Summarize what the old saying "Time is Money" means by choosing all of the
statements below that reflect its meaning. (Check all that apply.)
The value of our assets change because of interest earned on the assets.
As we carry the balance of debt, we accumulate interest costs on it.
It reflects the notion that as time passes, the values of our assets and liabilities change.
Show your understanding of interest by completing the following sentence: Interest is
the amount of money (earned, owed) by the owner of an asset and (paid, earned) by
the borrower of the asset for its use.
Blank 1: earned
Blank 2: paid
00:02
01:47
Recall the required components of figuring present value by matching the formula
symbol on the left with its definition on the right.
Instructions
n- Number
F- Future
i- Per period
p-present
A person can use the present value concept to calculate how much money he has to
invest (today, tomorrow) in order to have a specific sum of money in the (present,
future).
Blank 1: today
Blank 2: future
The formula to compute the present value of a single sum is:
future value divided by (1 + interest rate)n
Explain what future and present value computations enable us to do by selecting all of
the correct statements below. (Check all that apply.)
The present value computation is important when we want to know the value of
future-day assets today.
The future value computation is important when we want to know the value of
present-day assets at a future date.
They enable us to measure or estimate the interest component of holding assets or debt
over time.
Review the statements below and choose the one which is correct regarding interest as
it relates to money.
Interest is payment by the borrower to the owner of an asset for its use.
Show your understanding of how "periods" can be expressed in time value of money
computations by selecting the correct statements below. (Check all that apply.)
Periods must equal one year or less.
Periods represent the number of times that interest is compounded within one year.
Periods can be expressed in one-month periods.
Identify the required components needed to determine the present value of a sum.
(Check all that apply.)
The future amount of money needed
The number of periods the sum will be earning interest
The interest rate charged
Illustrate your understanding of compounding interest by determining which of the
statements below are true. (Check all that apply.)
Interest is added to a sum of money at the end of a period and then, this new sum is
used to figure the interest amount for the next period, etc.
If the rate of interest is 10% compounded monthly, then interest is figured 12 times
during the year.
Determine which of the statements below is correct regarding the present value
concept.
We want to know how much we must invest now in order to have a certain sum of
money some time in the future.
Assume that we want to have $500 three periods from today. Use the present value of a
single sum formula to calculate how much we must invest now, at an interest rate of 8%
in order to have the $500 in the future: p=f/(1+i)n
396.90
00:02
01:47
Summarize what the old saying "Time is Money" means by choosing all of the
statements below that reflect its meaning. (Check all that apply.)
It reflects the notion that as time passes, the values of our assets and liabilities change.
The value of our assets change because of interest earned on the assets.
As we carry the balance of debt, we accumulate interest costs on it.
Describe what a period represents in time-value of money computations by completing
the following sentence:
The present value or future value of a sum of money can be calculated as long as we
know the number of (days, times, years) that interest will be compounded within one
(year, month, day).
Blank 1: times
Blank 2: year
Review the statements below and determine which are correct regarding compounding
in regards to interest.
In the present value formula, annual interest can be transformed into interest earned per
(n) periods.
Interest can be compounded daily, monthly, quarterly or annually.
Jack is considering an investment that is expected to return $1,000 four years from now.
If he wants a 9% return, calculate the amount of money he is willing to pay for this
investment by using the Present Value of 1 table below.
$708.40
Determine which of the statements below is correct regarding the future value concept.
We want to know how much an amount invested today would equal at some specified
date in the future.
Luna is considering an investment that is expected to return $5,000 five years from now.
If she wants a 10% return calculate the amount of money she is willing to pay for this
investment by using the Present Value of 1 table below.
$3,104.50
The present value or future value of a sum of money can be calculated as long as we
know the number of (days, times, years) that interest will be compounded within one
(year, month, day).
Blank 1: times
Blank 2: year
Calculate the future value of $400 invested for 3 periods at 8% by using the future value
of a single amount formula: f= p x (1+i) n
503.88
Review the statements below and select the ones that are true regarding the use of a
future value table. (Check all that apply.)
Knowing two of the factors in a future value table allows us to compute the third.
A future value table involves three factors: f, i, and n.
A person can use the future value concept to calculate how much money she will have
(today, tomorrow) if she invests a specific sum of money in the (present, future).
