Personal Finance Ch. 3

Money received today is worth more than the same amount of money received in the future. This is true because:A) money received today can grow at a compounded rate.B) future inflation will devalue your current investments.C) all goods and services are likely to cost more in the future.D) unique investment opportunities exist today, which may not be available in the future. A) Money received today can grow at a compounded rate
The time value of money refers to:A) personal opportunity costs such as time lost on an activity.B) financial decisions that require borrowing funds from a bank.C) changes in interest rates due to changes in the supply and demand for money in the national economy.D) the difference in values of money as to when it is received. D) the difference in values of money as to when it is received.
The time value of money implies that a dollar received today is worth ________ a dollar received tomorrow.A) more thanB) less thanC) the same asD) Insufficient data to answer. A) more than
The concept of time value of money is based onA) inflation.B) taxes.C) interest earned.D) the Dow Jones Industrial Average. C) interest earned.
15) An ordinary annuity can be defined asA) a series of unequal payments at the beginning of each period.B) a series of equal payments at the end of each period.C) a lump sum.D) intermittent payments for ordinary expenses. B) a series of equal payments at the end of each period.
Which of the following it not an annuity?A) Equal monthly payments to your investment accountB) Lottery winnings of $100 per month for lifeC) Mortgage payments for a fixed rate loanD) Monthly utility bills D) Monthly utility bills
The concept of time value of money is important to financial decision making becauseA) it emphasizes earning a return of interest on the money you invested.B) it recognizes that $1 today has more value than $1 received a year from now.C) it can be applied to future cash flows in order to compare different streams of income.D) all of these. D) all of these.
The concept that a dollar received today has more value than a dollar received in the future because of the interest it can earn is called the ________. time value of money
A stream of equal payments either received or paid at equal time intervals is a(n) ________. annuity
The process of obtaining ________ values is referred to as compounding.A) presentB) futureC) currentD) inflated B) future
The accumulation of interest over time is calledA) an annuity.B) an ordinary annuity.C) compounding.D) present value. C) compounding.
Which of the following is not an example of a future value?A) The balance in your checking account todayB) A savings account balance in five yearsC) A mortgage balance in ten yearsD) The value of a retirement account in 20 years A) The balance in your checking account today
Which of the following decisions would involve the use of the future value of $1?A) Your brother buys your car and offers to pay you $500 now or $1,500 in two yearsB) You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year for 20 yearsC) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a $7,000 cruise when you graduate from college in 4 yearsD) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday A) Your brother buys your car and offers to pay you $500 now or $1,500 in two years
Everything else being equal, the ________ the interest rate, the ________ the final accumulation of money.A) higher; higherB) lower; lowerC) higher; lowerD) A and B are both correct. D) A and B are both correct.
Byron is investigating a mutual fund that claims that $1,000 today will be worth $5,000 in five years. What is he solving for?A) Present valueB) Future valueC) Interest rateD) Payment C) Interest rate
In order to take advantage of the time value of money you should do all of the following exceptA) pay bills electronically so you can delay payments and still ensure on-time payment.B) pay bills a little later than the due dates to take advantage of month-ending interest on your savings account.C) use settings on many bill-paying Web sites that allow you to set a future date for payment once you receive a bill.D) make use of your money while you have it, but always make payments by the obligation dates. B) pay bills a little later than the due dates to take advantage of month-ending interest on your savings account.
To determine how long it would take an investment to double at 10 percent, you could scan down the 10% column until you reach a factor of approximately 2.0 on the ________ table.A) Present Value of $1 B) Future Value of $1 C) Present Value of an annuity D) Future Value of an annuity B) Future Value of $1
If you invest $12,000 today at an interest rate of 10%, how much will you have in 10 years?A) $31,128B) $25,940C) $13,860D) $40,712 A) $31,128
Mr. Berkey invests $10,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much interest will he earn on his investment during this time period?A) $17,140B) $7,140C) $17,180D) $7,180 B) $7,140
If I deposit a sum of money today and wish it to double in 10 years, I will need to receive an interest rate of slightly above ________. 7%
The process of obtaining ________ values is referred to as discounting.A) presentB) futureC) currentD) inflated A) present
Susie wants to know how much she needs to save today to have $5,000 in five years. Which of the following tables should she use?A) Present value $1B) Present value ordinary annuityC) Future value $1D) Future value ordinary annuity A) Present value $1
Sandy wants to know how much she needs to save today to have $5,000 in five years at a 7% interest rate. Which of the following tables should she use?A) Present value $1B) Present value ordinary annuityC) Future value $1D) Future value ordinary annuity A) Present value $1
Which of the following decisions would involve the use of the present value of $1?A) Your brother buys your car and offers to pay you $500 now or $1,500 in two yearsB) You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year for 20 yearsC) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a $7,000 cruise when you graduate from college in 4 yearsD) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday C) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a $7,000 cruise when you graduate from college in 4 years
Future and present values are dependent upon all of the following exceptA) time.B) the interest rate.C) a present or the future value interest factor, depending on the problem.D) annual income. D) annual income.
