Question 1

If Phil has a $100,000 bond with a 7% interest rate,compounded annually,how much will he have in 8 years?

Accepted Answer

The future value of the bond can be calculated using the formula for compound interest: FV = P(1 + r)^n, where P is the principal amount ($100,000), r is the annual interest rate (0.07), and n is the number of years (8). Plugging in these values, FV = 100,000(1 + 0.07)^8 = $171,818.62.

Question 2

What is (1+ r/n)ⁿ -1?

Accepted Answer

The expression represents the formula for calculating the Annual Percentage Yield (APY), which takes into account the effect of compounding interest.

Question 3

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

Accepted Answer

All of the other options (A, C, and D) are formulas or calculations that relate to the time value of money, while B (PVIFI) does not exist as a commonly used equation in finance.

Question 4

Which best describes compound interest?

Accepted Answer

Compound interest is interest that is added to your initial deposit and you earn interest on interest, resulting in your balance increasing at an exponential rate over time.

Question 5

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?

Accepted Answer

To calculate the monthly payment needed to pay off the loan in five years, we can use the formula for loan payments:

Payment = (Pr(1+r)^n)/((1+r)^n-1)

where P is the loan amount ($20,000), r is the interest rate (0.06/12 = 0.005), and n is the number of payments (5 years x 12 months/year = 60 payments).

Plugging in those values, we get:

Payment = (20000*0.005*(1+0.005)^60)/((1+0.005)^60-1) = $386.66

Therefore, the best choice is A) $386.66.

Question 6

If your parents deposited $15,000 into an account for you when you were born as part of a college savings fund and that account is earning 10% annually,how much will you have in your college savings fund on your 18^th birthday?

Accepted Answer

We can solve this problem using the compound interest formula: 
A = P(1 + r/n)^(nt), 
where A is the amount, P is the principal (initial deposit), r is the annual interest rate (as a decimal), n is the number of times the interest is compounded per year, and t is the time in years.

In this case, P = $15,000, r = 0.1, n = 1 (Annual compounding), and t = 18. 
Plugging in these values, we get: 
A = $15,000(1 + 0.1/1)^(1*18) 
= $15,000(1.1)^18 
= $83,398.76

Therefore, the answer is B.

Question 7

Anna is going to deposit $500 into an account that has an annual interest rate of 8% compounded quarterly.How much will she have at the end of one year?

Accepted Answer

The correct answer is A.The formula for compound interest is:A = P(1 + r/n)^(nt)where:A is the final amountP is the principal (initial amount)r is the annual interest raten is the number of times per year that the interest is compoundedt is the number of yearsIn this case, we have:P = $500r = 8% = 0.08n = 4 (since the interest is compounded quarterly)t = 1Plugging these values into the formula, we get:A = 500(1 + 0.08/4)^(4*1)A = 500(1.02)^4A = $541.22Therefore, Anna will have $541.22 at the end of one year.

Question 8

What is a lump sum?

Accepted Answer

A lump sum is a single, one-time payment.

Question 9

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

Accepted Answer

An annuity is a stream of equal payments received or paid at equal intervals in time.

Question 10

An ordinary annuity is a

Accepted Answer

An ordinary annuity is a stream of equal payments that occur at the end of each period. This is in contrast to an annuity due, where the payments occur at the beginning of each period. A common example of an ordinary annuity is a mortgage payment, where the borrower pays the same amount each month at the end of the month.

Question 11

Which example indicates discounting?

Accepted Answer

Discounting refers to the process of determining the present value of a future amount of money, which is what option B describes.

Question 12

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

Accepted Answer

All of these options can be calculated using mathematical formulas, financial tables, or a financial calculator. The future value of an amount invested today can be found using the formula FV = PV x (1 + r)^t, where PV is the present value, r is the interest rate, and t is the time period. The present value of an amount you will receive in the future can be found using the formula PV = FV / (1 + r)^t. The future value of an amount you deposit annually can be found using the formula FV = Pmt x [(1 + r)^n - 1] / r, where Pmt is the amount deposited annually, r is the interest rate, and n is the number of years. The present value of an amount if you make annual payments can be found using the formula PV = Pmt x [1 - (1 + r)^-n] / r, where Pmt is the annual payment, r is the interest rate, and n is the number of years.