Blank 1: tomorrow
Blank 2: present
Blake is offered the possibility of investing $1,652.80 today at 10%, in a desire to
accumulate $2,000. Calculate the number of years that Blake must wait to accumulate
$2,000 by using the Present Value of 1 table below.
2 years
Maurice invests $2,500 today, and he wants to invest the money for 3 years until he has
earned $3,062.50. He wants to know at what interest rate he will have to invest the
money in order to accumulate $3,062.50. Calculate the interest rate that he will need by
using the Future Value of 1 table below.
7%
Calculate the future value of $250 invested for 4 periods at 9% by using the future value
of a single amount formula: f= p x (1+i) n
352.90
The three factors used in a future value table include all of the following except:
present value
Match the term on the left with its definition on the right related to present and future
value concepts.
Instructions
`Annuity-A series of equal payments occurring at equal intervals
Interest-A borrower's payment to the owner of an asset for its use
Future value-The value of present-day assets at a future date
Present value-The value of future-day assets today
Johan invests $5,000 in a project that is expected to earn a 8% annual rate of return.
The earnings will be reinvested in the project each year for five years. Calculate how
much money he will have at the end of five years by using the Future Value of 1 table
below.
$7,346.50
Determine which of the statements below is correct regarding the present value of an
ordinary annuity.
The present value of an annuity is the amount that can be invested now at the specified
rate to yield a future series of equal periodic payments.
Jack is considering a project that will return $2,000 at the end of each year for 6 years.
He wants a return of 8%. Use the Present Value of an Annuity of 1 table below to
determine how much he is willing to pay for the project right now.
$9,245.80
A person can use the future value concept and apply it to an annuity to calculate how
much money he will have (today, tomorrow) if he makes (multiple, one) periodic
payment(s) at the end of (one, each) period.
Blank 1: tomorrow
Blank 2: multiple
Blank 3: each
Review the following statements and select the one which is true regarding an ordinary
annuity.
An ordinary annuity is a series of equal payments occurring at the end of the period at
equal intervals.
Rachel invests $2,000 today earning 7% per year for 3 years. Calculate how much
money she will have at the end of three years by using the Future Value of 1 table
below.
$2450.00
A person can use the present value concept and apply it to an annuity to calculate how
much money he has to invest (today, tomorrow) in order to receive (multiple, one)
periodic payment(s) in the (present, future).
Blank 1: today
Blank 2: multiple
Blank 3: future
Janice purchased a diamond bracelet by agreeing to make 5 annual installments of
$400 at the end of each of the next 5 years. The finance rate she is being charged is
6%. Use the Present Value of an Annuity of 1 table below to determine the sticker price
listed on the bracelet.
$1,684.96
Determine which of the statements below is correct regarding the future value of an
ordinary annuity.
A future value of an annuity is the amount that would accumulate by the end date of a
series of equal payments.
Lyle plans to invest $2,000 at the end of each 6-month period into a retirement account
that earns an annual rate of 16% compounded semiannually. If he continues with his
plan for 3 years, use the Future Value of an Annuity of 1 table below to determine how
much will be accumulated in the account on the date of his last deposit.
$14,671.80
Johan invests $5,000 in a project that is expected to earn a 8% annual rate of return.
The earnings will be reinvested in the project each year for five years. Calculate how
much money he will have at the end of five years by using the Future Value of 1 table
below.
$7,346.50
Ken is planning to begin saving for a future vacation. He plans to invest $600 at the end
of each year into a savings account that earns 9% compounded annually. If he
continues with his plan for 4 years, use the Future Value of an Annuity of 1 table below
to determine how much will be accumulated in the account on the date of his last
deposit.
$2,743.86
Ann plans to invest $4,000 at the end of each year into a retirement account that earns
10% compounded annually. If she continues with her plan for 6 years, use the Future
Value of an Annuity of 1 table below to determine how much will be accumulated in the
account on the date of her last deposit.
...
Ken is planning to begin saving for a future vacation. He plans to invest $600 at the end
of each year into a savings account that earns 9% compounded annually. If he
continues with his plan for 4 years, use the Future Value of an Annuity of 1 table below
to determine how much will be accumulated in the account on the date of his last
deposit.
...