If you are presented with an offer to accept payment now or a greater amount in the future, you would use (assuming you can invest the money at a known rate)A) Present Value of $1.B) Future Value of $1.C) Present Value of an annuity.D) Future Value of an annuity. A) Present Value of $1.
As the time period until receipt increases, the present value of an amount at a fixed interest rateA) remains the same.B) increases.C) decreases.D) not enough information to make a decision. C) decreases.
How much must you invest today at 8% interest in order to see your investment grow to $15,000 in 10 years? B) $6,945
If Joe has $5,600 today and invests it at a 10% interest rate, how much will he have in 12 years? (Note—Solve as a Future Value problem.)A) $17,393.60B) $17,572.80C) $15,770.49D) $12,320.00 B) $17,572.80
If Jim wants $25,000 in five years and can earn an 8% interest rate, how much does he need to invest today? (Note—Solve as a Present Value problem.)A) $16,108B) $17,025C) $15,158D) $17,829 B) $17,025
At what annual rate would $500 grow to $1,948 in 12 years? (Note—Solve as a Present Value problem.)A) 12.0 percentB) 13.0 percentC) 12.5 percentD) 11.0 percent A) 12.0 percent
Which of the following decisions would involve the use of the future value of a $1 ordinary annuity table?A) Your brother buys your car and offers to pay you $500 now or $1,500 in two yearsB) You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year for 20 yearsC) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a $7,000 cruise when you graduate from college in 4 yearsD) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday D) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday
Aaron wants to put $200 per month into an IRA account at 15% for four years. What is he solving for using his financial calculator?A) Present valueB) Future valueC) Interest rateD) Payment B) Future value
Information can be easily found on Web sites that will assist you in determining all of the following exceptA) proceeds you will receive when selling your house.B) loan rates, length of loan, and principal.C) stock quotes and company information.D) credit card applications and information. A) proceeds you will receive when selling your house.
Jerry wants to know how much he needs to save every year to accumulate $15,000 in five years at a 10% interest rate. Which of the following tables should he use?A) Present value $1B) Present value ordinary annuityC) Future value $1D) Future value ordinary annuity D) Future value ordinary annuity
Don wants to know how much he needs to save every year to amass $15,000 in five years at a 5% interest rate. What is he calculating using his financial calculator?A) Present valueB) Future valueC) Interest rateD) Payment D) Payment
The higher the rate used in determining the future value of an annuity, A) the smaller the future value at the end of the period.B) the greater the future vale at the end of the period.C) the greater the present value at the beginning of the period.D) none of these – the interest has no effect on the future value of the annuity. B) the greater the future vale at the end of the period.
To save for her newborn son’s college education, Kelli Peterson will invest $1,500 at the end of each year for the next 18 years. The interest rate she expects to earn on her investment is 9%. How much money will she have saved by the time her son turns 18?A) $55,461B) $69,027C) $61,952D) $68,399 C) $61,952
The future value of an annuity assumes that the payments are received A) at the beginning of the year and the last payment does not compound.B) at the end of the year and the last payment does not compound.C) at the beginning of the year and the last payment is compounded.D) at the end of the year and the last payment is compounded. B) at the end of the year and the last payment does not compound.
Judy would like to have $200,000 saved in her retirement account in 20 years. At an interest rate of 10 percent, how much should she contribute each year?A) $3,491.92B) $2,000.00C) $2,576.11D) $4,376.77 A) $3,491.92
The difference between an ordinary annuity and an annuity due is with an annuity due the payments occur at the ________ of each period beginning
You wish to retire in 30 years and determine that you will need $1,000,000 to fund your retirement. If you can invest with a return of 8% you will need to invest ________ each year to reach your goal $8,827 (rounded)
Which of the following decisions would involve the use of the present value of a $1 ordinary annuity table?A) Your brother buys your car and offers to pay you $500 now or $1,500 in two yearsB) You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year for 20 yearsC) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a $7,000 cruise when you graduate from college 4 years henceD) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday B) You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year for 20 years
) To compute how much you would need to save each year for the next 25 years to allow you to withdraw $20,000 for the following 30 years, you would need to use theA) Future Value of an annuity.B) Present Value of an annuity.C) both Future and Present Value of an annuity.D) both Present and Future Value of $1. C) both Future and Present Value of an annuity.
