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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 just purchased a vacant lot for your future son-in-law's home for $30,000- You financed that amount over 120 months- What would your monthly payment be if your interest rate was 12 % compounded monthly?
2. What is the future value of a stream of $800 annual payments worth to the investor at the end of years if these payments are invested at an annual rate of return of 8.5%?
3. What is the present value today of $150 that will be received in four years from now if the discount rate is 12%?
4. Small changes in the interest rate can have a dramatic impact on future values.
5. What is the maximum that you would be willing to loan your brother for a $100 IOU if he promises to pay you back at the end of the year? You want to earn an annual rate of return of%.
6. If Monica invests $15,750 at 8 percent annual interest, how much would she have after eight years?
7. At the age of 20, James is starting to save for retirement- If inflation averages 4 percent annually until his retirement age and he earns an average annual rate of return of 13 percent on his investments during this period, he should be able to enjoy a comfortable retirement.
8. 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%?
9. What would be the interest rate on a loan of $39,927.10 that you paid off with annual payments of $10,000 for each of the next five years?
10. 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?
11. 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.
12. Which financial planning concepts should be helpful to a couple planning for how much money to start saving for their retirement?
13. Rasheed can afford a monthly car payment of $550 for 72 months at an annual interest rate of 7.5 percent- Which of the following is closest to the amount he will be able to borrow for a new car?
14. Time Value of Money calculations can be made much easier through the use of a financial calculator.
15. 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%?
16. Mark borrows $15,000 to buy a new car- His loan has an annual interest rate of 6.5%, compounded monthly, and his monthly payment is $293.49- How much will he have paid in interest when he has finished repaying his loan in 60 months?
17. What is the price you would be willing to pay today for an IOU for $500 due in one year if you want to earn at least 16%?
18. Your money grows faster as the compounding period becomes longer.
19. Present value lets us compare dollar values from different time periods.
20. 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%?
21. With a mortgage loan of $150,000 at an annual percentage rate of 6% for 30 years, you will pay over $150,000 in interest before your loan ends.
22. What is the annual interest rate earned on a deposit that grew from $250 to $502.84 over the last years?
23. Generally speaking, regularly saving a little money when you are young can result in a large final payoff.
24. What is the present value of a $1,000 payment at the end of each of the next 10 years discounted back to the present at 5%?
25. 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.

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