Deck 4: Time Value of Money

Question 1

If you have $3,000 today with a 5% APY,how much will you have 2 years from now?

A)$3,200.50
B)$3,307.50
C)$3,100.50
D)$3,500.25

Answer 1

$3,307.50

Question 2

What is compounding?

A)Depositing money in the bank
B)When interest is added to your initial deposit and you begin to earn interest on interest
C)Your initial deposit
D)The amount of interest you pay on a loan

Answer 2

When interest is added to your initial deposit and you begin to earn interest on interest

Question 3

What is paper money backed by?

A)Gold
B)Gold and silver
C)The full faith and credit of the U.S.government and the Federal Reserve Bank
D)Silver

Answer 3

The full faith and credit of the U.S.government and the Federal Reserve Bank

Question 4

Paper money is printed by the ________.

A)Federal Reserve Bank
B)United States Treasury
C)Bureau of Engraving and Printing in Washington D.C.and Fort Worth,TX
D)Fort Knox Mint

Question 5

What two cities are currently producing coins for general circulation?

A)Denver and Philadelphia
B)Philadelphia and San Francisco
C)Denver and San Francisco
D)Fort Worth and Washington,D.C.

Question 6

When interest is added to your initial deposit and you begin to earn interest on interest,this is known as

A)the annual percentage rate.
B)the time value of money.
C)compounding.
D)the future value of money.

Question 7

Who controls the circulation of money in the United States?

A)Coin mints
B)The Bureau of Engraving and Printing
C)The Federal Reserve
D)The president of the United States

Question 8

Which of the following is paper money backed by today?

A)The U.S.president
B)The full faith and credit of the U.S.government and the Federal Reserve Bank
C)The Federal Reserve Bank
D)The Bureau of Engraving and Printing and the Federal Reserve Bank

Question 9

Where is one place where paper money is printed?

A)San Francisco
B)Washington,D.C.
C)Denver
D)Philadelphia

Question 10

The annual percentage yield indicates

A)how much interest is earned in a year if allowed to compound.
B)the total amount of money invested plus interest.
C)the interest rate.
D)All of the options are correct.

Question 11

If you invest $100 and receive a 12% APR (annual percentage rate),what will your balance be at the end of the year?

A)$121.12
B)$121.00
C)$112.00
D)$100.12

Question 12

What gives paper currency value?

A)Having a high supply and high demand
B)Having a high supply and low demand
C)Having a limited supply and relatively high demand
D)Having a low supply and low demand

Question 13

In which cities are coins for general circulation made?

A)Saint Louis and Denver
B)Philadelphia and Denver
C)New York and Philadelphia
D)Washington,D.C.and Philadelphia

Question 14

The process whereby the value of an investment increases exponentially over time is called:

A)annual percentage rate
B)time value
C)annual percentage yield
D)compounding

Question 15

Prior to 1933,the money in the United States was backed by?

A)Gold and the full faith and credit of the U.S government
B)Silver C.The full faith and credit of the U.S government
C)The president's oath of office
D)The Chinese yen

Question 16

What is compounding of interest?

A)The initial deposit
B)Money in a savings account
C)Interest found in a savings account
D)Interest on interest added to an initial deposit

Question 17

Currently,which two U.S.cities produce coins for circulation?

A)New York and Washington,D.C.
B)Atlanta and Seattle
C)Philadelphia and Denver
D)Boston and Houston

Question 18

The ________ frequently interest is compounded,the ________ the yield.

A)more; lower
B)more; higher
C)less; higher
D)less; same

Question 19

Paper money is backed by the credit and faith of the U.S.government and ________.

A)Wells Fargo
B)The Federal Union
C)The USDA
D)The Federal Reserve

Question 20

What gives money its value?

A)Supply and demand
B)Backed by gold
C)Backed by silver
D)Present values

Question 21

What do you call a stream of equal payments received or paid at equal intervals in time?

A)A lump sum
B)An annuity
C)Discounting
D)Future value

Question 22

Therese made an investment of $1,000 into an account that pays a 10% annual interest rate which is compounded quarterly.At the end of the 12-month period,Therese earned $103.81 in interest on her $1,000 investment.She calculates her annual percentage yield (APY)to be 10.38%.This is an example of how interest is

A)compounded.
B)the same as the annual percentage rate (APR).
C)effected by the annual percentage yield (APY).
D)part of the truth in savings act.

Question 23

You have a long-term goal of paying off your school loans in five years.You will graduate with a loan debt of $20,000 and an interest rate of 6%.How much will you need to pay each month to have the debt paid off in five years?

A)$386.66
B)$400.00
C)$390.17
D)$368.08

Question 24

Which of the following is the correct formula for computing your annual percentage yield?

A)APY = (1+ r/n)ⁿ - 1
B)APY = (1- r/n)- 1
C)APY = [(1- r)ⁿ] + 1
D)APY = [(r - n)^r] - 1

Question 25

A stream of equal payments that occurs at the beginning of a period is called

A)an ordinary annuity.
B)compounding.
C)an annuity due.
D)an end annuity.

Question 26

What is a lump sum?

