CAPÍTULO 3. REPRESENTACIONES DE JUSTICIA SOCIAL Y FACTORES
3.1. Creencia global en un mundo justo y Justicia Social
1) Compounding is when the interest you have already earned on an investment earns interest.
Answer: TRUE Diff: 2
Topic: Compounding AACSB: Analytical Thinking
2) Your money grows faster as the compounding period becomes longer.
Answer: FALSE Diff: 3
Topic: Compounding AACSB: Analytical Thinking
3) An investment earning 12 percent interest per year should double in value in approximately four years.
Answer: FALSE Diff: 2
Topic: Rule of 72
AACSB: Analytical Thinking
4) The present value of a financial asset is what you should be willing to pay today for that financial asset.
Answer: TRUE Diff: 2
Topic: Time Value of Money AACSB: Analytical Thinking
5) Time Value of Money calculations can be made much easier through the use of a financial calculator.
Answer: TRUE Diff: 1
Topic: Calculator Skills
AACSB: Information Technology
6) If you set your calculator to the ʺendʺ mode your calculator will assume cash flows occur at the end of each time period.
Answer: TRUE Diff: 1
Topic: Calculator Skills
AACSB: Information Technology
Chapter 3 Understanding and Appreciating the Time Value of Money 51
7) The I/Y key on a financial calculator stores the information for the interest rate or the discount rate per period.
Answer: TRUE Diff: 1
Topic: Calculator Skills
AACSB: Information Technology
8) You currently have $11,167 in your savings account. What interest rate do you need to earn in order to have $20,000 in the account in 10 years?
A) 6%
B) 8%
C) 10%
D) There is not enough information to solve this question.
Answer: A Diff: 2
Topic: Calculator Skills AACSB: Analytical Thinking
9) The ________ Principle states that a dollar today is worth more than a dollar in the future.
A) Future value of money B) Discounted value of money C) Adjusted value of money D) Time value of money
E) Annuity value of money Answer: D
Diff: 1
Topic: Time Value of Money AACSB: Analytical Thinking
10) The current value in todayʹs dollars of a future sum of money is called A) future value.
B) adjusted value.
C) compounded value.
D) present value.
E) discounted value.
Answer: D Diff: 1
Topic: Present Value AACSB: Analytical Thinking
11) The dollar value of an investment at some future point in time is also known as A) future value.
B) present value.
C) compounded annuity.
D) the time value of money.
E) calculated value.
Answer: A Diff: 1
Topic: Future Value
AACSB: Analytical Thinking
52 Keown Personal Finance: Turning Money into Wealth, 7e
12) Allowing the interest that you earn on an investment to stay in the investment and to earn interest on the interest you have already earned is called what?
A) The power of of present value B) The power of compound interest C) The power of simple interest D) The power of time
E) The power of future value Answer: B
Diff: 1
Topic: Compounding AACSB: Analytical Thinking
13) A one-time investment of $1,500 at a 10 percent annual rate of return yields $2,196 in two years.
The $2,196 is known as the A) present value.
B) compound value.
C) principal plus interest.
D) future value.
E) annuity value Answer: D
Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
14) 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.
A) Three years, four months B) Three years and seven months C) Four years
D) Four years and four months E) Five years
Answer: C Diff: 2
Topic: Rule of 72
AACSB: Analytical Thinking
15) Samantha Jee put $3,000 into a mutual fund yielding a 12 percent annual rate of return. Using the Rule of 72, calculate approximately how long it will take for the investment to double in value.
A) Two years B) Two years and four months
C) Six years D) Seven years and four months
Answer: C Diff: 2
Topic: Rule of 72
AACSB: Analytical Thinking
Chapter 3 Understanding and Appreciating the Time Value of Money 53
16) This helpful investment rule-of-thumb tells you approximately how many years it takes for a sum of money to double in size.
A) Rule of compound interest B) Rule of 72
C) Rule of 100
D) Rule of future value E) Rule of annuity doubling Answer: B
Diff: 1
Topic: Rule of 72
AACSB: Diverse and Multicultural Work Environments
17) By the Rule of 72, what annual interest rate would be required to turn $100 into $200 in approximately six years?
A) 4% B) 8% C) 12% D) 16%
Answer: C Diff: 2
Topic: Rule of 72
AACSB: Analytical Thinking
18) Suppose that you invested $100 in a bank account that earned an annual rate of return of 10%.
How much would you have in that bank account at the end of 10 years?
A) $259.37 B) $238.55 C) $293.74 D) $214.46 E) $279.23
Answer: A Diff: 2
Topic: Future Value
AACSB: Analytical Thinking
19) 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?
A) $652.48 B) $709.26 C) $787.66 D) $758.66 E) $801.68
Answer: B Diff: 2
Topic: Future Value
AACSB: Analytical Thinking
20) As a future graduation present, you uncle has just placed $6,000 in a bank account that will earn an annual rate of return of 6%. How much will be in that account when you graduate in four years?
A) $7,731.55 B) $6,752.56 C) $6,247.70 D) $7,790.63 E) $7,574.86 Answer: E
Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
54 Keown Personal Finance: Turning Money into Wealth, 7e
21) Suppose that you placed $500 in a bank account at the end of each year for the next 10 years.
How much would be in that account at the end of the tenth year if the deposits earned an annual rate of return of 8% each year?
A) $8,079.46 B) $5,400.00 C) $7,243.28 D) $6,355.04 E) $7,774.51 Answer: C
Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
22) Suppose that you want to create a ʺcollege fundʺ for your newborn child and place $300 in a bank account at the end of each of the next 20 years. If that account earns an annual rate of return of 7%, how much will be in that account at the end of the twentieth year?
