Test Bank For Personal Financial Planning 2nd Edition By Altfest

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Test Bank For Personal Financial Planning 2nd Edition By Altfest

Test Bank Questions, Chapter 2

1. The time value of money is best defined as:

1. 1. The compensation provided for investing money for a given period.
   2. The concept that investing is always superior to consumption.
   3. The concept that the value of the exchange rate varies over time.
   4. The compensation provided for carefully timing one’s investments.
   5. None of the above. 

Answer: a

1. You are given the choice between receiving $100,000 today or $100,000 in one year. Which of the following statements is accurate?

1. 1. You would prefer to receive $100,000 today, as you could invest the money and in one year have much more than the original $100,000.
   2. You would prefer to receive $100,000 today, as the present value of receiving $100,000 in one year is much less than $100,000.
   3. You would prefer to receive $100,000 today due to the time value of money.
   4. All of the above statements are accurate.  
   5. None of the above statements are accurate. 

Answer:  d

1. If the value of the principal today is $25,000 and the interest rate is 22.5%, what is the value of the principal at the end of one year?

1. 1. $5,625
   2. $30,250
   3. $5,825
   4. $30,625
   5. None of the above.

Answer: d

1. If the value of the principal today is $10,250 and the interest rate is 1.5%, what is the value of the principal at the end of three years?

1. 1. $10,540.45
   2. $10,718.20
   3. $10,900.35
   4. $12,245.45
   5. $12,234.43

Answer: b

1. If the value of the principal today is $12,000 and the interest rate is 10.5%, what is the total compounding contribution at the end of two years?

1. 1. $125.25
   2. $100.56
   3. $132.30
   4. $450.50
   5. None of the above.

Answer: c

1. If the value of the principal today is $25,250 and the interest rate is 2.25%, what is the total compounding contribution at the end of one year?

1. 1. $225.25
   2. $120.56
   3. $2.13
   4. $43.54
   5. $0

Answer: e

1. If the value of the principal today is $1,560,250 and the interest rate is 11.25%, what is the total compounding contribution at the end of ten years?

1. 1. $1,215,472.15
   2. $1,560,250
   3. $0
   4. $2,430,966.30
   5. None of the above.

Answer: a

1. If the value of the principal today is $2000 and the interest rate is 12.33%, what is the total simple interest income at the end of three years?

1. 1. $2,739.80
   2. $739.80
   3. $2,657.30
   4. $787.21
   5. None of the above.

Answer: b

1. If the value of the principal today is $17,567 and the interest rate is 0.93%, what is the total simple interest income at the end of fifteen years?

1. 1. $17,567
   2. $2,540.60
   3. $82,765.65
   4. $300.56
   5. None of the above.

Answer: b

1. If the value of the principal today is $10,000 and the interest rate is 21.22%, what is the total compound interest income at the end of six years?

1. 1. $21,728.22
   2. $25,567.43
   3. $20,000.54
   4. $45,067.22
   5. None of the above.

Answer: a

1. If the value of the principal today is $230 and the interest rate is 1.33%, what is the total compound interest income at the end of 2 years?

1. 1. $45.67
   2. $22.54
   3. $6.16
   4. $5.78
   5. None of the above.

Answer: c

1. The present value of a sum is:

1. 1. The value of the sum at the end of a given period of time.
   2. The value of the sum at the beginning of a given period of time.
   3. The value of investing the sum at the beginning of the given period of time rather than at the end. 
   4. The value of investing the sum at the end of the given period of time rather than at the beginning. 
   5. None of the above.

Answer: b

1. The formula for present value is: 

1. 1. PV = FV(1+i)ⁿ 
   2. PV = FV(1+n)ⁱ 
   3. PV = FV / (1+n)ⁱ 
   4. PV = FV / (1+i)ⁿ 
   5. None of the above.

Answer: d

1. What is the present value of $100,500 to be received 23 years from now if the interest rate is 7.5 percent?

1. 1. $19,044.58
   2. $163,565.44
   3. $16,447.34
   4. $26,200.30
   5. None of the above.

Answer: a

1. What is the present value of $25,250,300 to be received 73 years from now if the interest rate is 22.5 percent?

1. 1. $10,454,550.25
   2. $9.30
   3. $12,566.60
   4. $8,987,000.45
   5. $8,500,000.25

Answer: b

1. The future value of a sum is a function of:

1. 1. The amount invested at the beginning of the period.
   2. The interest rate.
   3. The number of compounding periods.
   4. All of the above.
   5. None of the above.

Answer: d

1. The formula for future value is:

1. 1. FV = PV(1+ )ⁿ 
   2. FV = PV / (1+ )ⁿ
   3. FV = PV(1 / (1+ )ⁿ)
   4. FV = (1 / PV)(1+ )ⁿ
   5. None of the above.

Answer: a

1. What is the future value of $25,000 invested today for the next 22 years if the interest rate is 17.5 percent?

1. 1. $200,200.87
   2. $868,506.50
   3. $1,200,000.45
   4. $1,250,000.54
   5. None of the above.

Answer: b