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Topic 1 Practice Question

The document provides 17 practice questions and numerical problems related to personal finance and the time value of money. It asks the student to answer questions about key elements of financial decisions, risks associated with finances, sources of financial planning information, why re-evaluating decisions is important, how personal factors affect planning, how inflation impacts planning, interest rate determinants, examples of long-term goals, characteristics of useful goals, and using future and present value computations. It also provides numerical problems calculating interest, future and present values, loans, and retirement savings. The deadline to complete the questions is September 20, 2022.

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aarzu dangi
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74 views2 pages

Topic 1 Practice Question

The document provides 17 practice questions and numerical problems related to personal finance and the time value of money. It asks the student to answer questions about key elements of financial decisions, risks associated with finances, sources of financial planning information, why re-evaluating decisions is important, how personal factors affect planning, how inflation impacts planning, interest rate determinants, examples of long-term goals, characteristics of useful goals, and using future and present value computations. It also provides numerical problems calculating interest, future and present values, loans, and retirement savings. The deadline to complete the questions is September 20, 2022.

Uploaded by

aarzu dangi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Make a note of answering following questions: Deadline: 20 September 2022

Practice questions Chapter 1: Personal Finance Basic and Time value of Money (Give a short
answer)

1. What are the main elements of every decision we make?


2. What are some risks associated with financial decisions?
3. What are common sources of financial planning information?
4. Why should you re-evaluate your actions after making a personal financial decision?
5. How do age, marital status, household size, employment situation, and other personal
factors affect financial planning?
6. How might the uncertainty of inflation make personal financial planning difficult?
7. What factors influence the level of interest rates?
8. What are examples of long-term goals?
9. What are the five main characteristics of useful financial goals?
10. How can you use future value and present value computations to measure the opportunity
cost of a financial decision?
11. Use a financial calculator or the time value of money tables in the Chapter Appendix to
calculate the following:
a. The future value of $100 at 7 percent in 10 years.
b. The future value of $100 a year for six years earning 6 percent
12. How do age, marital status, household size, employment situation, and other personal
factors affect financial planning?
13. How might the uncertainty of inflation make personal financial planning difficult?
14. What factors influence the level of interest rates?

Numerical problems:

1. How much interest would you earn if you deposited $300 at 6 percent for 27 months?
2. How much interest would you pay to borrow $670 for eight months at 12 percent?
3. What is the future value of $800 at 8 percent after six years?
4. How much would you have in savings if you kept $200 on deposit for eight years at 8
percent, compounded semi-annually?
5. What is the future value of an annual deposit of $230 earning 6 percent for 15 years?
6. What amount would you have in a retirement account if you made annual deposits of $375
for 25 years earning 12 percent, compounded annually?
7. What is the present value of $2,200 earning 15 percent for eight years?
8. To have $6,000 for a child’s education in 10 years, what amount should a parent deposit in a
savings account that earns 12 percent, compounded quarterly?
9. What is the present value of a withdrawal of $200 at the end of each year for 14 years with
an interest rate of 7 percent?
10. How much would you have to deposit now to be able to withdraw $650 at the end of each
year for 20 years from an account that earns 11 percent?
11. What would be the annual payment amount for a $20,000, 10-year loan at 7 percent
12. You wish to borrow $18,000 to buy a new automobile. The rate is 8.6% over four years with
monthly payments. Find the monthly payment. (Answer: $444.52)
13. How much money must your rich uncle give you now to finance four years of college,
assuming an annual cost of $48,000 and an interest rate of 6% (applied to the principal until
disbursed)? (Answer: $166,325.07).
14. How much money must you set aside at age 20 to accumulate retirement funds of $100,000
at age 65, assuming a rate of interest of 7%? (Answer: $4,761.35
15. If you deposit $2,000 in a 5-year certificate of deposit at 5.2%, how much will it be worth in
five years? (Answer: $2,576.97).
16. If you deposit $2,000 in a 5-year certificate of deposit at 5.2% with quarterly compounding,
how much will it be worth in five years? (Answer: $2,589.52).
17. You choose to invest $50/month in a 401(k) that invests in an international stock mutual
fund. Assuming an annual rate of return of 9%, how much will this fund be worth if you are
retiring in 40 years? (Answer: $234,066.01).
18. If, instead, you invest $600/year in a 401(k) that invests in an international stock mutual
fund. Assuming an annual rate of return of 9%, how much will this fund be worth if you are
retiring in 40 years? (Answer: $202,729.47)

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