A) $13,420.00 B) $12,977.53 C) $13,178.20 D) $11,828.32 E) $12,298.65 Answer: E Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
23) Your great-uncle placed $500 a year in a bank account for your ʺcollege fundʺ 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%?
A) $15,452.83 B) $15,175.17 C) $16,427.17 D) $15,413.80 E) $15,546.18 Answer: A Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
24) Which financial planning concepts should be helpful to a couple planning for how much money to start saving for their retirement?
A) Reinvesting B) Compound interest C) Future values D) Present values
E) All of the above Answer: E
Diff: 3
Topic: Time Value of Money AACSB: Analytical Thinking
Chapter 3 Understanding and Appreciating the Time Value of Money 55
25) A method by which one can compare cash flows across timeeither as what a future cash flow is worth today (present value) or what an investment made today will be worth in the future (future value)is called
A) time-value of money. B) compounding.
C) simple interest. D) opportunity cost.
Answer: A Diff: 2
Topic: Time Value of Money AACSB: Analytical Thinking
26) You have been saving toward the purchase of a new mountain bike. Five years ago, you placed
$600 in a bank account, and you have since earned an annual rate of return of 12 percent. How much do you now have in your account?
A) $1,057.41 B) $1,293.71 C) $978.70 D) $1,138.70
Answer: A Diff: 2
Topic: Future Value
AACSB: Analytical Thinking
27) You have just remembered that four years ago you placed $1,000 in a bank account. If the bank was paying an annual rate of return of 8% during that time, how much should you have in your forgotten account?
A) $1,253.03 B) $1,360.49 C) $1,321.92 D) $1,301.92
Answer: B Diff: 2
Topic: Future Value
AACSB: Analytical Thinking
28) Your great-aunt wants to help with your college graduation party. She has just placed $5,000 dollars in a bank account that will earn an annual rate of return of 6%. If you graduate in four years, how much will be in your party account?
A) $7,120.89 B) $6,142.96 C) $5,960.47 D) $6,312.38
Answer: D Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
29) Suppose that you place $450 in a bank account each year for the next 20 years. How much would be in your bank account at the end of the twentieth year if the deposits earned an annual rate of return of 6% each year?
A) $9,540.00 B) $10,876.31 C) $14,729.44 D) $16,553.52
Answer: D Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
56 Keown Personal Finance: Turning Money into Wealth, 7e
30) Suppose that you want to create a ʺretirement party fundʺ for yourself and place $50 in a bank account for each of the next 20 years. If that account earns an annual rate of return of 7%, how much will be in your retirement party fund at the end of the twentieth year?
A) $1,529.70 B) $2,679.22 C) $1,032.57 D) $2,049.77
Answer: D Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
31) Your daughter has been saving $500 a year for each of the last 10 years for her ʺsweet sixteenʺ party. How much is now in her party account (at the end of the tenth year) if she earned an annual rate of return of 6%?
A) $6,590.40 B) $7,680.04 C) $5,300.00 D) $8,714.84
Answer: A Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
32) If your bank pays you interest in the form of an annual rate of return of 10% over each of the next five years, how much will your balance be if you make annual deposits of $400?
A) $2,248.37 B) $2,644.20 C) $2,516.31 D) $2,442.04
Answer: D Diff: 3
Topic: Future Value
AACSB: Analytical Thinking
33) Using the Rule of 72, approximately how long will it take to double your money if you invest it at 8% compounded annually?
A) 6 months B) 9 months C) 6 years D) 9 years
E) It depends on the amount of the initial investment.
Answer: D Diff: 3
Topic: Time Value of Money AACSB: Analytical Thinking
34) Using the Rule of 72, if it will take approximately 12 years for your money to double, at what annually compounded interest rate is it invested?
A) 6% B) 8% C) 9% D) 12%
Answer: A Diff: 3
Topic: Time Value of Money AACSB: Analytical Thinking
Chapter 3 Understanding and Appreciating the Time Value of Money 57
35) You invest $1,000 at age 20 at an annual rate of return of 12%. By the time you are 62 you will have amassed approximately
A) $47,040. B) $67,214. C) $116,723. D) $504,000.
Answer: C Diff: 3
Topic: Time Value of Money AACSB: Analytical Thinking
36) Describe the effects and benefits of compound interest.
Answer: Compounding interest means that interest earned on the principal of an investment or savings vehicle is reinvested and will itself earn interest. Should the interest earned be removed and not reinvested then you wonʹt accumulate a very large amount.
Diff: 2
Topic: Compounding AACSB: Analytical Thinking
37) Why is the time value of money an important concept in financial planning?
Answer: The time value of money allows us to see the relationship between time and the value of accumulated sums of money. We can clearly understand that starting a savings or
retirement plan at a younger age will create much more wealth than waiting to start it at a later time. It also becomes clear that starting younger means saving a smaller monthly amount and having the option of skipping some months or years later if it becomes necessary to do so.
Diff: 1
Topic: Time Value of Money AACSB: Reflective Thinking
38) What are some practical uses of present and future values?
Answer: There are basically two practical uses for these values. Present values will tell you how much must be saved or invested annually to achieve a future financial goal. It also works for determining the monthly payment on a loan of a specified amount to be paid back in the future. Future values show the total future accumulated values of specified sums of money saved or invested now and into the future. Budgeting and financial planning would be very difficult if not impossible without the time value of money skills.
Diff: 2
Topic: Time Value of Money AACSB: Reflective Thinking
39) A compound interest table is useful in solving a time value of money problem. Name the variables involved.
Answer: The interest rate, the period of time involved, the sum of money involved, and the frequency of compounding are variables to consider when using a compound interest table.
Diff: 1
Topic: Compounding AACSB: Analytical Thinking
58 Keown Personal Finance: Turning Money into Wealth, 7e