Question 1

Financial institutions quote rates with different compounding periods.What is the term for the actual interest rate paid or earned?

Accepted Answer

A) Effective 
B) Nominal 
C) Real 
D) Absolute 
A) Effective 
B) Nominal 
C) Real 
D) Absolute A

Question 2

Mary wants to have $150 after six years by depositing $100 today and earning six percent interest compounded annually for the next six years.Can Mary attain her financial goal of having $150 lump sum six years later?

Accepted Answer

A) Yes,the future value is more than $150. 
B) Yes,the present value is more than $150. 
C) No,the present value is less than $150. 
D) No,the future value is less than $150. 
A) Yes,the future value is more than $150. 
B) Yes,the present value is more than $150. 
C) No,the present value is less than $150. 
D) No,the future value is less than $150. D

Question 3

Alexis wants to have saved $600 000 by the time she retires at age 60.She is turning 46 in the next week and has accumulated $220000 in her RRSP accounts.Assuming she can continue to get a 6% annual return on her RRSP investments,how much does she need to keep saving at the end of each month to reach her goal?

Accepted Answer

A) $2262 
B) $1467 
C) $2102 
D) $396 
A) $2262 
B) $1467 
C) $2102 
D) $396 D

Question 4

Present value of the first year is determined by the future value divided by (1 + i).

Accepted Answer

A) True 
 B)False

Question 5

Ralph wants to know what he should be able to save in his child's RESP account if he contributes $2,500 per year and also gets the CES grant of $500 each year.He wants to assume a conservative investment return of four percent annual return and that he will only contribute until the child is 15 (assume 15 years of $3000 deposits made at the end of the year).

Accepted Answer

A) $46 500 
B) $52 200 
C) $65 500 
D) $60 700 
A) $46 500 
B) $52 200 
C) $65 500 
D) $60 700

Question 6

In which situation is simple interest the most appropriate interest calculation to use?

Accepted Answer

A) When there is one compounding period 
B) Never 
C) Always 
D) When there are two or less compounding periods 
A) When there is one compounding period 
B) Never 
C) Always 
D) When there are two or less compounding periods

Question 7

Which of the following is a true statement regarding the future value of an annuity due?

Accepted Answer

A) All else being equal,an annuity due will always generate a higher future value than an ordinary annuity. 
B) All else being equal,an annuity due will never generate a higher future value than an ordinary annuity. 
C) All else being equal,an annuity due will sometimes generate a higher future value than an ordinary annuity. 
D) All else being equal,an annuity due will generate a higher future value than an ordinary annuity only if interest is compounded monthly. 
A) All else being equal,an annuity due will always generate a higher future value than an ordinary annuity. 
B) All else being equal,an annuity due will never generate a higher future value than an ordinary annuity. 
C) All else being equal,an annuity due will sometimes generate a higher future value than an ordinary annuity. 
D) All else being equal,an annuity due will generate a higher future value than an ordinary annuity only if interest is compounded monthly.

Question 8

If you want to save $40 000 for a down payment on a home in five years,assuming an interest rate of 4.5 percent compounded annually,how much money do you need to save at the end of each month?

Accepted Answer

A) $666 
B) $609 
C) $622 
D) $597 
A) $666 
B) $609 
C) $622 
D) $597

Question 9

What is the highest effective rate attainable with a 12 percent nominal rate?

Accepted Answer

A) 12.85 percent 
B) 12.75 percent 
C) 12.65 percent 
D) 12.55 percent 
A) 12.85 percent 
B) 12.75 percent 
C) 12.65 percent 
D) 12.55 percent

Question 10

Hazel needs to plan the mortgage amount she can afford.How much would she need to pay at the end of each month on a mortgage of $200000 at six percent interest,calculated semi-annually and amortized over 30 years?

Accepted Answer

A) $555 
B) $1211 
C) $1199 
D) $1190 
A) $555 
B) $1211 
C) $1199 
D) $1190

Question 11

The concept of time value of money only applies to rare financial planning problems.

Accepted Answer

A) True 
 B)False

Question 12

Future value depends on the interest rate and number of years invested but is independent of the number of compounding periods.

Accepted Answer

A) True 
 B)False

Question 13

To convert the table from ordinary annuity to annuity due is to multiple the annuity payment by (1+ i).

Accepted Answer

A) True 
 B)False

Question 14

Fred is 29 and just sold an antique for $29311 that he purchased at age nine for $17800 .Fred's annual rate of return on this antique is 7.2 percent.

Accepted Answer

A) True 
 B)False

Question 15

Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

Accepted Answer

A) True 
 B)False

Question 16

Use an illustration to show the difference between annual,semi-annual,monthly and daily compounding.Give examples and illustrations using numbers from real life for each one.

Accepted Answer

Annual interest:
Means the interest is c

Question 17

Develop an example to illustrate the power of compound interest.Be sure to illustrate your points using numbers and calculations.

Accepted Answer

There are many possibilities.
Comparing

Question 18

Jill will have reached her goal of saving $23 000 to buy a car if she puts away $420 a month in a 7% annual interest savings account for four years.

Accepted Answer

A) True 
 B)False

Question 19

How long will it take Ivy's money to triple in value at 12 percent compounded quarterly?

