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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. A compound annuity uses the principles of
2. A method by which one can compare cash flows across time?either as what a future cash flow is worth today (present value) or what an investment made today will be worth in the future (future value)?is called
3. A compound annuity involves depositing or investing an equal sum of money at the end of each time period for a certain number of time periods and allowing it to grow.
4. 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?
5. Why should you care about the power of compounding and the time value of money?
6. Compounding is when the interest you have already earned on an investment earns interest.
7. The present value of a financial asset is what you should be willing to pay today for that financial asset.
8. What is the future value of a series of $500 annual payments received at the end of each of the next 5 years' worth if they are invested at an annual rate of return of 6%?
9. If your bank pays you interest in the form of an annual rate of return of 10% over each of the next five years, how much will your balance be if you make annual deposits of $400?
10. The earlier you begin saving for your retirement, the easier it will be to reach your financial goals for retirement.
11. 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
12. 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.
13. How much can you borrow today if you can make payments of $3,600 a year for the next five years and the interest rate is 10%?
14. Sly's Used Cars just sold you a clunker (you need it to get to class on time)- You financed the $4,728.48 purchase price for 24 months- They said your payment would be $250- What interest rate did they charge you (assume monthly compounding)?
15. Using the Rule of 72, approximately how long will it take to double your money if you invest it at 8% compounded annually?
16. Samantha Jee put $3,000 into a mutual fund yielding a 12 percent annual rate of return- Using the Rule of 72, calculate approximately how long it will take for the investment to double in value.
17. You have just placed $500 in a bank account that earns an annual rate of return of 6%- How much will you have in that bank account after 6 years?
18. Small changes in the interest rate can have a dramatic impact on future values.
19. Two of the most important factors in reaching your financial goals are the return on your investments and the length of time you have until you need your money.
20. Your great-aunt wants to help with your college graduation party- She has just placed $5,000 dollars in a bank account that will earn an annual rate of return of 6%- If you graduate in four years, how much will be in your party account?
21. 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?
22. Your daughter has been saving $500 a year for each of the last 10 years for her 'sweet sixteen' party- How much is now in her party account (at the end of the tenth year) if she earned an annual rate of return of 6%?
23. A one-time investment of $1,500 at a 10 percent annual rate of return yields $2,196 in two years. The $2,196 is known as the
24. An annuity is a series of unequal dollar payments coming at the end of each time period for a specified number of time periods.
25. The dollar value of an investment at some future point in time is also known as

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