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Personal Finance: Understanding and Appreciating the Time Value of Money
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The time value of money is the widely accepted idea that there is greater benefit to receiving a sum of money now rather than an identical sum later.

Personal Finance: Understanding and Appreciating the Time Value of Money
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25 Questions

1. You invest $1,000 at age 20 at an annual rate of return of 12%- By the time you are 62 you will have amassed approximately
2. If you set your calculator to the 'end' mode your calculator will assume cash flows occur at the end of each time period.
3. A perpetuity is an annuity that continues forever.
4. An investment earning 12 percent interest per year should double in value in approximately four years.
5. What is the present value of an annual payment of $1,500 discounted back 15 years at an annual rate of return of 3%?
6. If Monica invests $15,750 at 8 percent annual interest, how much would she have after eight years?
7. Your great-uncle placed $500 a year in a bank account for your 'college fund' for each of the last 18 years- How much is now in your college account (at the end of the eighteenth year) if your account earned an annual rate of return of 6%?
8. Generally speaking, regularly saving a little money when you are young can result in a large final payoff.
9. 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?
10. Mark borrows $15,000 to buy a new car- His loan has an interest rate of 6.5%, compounded monthly, and his monthly payment is $293.49- If instead his loan had an interest rate of 8%, how much more would he have paid in interest by the time he finished repaying his loan in 60 months?
11. Using the Rule of 72, approximately how long will it take to double your money if you invest it at 8% compounded annually?
12. John Madrid put $1,000 into a mutual fund yielding an 18% annual rate of return- Using the Rule of 72, calculate approximately how long it will take for the investment to double in value.
13. Most people achieve comfortable retirements by postponing saving until after age 50, when they are able to save a large amount on a regular basis.
14. What is the present value today of $150 that will be received in four years from now if the discount rate is 12%?
15. The present value interest factor is the inverse of the corresponding future value interest factor.
16. Jah-Malya can afford a car payment of $400 per month for 48 months at an annual rate of 8.25 percent interest- Which of the following is closest to the amount she will be able to borrow for a new car?
17. Charlie is starting to save for his retirement now at age 20- If inflation averages 4% annually until his retirement age and he earns an annual rate of return of 4% on his investments during this period, then he should be able to enjoy a very comfortable retirement when he is retired.
18. The earlier you begin saving for your retirement, the easier it will be to reach your financial goals for retirement.
19. Your money will grow or compound ________ as the number of compounding periods per year becomes ________.
20. 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.
21. The discount rate is the interest rate used to bring ________ back to ________.
22. The present value of a financial asset is what you should be willing to pay today for that financial asset.
23. Assuming that you can afford a car payment of $400 for 36 months, which of the following is closest to the annual interest rate you would need on a loan to borrow $12,000 for a new car?
24. Compounding is when the interest you have already earned on an investment earns interest.
25. 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?

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