Question 1

Which of the following it not an annuity?

Accepted Answer

A)  Equal monthly payments to your investment account 
B)  Lottery winnings of $100 per month for life 
C)  Mortgage payments for a fixed-rate loan 
D)  Monthly utility bills 
A)  Equal monthly payments to your investment account 
B)  Lottery winnings of $100 per month for life 
C)  Mortgage payments for a fixed-rate loan 
D)  Monthly utility bills

Question 2

To determine how much you must save each year to have enough for your daughter's college education,you would use the present value of $1 tables.

Accepted Answer

A) True 
 B)False

Question 3

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)

Accepted Answer

A)  present value of $1. 
B)  future value of $1. 
C)  present value of an annuity. 
D)  Both A and B can be used for this analysis. 
A)  present value of $1. 
B)  future value of $1. 
C)  present value of an annuity. 
D)  Both A and B can be used for this analysis.

Question 4

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.)

Accepted Answer

A)  $16,108 
B)  $17,025 
C)  $15,158 
D)  $17,829 
A)  $16,108 
B)  $17,025 
C)  $15,158 
D)  $17,829

Question 5

There are two sets of present and future value tables: one set for lump sums and one set for annuities.

Accepted Answer

A) True 
 B)False

Question 6

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

A lump sum would incur a large tax liabi

Question 7

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 8

The concept of time value of money is important to financial decision making because

Accepted Answer

A)  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. 
A)  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.

Question 9

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?

Accepted Answer

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

Question 10

Assuming interest rates were 6% per annum,what would be the present value of the $50,000 per year for 30 years payment stream? Use the tables or a financial calculator.

Accepted Answer

A)  $688,242 
B)  $1,500,000 
C)  $700,002 
D)  $693,974 
A)  $688,242 
B)  $1,500,000 
C)  $700,002 
D)  $693,974

Question 11

Carol would like to have $500,000 saved in her retirement account in 30 years. Assuming an interest rate of 10%,how much should she contribute each year?

Accepted Answer

A)  $2,182.00 
B)  $2,000.00 
C)  $1,956.20 
D)  $3,039.70 
A)  $2,182.00 
B)  $2,000.00 
C)  $1,956.20 
D)  $3,039.70

Question 12

Time value concepts can be applied to lottery winnings.The winner can usually choose an annuity or a lump sum.

Accepted Answer

A) True 
 B)False

Question 13

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. 
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 14

The present value interest factor (PVIF)becomes lower as the number of years increases.

Accepted Answer

A) True 
 B)False

Question 15

Use the data in table 3.1 to answer the following question(s):
   Table 3.1
-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%?

Accepted Answer

A)  $1,403 
B)  $713 
C)  $5,751 
D)  $4,100 
A)  $1,403 
B)  $713 
C)  $5,751 
D)  $4,100

Which of the following it not an annuity?

To determine how much you must save each year to have enough for your daughter's college education,you would use the present value of $1 tables.

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)

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.)

There are two sets of present and future value tables: one set for lump sums and one set for annuities.

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.

The concept of time value of money is important to financial decision making because

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?

Assuming interest rates were 6% per annum,what would be the present value of the $50,000 per year for 30 years payment stream? Use the tables or a financial calculator.

Carol would like to have $500,000 saved in her retirement account in 30 years. Assuming an interest rate of 10%,how much should she contribute each year?

Time value concepts can be applied to lottery winnings.The winner can usually choose an annuity or a lump sum.

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

The present value interest factor (PVIF)becomes lower as the number of years increases.

Use the data in table 3.1 to answer the following question(s): Table 3.1 -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%?

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

Exam 3: Applying Time Value Concepts

Which of the following it not an annuity?

To determine how much you must save each year to have enough for your daughter's college education,you would use the present value of $1 tables.

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)

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.)

There are two sets of present and future value tables: one set for lump sums and one set for annuities.

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.

The concept of time value of money is important to financial decision making because

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?

Assuming interest rates were 6% per annum,what would be the present value of the $50,000 per year for 30 years payment stream? Use the tables or a financial calculator.

Carol would like to have $500,000 saved in her retirement account in 30 years. Assuming an interest rate of 10%,how much should she contribute each year?

Time value concepts can be applied to lottery winnings.The winner can usually choose an annuity or a lump sum.

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

The present value interest factor (PVIF)becomes lower as the number of years increases.

Use the data in table 3.1 to answer the following question(s): Table 3.1 -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%?

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