Question 13

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

Accepted Answer

The correct formula for computing the annual percentage yield (APY) is APY = (1 + r/n)^n - 1, where r is the annual interest rate and n is the number of compounding periods per year. Choice A is a typographical representation of this formula, despite the unusual characters, as it follows the structure of adding 1 to the interest rate divided by the number of periods, raising this to the power of the number of periods, and then subtracting 1.

Question 14

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:

Accepted Answer

The fact that the interest is compounded quarterly is what allowed Therese to earn $103.81 in interest at the end of 12 months, which in turn affected her APY. The APR is still 10%, but the compounding frequency affects the actual amount of interest earned. The Truth in Savings Act is a law that requires financial institutions to disclose certain information to consumers, such as interest rates, fees, and terms.

Question 15

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

Accepted Answer

The Truth in Savings Act was enacted in order to eliminate confusion for investors regarding compounding interest and related yields. It requires financial institutions to disclose complete and accurate information about fees, interest rates, and other terms of savings accounts in a clear and consistent manner, enabling consumers to make informed decisions about their savings choices.

Question 16

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

Accepted Answer

The difference between an annuity and an annuity due is the timing of the payments. An annuity has payments at the end of each period, while an annuity due has payments at the beginning of each period. Therefore, payments are at the beginning of the month for an annuity due and at the end of the month for an annuity. Choice A is incorrect because there are payments in both types of annuities. Choice B is incorrect because it is the opposite of the correct statement. Choice D is incorrect because there is a clear difference between an annuity and an annuity due.

Question 17

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

Accepted Answer

N - 1 is not a component of the formula. It is a result of the formula when calculating the compound interest rate. The other components are R (stated annual interest rate), N (number of times compounded per year), and APY (annual percentage yield).

Question 18

The Truth in Savings Act

Accepted Answer

The Truth in Savings Act requires that banks disclose the fees, annual percentage rate (APR), and annual percentage yield (APY) on interest-bearing accounts to help consumers make informed decisions about where to save their money. It does not provide formulas for calculating APY on loans.

Question 19

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

Accepted Answer

An ordinary annuity is a stream of equal payments that occurs at the end of a period. This is different from an annuity due, where the payments occur at the beginning of a period. Compounding refers to the process of earning interest on previous interest, and an end annuity is not a commonly used financial term.

Question 20

What is earning interest on interest?

Accepted Answer

Earning interest on interest is known as compounding. It is a powerful tool for saving and investing because it allows your money to grow exponentially over time. When you earn interest on your principal investment, that interest is added to your account balance, and then you earn interest on the new higher balance. Over time, this cycle of earning interest on interest can lead to significant gains.

Quiz 2: Time Value of Money

If Phil has a $100,000 bond with a 7% interest rate,compounded annually,how much will he have in 8 years?

What is (1+ r/n) ⁿ -1?

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

Which best describes compound interest?

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?

If your parents deposited $15,000 into an account for you when you were born as part of a college savings fund and that account is earning 10% annually,how much will you have in your college savings fund on your 18^th birthday?

Anna is going to deposit $500 into an account that has an annual interest rate of 8% compounded quarterly.How much will she have at the end of one year?

What is a lump sum?

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

An ordinary annuity is a

Which example indicates discounting?

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

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

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

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

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

The Truth in Savings Act

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

What is earning interest on interest?

Quiz 2: Time Value of Money

If Phil has a $100,000 bond with a 7% interest rate,compounded annually,how much will he have in 8 years?

What is (1+ r/n) n -1?

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

Which best describes compound interest?

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?

If your parents deposited $15,000 into an account for you when you were born as part of a college savings fund and that account is earning 10% annually,how much will you have in your college savings fund on your 18th birthday?

Anna is going to deposit $500 into an account that has an annual interest rate of 8% compounded quarterly.How much will she have at the end of one year?

What is a lump sum?

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

An ordinary annuity is a

Which example indicates discounting?

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

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

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

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

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

The Truth in Savings Act

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

What is earning interest on interest?

What is (1+ r/n) ⁿ -1?

If your parents deposited $15,000 into an account for you when you were born as part of a college savings fund and that account is earning 10% annually,how much will you have in your college savings fund on your 18^th birthday?

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