Question 1

Compounding is the process of obtaining present values; discounting is the process of obtaining future values.

Accepted Answer

A) True 
 B)False

Question 2

Use the following two columns of items to answer the matching questions below:
-financial calculator

Accepted Answer

A) the process of earning interest on interest 
B) a series of equal payments received or paid at equal intervals 
C) a factor multiplied by today's savings to determine how the savings will accumulate over time 
D) a business calculator that performs PV/FV calculations 
A) the process of earning interest on interest 
B) a series of equal payments received or paid at equal intervals 
C) a factor multiplied by today's savings to determine how the savings will accumulate over time 
D) a business calculator that performs PV/FV calculations

Question 3

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

Question 4

An annuity is a stream of equal payments that are received or paid at random periods of time.

Accepted Answer

A) True 
 B)False

Question 5

In order to take advantage of the time value of money you should do all of the following except

Accepted Answer

A)  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 due dates. 
A)  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 due dates.

Question 6

Lisa wants to know how much savings she would accumulate in 15 years if she saves $2,000 per year and her savings earns 4% per year.She needs to determine the

Accepted Answer

A)  present value of an annuity. 
B)  annuity amount. 
C)  future value of one specific dollar amount today. 
D)  future value of an annuity. 
A)  present value of an annuity. 
B)  annuity amount. 
C)  future value of one specific dollar amount today. 
D)  future value of an annuity.

Question 7

The future value of an ordinary annuity assumes that the payments are received

Accepted Answer

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. 
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.

Question 8

The earning of interest on interest over time is called

Accepted Answer

A)  an annuity. 
B)  an ordinary annuity. 
C)  compounding. 
D)  present value. 
A)  an annuity. 
B)  an ordinary annuity. 
C)  compounding. 
D)  present value.

Question 9

Which of the following is not an example of a future value?

Accepted Answer

A)  The balance in your checking account today 
B)  A savings account balance in 5 years 
C)  A mortgage balance in 10 years 
D)  The value of a retirement account in 20 years 
A)  The balance in your checking account today 
B)  A savings account balance in 5 years 
C)  A mortgage balance in 10 years 
D)  The value of a retirement account in 20 years

Question 10

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?

Accepted Answer

A)  $221,950 
B)  $398,150 
C)  $373,450 
D)  $392,150 
A)  $221,950 
B)  $398,150 
C)  $373,450 
D)  $392,150

Question 11

By paying bills electronically,instead of mailing a check you can pay later and still ensure on-time payment.

Accepted Answer

A) True 
 B)False

Question 12

To determine how much money you would need to save to withdraw $10,000 a year for five years,you would use the present value of an annuity tables.

Accepted Answer

A) True 
 B)False

Question 13

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?

Accepted Answer

A)  Present value 
B)  Future value 
C)  Interest rate 
D)  Payment 
A)  Present value 
B)  Future value 
C)  Interest rate 
D)  Payment

Question 14

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?

Accepted Answer

A)  $88,496 
B)  $21,631 
C)  $25,510 
D)  $60,650 
A)  $88,496 
B)  $21,631 
C)  $25,510 
D)  $60,650

Question 15

The higher the rate used in determining the future value of an annuity,

Accepted Answer

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 rate has no effect on the future value of the 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 rate has no effect on the future value of the annuity.

Question 16

Which of the following decisions would involve the use of the present value of a $1 ordinary annuity table?

Accepted Answer

A)  Your brother buys your car and offers to pay you $500 now or $1,500 in two years. 
B)  You win a lawsuit and are offered a lump-sum payment today of $100,000 or $15,000 a year for 20 years. 
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 4 years hence. 
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. 
A)  Your brother buys your car and offers to pay you $500 now or $1,500 in two years. 
B)  You win a lawsuit and are offered a lump-sum payment today of $100,000 or $15,000 a year for 20 years. 
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 4 years hence. 
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.

Question 17

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.

Accepted Answer

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 
B)  Future value of $1 
C)  Present value of an annuity 
D)  Future value of an annuity

Question 18

The process of earning interest on accumulated interest or paying interest on accumulated interest due is called

Accepted Answer

A)  simple interest. 
B)  compounding. 
C)  future value. 
D)  present value. 
A)  simple interest. 
B)  compounding. 
C)  future value. 
D)  present value.

Question 19

The time value of money can be used to estimate future savings with periodic deposits of funds.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 3: Applying Time Value Concepts

Compounding is the process of obtaining present values; discounting is the process of obtaining future values.

Use the following two columns of items to answer the matching questions below: -financial calculator

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

An annuity is a stream of equal payments that are received or paid at random periods of time.

In order to take advantage of the time value of money you should do all of the following except

Lisa wants to know how much savings she would accumulate in 15 years if she saves $2,000 per year and her savings earns 4% per year.She needs to determine the

The future value of an ordinary annuity assumes that the payments are received

The earning of interest on interest over time is called

Which of the following is not an example of a future value?

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?

By paying bills electronically,instead of mailing a check you can pay later and still ensure on-time payment.

To determine how much money you would need to save to withdraw $10,000 a year for five years,you would use the present value of an annuity tables.

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?

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?

The higher the rate used in determining the future value of an annuity,

Which of the following decisions would involve the use of the present value of a $1 ordinary annuity table?

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.

The process of earning interest on accumulated interest or paying interest on accumulated interest due is called

The time value of money can be used to estimate future savings with periodic deposits of funds.

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

Overview of a Financial Plan

Planning With Personal Financial Statements

Using Tax Concepts for Planning

Banking and Interest Rates

Managing Your Money

Assessing and Securing Your Credit

Managing Your Credit

Personal Loans

Purchasing and Financing a Home

Auto and Homeowners Insurance

Health and Disability Insurance

Life Insurance

Investing Fundamentals

Investing in Stocks

Investing in Bonds

Investing in Mutual Funds

Asset Allocation

Retirement Planning

Estate Planning

Integrating the Components of a Financial Plan

Filters

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