Accepted Answer

A) 9)5 years 
B) 9)7 years 
C) 9)3 years 
D) Not enough information 
A) 9)5 years 
B) 9)7 years 
C) 9)3 years 
D) Not enough information

Question 20

The amount to be invested today at a given interest rate over a specified period in order to equal a future amount is called the

Accepted Answer

A) present value interest factor. 
B) future value. 
C) present value. 
D) future value interest factor. 
A) present value interest factor. 
B) future value. 
C) present value. 
D) future value interest factor.

Financial institutions quote rates with different compounding periods.What is the term for the actual interest rate paid or earned?

Mary wants to have $150 after six years by depositing $100 today and earning six percent interest compounded annually for the next six years.Can Mary attain her financial goal of having $150 lump sum six years later?

Present value of the first year is determined by the future value divided by (1 + i).

In which situation is simple interest the most appropriate interest calculation to use?

Which of the following is a true statement regarding the future value of an annuity due?

If you want to save $40 000 for a down payment on a home in five years,assuming an interest rate of 4.5 percent compounded annually,how much money do you need to save at the end of each month?

What is the highest effective rate attainable with a 12 percent nominal rate?

Hazel needs to plan the mortgage amount she can afford.How much would she need to pay at the end of each month on a mortgage of $200000 at six percent interest,calculated semi-annually and amortized over 30 years?

The concept of time value of money only applies to rare financial planning problems.

Future value depends on the interest rate and number of years invested but is independent of the number of compounding periods.

To convert the table from ordinary annuity to annuity due is to multiple the annuity payment by (1+ i).

Fred is 29 and just sold an antique for $29311 that he purchased at age nine for $17800 .Fred's annual rate of return on this antique is 7.2 percent.

Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

Use an illustration to show the difference between annual,semi-annual,monthly and daily compounding.Give examples and illustrations using numbers from real life for each one.

Develop an example to illustrate the power of compound interest.Be sure to illustrate your points using numbers and calculations.

Jill will have reached her goal of saving $23 000 to buy a car if she puts away $420 a month in a 7% annual interest savings account for four years.

How long will it take Ivy's money to triple in value at 12 percent compounded quarterly?

The amount to be invested today at a given interest rate over a specified period in order to equal a future amount is called the

Tools for Financial Planning - Planning with Personal Financial Statements

Tools for Financial Planning - Using Tax Concepts for Planning

Managing Your Financial Resources - Banking Services and Managing Your Money

Managing Your Financial Resources - Assessing,Managing and Securing Your Credit

Managing Your Financial Resources - Purchasing and Financing a Home

Protecting Your Wealth - Auto and Homeowner's Insurance

Protecting Your Wealth - Health and Life Insurance

Personal Investing - Investing Fundamentals

Personal Investing - Investing in Stocks

Personal Investing - Investing in Bonds

Personal Investing - Investing in Mutual Funds

Retirement and Estate Planning - Retirement Planning

Retirement and Estate Planning - Estate Planning

Synthesis of Financial Planning - Integrating the Components of a Financial Plan

Filters

Exam 1: Tools for Financial Planning - Applying Time Value Concepts

Financial institutions quote rates with different compounding periods.What is the term for the actual interest rate paid or earned?

Mary wants to have $150 after six years by depositing $100 today and earning six percent interest compounded annually for the next six years.Can Mary attain her financial goal of having $150 lump sum six years later?

Present value of the first year is determined by the future value divided by (1 + i).

In which situation is simple interest the most appropriate interest calculation to use?

Which of the following is a true statement regarding the future value of an annuity due?

If you want to save $40 000 for a down payment on a home in five years,assuming an interest rate of 4.5 percent compounded annually,how much money do you need to save at the end of each month?

What is the highest effective rate attainable with a 12 percent nominal rate?

Hazel needs to plan the mortgage amount she can afford.How much would she need to pay at the end of each month on a mortgage of $200000 at six percent interest,calculated semi-annually and amortized over 30 years?

The concept of time value of money only applies to rare financial planning problems.

Future value depends on the interest rate and number of years invested but is independent of the number of compounding periods.

To convert the table from ordinary annuity to annuity due is to multiple the annuity payment by (1+ i).

Fred is 29 and just sold an antique for $29311 that he purchased at age nine for $17800 .Fred's annual rate of return on this antique is 7.2 percent.

Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

Use an illustration to show the difference between annual,semi-annual,monthly and daily compounding.Give examples and illustrations using numbers from real life for each one.

Develop an example to illustrate the power of compound interest.Be sure to illustrate your points using numbers and calculations.

Jill will have reached her goal of saving $23 000 to buy a car if she puts away $420 a month in a 7% annual interest savings account for four years.

How long will it take Ivy's money to triple in value at 12 percent compounded quarterly?

The amount to be invested today at a given interest rate over a specified period in order to equal a future amount is called the

Tools for Financial Planning - Planning with Personal Financial Statements

Tools for Financial Planning - Using Tax Concepts for Planning

Managing Your Financial Resources - Banking Services and Managing Your Money

Managing Your Financial Resources - Assessing,Managing and Securing Your Credit

Managing Your Financial Resources - Purchasing and Financing a Home

Protecting Your Wealth - Auto and Homeowner's Insurance

Protecting Your Wealth - Health and Life Insurance

Personal Investing - Investing Fundamentals

Personal Investing - Investing in Stocks

Personal Investing - Investing in Bonds

Personal Investing - Investing in Mutual Funds

Retirement and Estate Planning - Retirement Planning

Retirement and Estate Planning - Estate Planning

Synthesis of Financial Planning - Integrating the Components of a Financial Plan

Filters