $100,000 cash flow to be received at the end of each of the next 15 years from an account that earns an annual rate of 10%?