To determine how much you would need to save each year to reach a specific goal, you would useA) Present Value of $1. B) Future Value of $1.C) Present Value of an annuity. D) Future Value of an annuity. D) Future Value of an annuity.
Yogi Berra Jr. has agreed to play for the New York Mets for $4 million per year for the next 10 years. What table would you use to calculate the value of this contract in today’s dollars?A) Present value of a single amountB) Future value of an annuityC) Future value of a single amountD) Present value of an annuity D) Present value of an annuity
The state lottery has just informed you that you have won $1 million to be paid out in the amount of $50,000 per year for the next 20 years. With a discount rate of 12%, what is the present value of your winnings?A) $221,950B) $398,150C) $373,450D) $392,150 C) $373,450
) Jack is 35 years old and is planning to retire at age 65. Based on a variety of factors, he is planning a retirement of 20 years. Jack determines that he will need $20,000 during his 20 years of retirement. If he can invest at 9 percent, how much will he need to save beginning today to reach his goal?A) $11,428.57 B) $6,086.00C) $1,339.47D) $20,000.00 C) $1,339.47
Present and future values concepts are applied to which of the following decisions exceptA) purchase of a home.B) calculation of withdrawals needed during retirement.C) calculation of savings for a large purchase.D) annual cash inflows D) annual cash inflows.
Present and future values concepts are not applied to which of the following?A) Payments on a homeB) Calculation of withdrawals needed during retirementC) Calculation of savings for a large purchaseD) The balance of your checking account today D) The balance of your checking account today
The time value of money can be applied to all of the following exceptA) bond valuation.B) stock valuation.C) current market value of your home.D) investment valuation. D) investment valuation.
Refer to Table 3.1 above. How much will you need to deposit today to enable you to withdraw $1,000 each year for the next 5 years if the money is invested at 7%?A) $1,403B) $713C) $5,751D) $4,100 D) $4,100
Refer to Table 3.1 above. How much will you have if you deposit $1,000 today in an account paying 7% and you leave it on deposit for 5 years?A) $1,403B) $713C) $5,751D) $4,100 A) $1,403
Refer to Table 3.1 above. How much will you have if you deposit $1,000 each year for the next 5 years in an account paying 7%?A) $1,403B) $713C) $5,751D) $4,100 C) $5,751
Refer to Table 3.1 above. How much will you need to deposit today in an account paying 7% if you wish to have $1,000 in 5 years?A) $1,403B) $713C) $5,751D) $4,100 B) $713
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?A) $8,750B) $7,850C) $8,932D) $8,857 C) $8,932
If Art wants $35,000 in 10 years and can earn a 12% interest rate, how much does he need to invest today?A) $10,538B) $10,310C) $11,270D) $14,375 C) $11,270
At what annual rate would $200.00 grow to $497.60 in five years?A) 19 percentB) 18 percentC) 20 percentD) 22 percent C) 20 percent
How many years will it take for $35 to grow to $53.87 if invested at 9% compounded annually?A) 6.0B) 5.5C) 5.0D) 4.0 C) 5.0
How many years will it take for $500 to grow to $1,039.50 if invested at 5% compounded annually?A) 15B) 14C) 13D) 12 A) 15
Carol would like to have $500,000 saved in her retirement account in 30 years at an interest rate of 10 percent. How much should she contribute each year?A) $2,182.00B) $2,000.00C) $1,956.20D) $3,039.70 D) $3,039.70
John would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest each year to achieve his goal?A) $13,242B) $18,900C) $20,518D) none of the above A) $13,242
Mr. Wolf is borrowing $500,000 to expand his business. The loan will be for ten years at 12% interest and will be repaid in equal quarterly installments. What will the quarterly installments be?A) $88,496B) $21,631C) $25,510D) $60,650 B) $21,631
The future value of your savings and debt affect all except which of the following?A) Financial planning toolsB) Protecting your wealthC) Liquidity managementD) Marketing management D) Marketing management

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