Ch 1 Hw
Financial intermediaries' main goal is to:
Charge an amount that will pay them to operate and charge an adequate interest rate.
How would a decrease in the interest rate effect the future value of a lump sum, single amount problem (all other variables remain the same)?
Decrease the future value.
How would an increase in the interest rate effect the present value of an annuity problem (all other variables remain the same)?
Decrease the present value.
Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $8,000 available each year for various school and living expenses. Use Exhibit 1-D. If he earns 3 percent on his money, how much must he deposit at the start of his studies to be able to withdraw $8,000 a year for three years?
Deposit
After putting your financial plan to work, you should periodically review and revise your plan, especially if you have all of the following, except:
Develop your goals.
The variables in a present value of an annuity problem include all of the following, except:
Future Value
If a person spends $10 a week on coffee (assume $500 a year), what would be the future value of that amount over 10 years if the funds were deposited in an account earning 3 percent? Use Exhibit 1-B.
Future value
The variable that you are solving for in a future value of a lump sum problem is:
Future value
Tran Lee plans to set aside $2,600 a year for the next seven years, earning 3 percent. What would be the future value of this savings amount? Use Exhibit 1-B.
Future value
Ben Collins plans to buy a house for $260,000. If the real estate in his area is expected to increase in value 2 percent each year, what will its approximate value be seven years from now? Use Exhibit 1-A.
Future value of the house $298,740 260,000 x 1.149 = 298,740
How would a decrease in the interest rate effect the present value of a lump sum, single amount problem (all other variables remain the same)?
Increase the present value.
If the providers in the financial system dramatically change their behavior by significantly reducing their savings, this has the potential to:
Lead to higher interest rates.
Goals that are SMART, include all of the following except:
Meaningful
The "Paralysis of Analysis" means:
Spending so much time creating a plan that you never put it into action.
The variable that you are solving for in a future value of an annuity problem is:
The Future value
The variable that you are solving for in a present value of an annuity problem is:
The Present Value
A common error made when solving a future value of an annuity problem is:
Multiplying the annual deposit and the number of years before calculating the problem.
The primary goal of the Users in the Financial system is to:
Obtain funds for the least cost.
The variables in a future value of a lump sum problem include all of the following, except:
Payments
The variables in a present value of a lump sum problem include all of the following, except:
Payments
The first step in the Financial Planning Process is to determine your current financial situation. This includes reviewing all of the following, except:
Personal values.
The variable that you are solving for in a present value of a lump sum problem is:
Present Value
In 2019, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $20,000. What was the rate of increase for these automobiles between the two time periods?
Rate of increase 25% 20,000-16000 /16000= 0.25
The variables in a future value of an annuity problem include all of the following, except:
Risk tolerance
A goal that would be considered measurable would be:
Saving $200 per month.
Goals that are SMART, include all of the following except:
Thoughtful
Using time value of money tables (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D), calculate the following. a. The future value of $550 six years from now at 7 percent b. The future value of $900 saved each year for 10 years at 8 percent. c. The amount a person would have to deposit today (present value) at a 5 percent interest rate to have $1,000 five years from now. d. The amount a person would have to deposit today to be able to take out $500 a year for 10 years from an account earning 8 percent.
a. future value b. future value c. deposit d. deposit