A)A single,one-time payment
B)All of your money is put together in a pile
C)A series of equal payments that are made at equal intervals over time
D)The value of an amount based on the interest rate

Question 27

Which act helped eliminate investor confusion with compounding interest and the related yields?

A)The Truth in Savings Act
B)The Compound Interest Act
C)The Interest and Yield Act
D)The Sarbanes Oxley Act

Question 28

Anna is going to deposit $1,000 into an account that has an annual interest rate of 4% compounded quarterly.How much will she have at the end of one year?

A)$1,040.60
B)$1,040.00
C)$1,056.00
D)$1,460.00

Question 29

Which best describes compound interest?

A)Interest is added to a deposit
B)Interest is added to your initial deposit and you earn interest on interest
C)You pay double interest
D)You pay two separate interest rates

Question 30

Using mathematical formulas,financial tables,or a financial calculator,you can find the

A)future value of an amount invested today.
B)present value of an amount you will receive in the future.
C)future value of an amount you deposit annually.
D)present value of an amount if you make annual payments.
E)all of the options are correct.

Question 31

Which example indicates discounting?

A)Looking for less inexpensive options when shopping
B)Figuring out how much money to invest now to have a certain amount in the future
C)Shoplifting
D)All of the options are correct.

Question 32

The Truth in Savings Act

A)provides formulas so people can calculate the APY on investments.
B)requires that banks must disclose the fees,the APR,and the APY on interest-bearing accounts.
C)requires that banks must disclose the fees,the APR,and the APY on loans.
D)provides formulas so people can calculate the APY on loans.

Question 33

If your parents deposited $5,000.00 into an account for you when you were born as part of a 529 college savings fund that grew at an average rate of 8% annually,how much will you have in your college savings fund on your 18^th birthday?

A)$6,099.29
B)$19,980.10
C)$12,520.59
D)$50,795.32

Question 34

All of the following are related to the time value of money except

A)FVIF.
B)PVIFI.
C)PVIF.
D)FVIFA.

Question 35

What is (1+ r/n)ⁿ -1?

A)Future value (FV)
B)Annual percentage rate (APR)
C)Annual percentage yield (APY)
D)Compound percentage interest (CPI)

Question 36

What is the difference between an annuity and an annuity due?

A)There are no payments in an annuity due.
B)Payments are at the beginning of the month for an annuity and at the end of the month for an annuity due.
C)Payments are at the beginning of the month for an annuity due and at the end of the month for an annuity.
D)There is no difference.

Question 37

What is earning interest on interest?

A)Compounding
B)APR (annual percentage rate)
C)Savings
D)Investing

Question 38

If Phil has a $100,000 bond with a 6% interest rate,compounded annually,how much will he have in 8 years?

A)$163,452.83
B)$170,978.42
C)$149,867.49
D)$159,384.81

Question 39

Which is not a component of the formula APY = (1 + r/n)ⁿ - 1?

A)n - 1 = Compound minus interest rate
B)r = Stated annual interest rate
C)n = Number of times you'll compound every year
D)APY = Annual percentage yield

Question 40

An ordinary annuity is a

A)stream of unequal payments that occurs at the end of a period.
B)stream of equal payments that occurs at the end of a period.
C)stream of equal payments that occurs at the beginning of a period.
D)stream of unequal payments that occurs at the beginning of a period.

Question 41

Using the present value long-hand method,how much money would need to be deposited to earn $5,000 in five years with a 5% interest rate compounded annually?

A)$3,917.63
B)$3,917.00
C)$3,918.63
D)$3,918.00

Question 42

You can use the future value interest factor (FVIF)table to calculate the future amount of a lump sum.

Question 43

If you are investing a stream of equal payments that occur at the beginning of each month,what type of investing is this called?

A)Lump sum
B)Annuity due
C)Discounting
D)Ordinary annuity

Question 44

Each dollar bill has a serial number starting with the letter of the district in which it was printed.

Question 45

Which of the following correctly defines future value?

A)The current value of a said future amount based on the interest rate and time in the account.
B)The value of an amount at a future date based on the interest rate and time in the account.
C)A single,one-time payment.
D)A series of equal payments that are made at equal intervals over time.

Question 46

The government has an unlimited supply of money.

Question 47

The process of discounting involves knowing how much money you would have had to deposit today in order to have a specific amount in the future.

Question 48

Calculate the future value when PV = $1,000,the interest rate is 8%,and there are 9 years (periods).

A)$1,999.00
B)$2,100.16
C)$3,370.60
D)$3,454.28

Question 49

The annual percentage yield (APY)is the effective monthly rate of return taking into account the effect of compounding interest.

Question 50

You put your $100 in a savings account and earn 12% APR.At the end of one year,you earned $12.00 in interest.This is an example of simple interest.

Question 51

The secret to becoming a millionaire is to pay all your bills on time.

Question 52

If you put $1,000 into an account earning 5% interest annually,how much will you have in five years?

A)$5,000.00
B)$1,276.28
C)$1,050.50
D)$1,500.00

Question 53

The time value of money is most commonly applied to two types of cash flows: lump sum and annuity.

Question 54

The APY earned on $10,000 at 12% interest compounded monthly over the course of one year is the same rate as if compounded daily.

Question 55

Paper money is backed by the full faith of the U.S.government and the Federal Reserve Bank.