Appendix A Self Test Review

If a single future amount of $800 is to be received in 3 years and discounted at 6%, its present value is

$671.70

The present value of an annuity is the value now of a series of future receipts or payments, discounted assuming simple interest

FALSE

Compound interest is computed on principal and on any interest that has not been paid or withdrawn

TRUE

Discounting may be done on an annual basis or over shorter periods of time such as monthly or semiannually

TRUE

Interest is the difference between the amount borrowed and the amount repaid

TRUE

The present value is the value now of a given amount to be paid or received in the future, assuming compound interest

TRUE

In computing the amount you need to invest in order to receive $2,000 at the end of two years, the present value computation assumes your investment will be made

at the beginning of the first year

When the computation of interest includes both principal and any interest earned that has not been paid or withdrawn, the calculation involves

compound interest

The process of determining the present value

is referred to as discounting the future amount

The present value of a single amount is computed by

multiplying the future value by the present value of 1 factor

If the compounding period is 3 months, the annual interest rate is 12% and investment time frame is 2 years,

n = 8, i = 3%

Compound interest is computed on the

principal amount plus earned interest left on deposit

In computing the present value of an annuity, you need to know

the amount of the periodic payments or receipts, the number of compounding periods and the discount rate

The variables needed to compute a present value include

the future amount, the number of periods and the discount rate