1) a. it emphasizes earning a return on invested capital
b. it recognizes that earning a return makes $1 worth more today than $1 received in the future
c. it can be applied to future cash flows in order to compare different streams of income
d. all the above

2. As the discount rate becomes higher and higher, the present value of inflows approaches…
a. 0
b. minus infinity
c. plus infinity
d. need more information

3. You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

a. Present value of an annuity of $1
b. Future value of an annuity
c. Present value of $1
c. Future value of $1

4. As the interest rate increases, the present value of an amount to be received at the end of a fixed period…
a. increases
b. decreases
c. remains the same
d. not enough information to tell

5.As the time period until receipt increase, the present value of an amount at a fixed interest rate…
a. decreases
b. remains the same
c. increases
d. not enough information to tell

6.Mr Blochins is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn an 8% annual rate of return. How much money will his daughter have when she starts college?
a. $11,250
b. $12,263
c. $24,003
d. $23,079

7.Mr. Nailor invests $5,000 in a certificate of deposit at his local bank. He receives annual interest of 8% for 7 years. How much interest will his investment earn during this time period?
a. $2,915
b. $3,570
c. $6,254
d. $8,570

8.Sharon Smith will receive $1million in 50 years. The discount rate is 14. As an alternative, she can receive $2,000 today. Which should she choose?
a. the $1 million dollars in 50 years
b. $2,000 today
c. She should be indifferent
d. need more information

9.Mr. Fisher wants to build a house in 10 years. He estimates that the total cost will be $170,000. If he can put aside $10,000 at the end of each year, what rate of return must be earn in order to have the amount needed?
a. between 11% and 12%
b. between 8% adn 9%
c. 17%
d. none of the above

10. The shorter the length of time between a present value and its corresponding future value…
a. the lower the present value, relative to the future value.
b.the higher the present value, relative to the future value.
c.the higher the interest rate used in the present-valuation.
c. none of the above

11. A dollar today is worth more than a dollar to be received in the future because…
a. the dollar can be invested today and earn interest
b. of the risk of nonpayment in the future
c. inflation will reduce purchasing power of a future dollar
d. none of the above

12. The higher the rate used in determining the future value of a $1 annuity…
a.the smaller the future value at the end of the period.
b. the greater the future value at the end of a period.
c. the greater the present value at the beginning of a period.
d. None of the above – the interest has no effect on the future value of an annuity.

13. Mr. Darden is selling his house for $165,000. He bought it for $55,000 nine years ago. What is the annual return on his investment? …
a. 3%
b. Between 14% and 16%
c. 13%
d. none of the above

1.a
2.d
3.c
4.c
5.c
6.c
7.a
8.a
9.c
10.a
11.c
12.c
13.b

a. it emphasizes earning a return on invested capital
b. it recognizes that earning a return makes $1 worth more today than $1 received in the future
c. it can be applied to future cash flows in order to compare different streams of income
d. all the above

As the discount rate becomes higher and higher, the present value of inflows approaches…
a. 0
b. minus infinity
c. plus infinity
d. need more information

You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

a. Present value of an annuity of $1
b. Future value of an annuity
c. Present value of $1
c. Future value of $1

As the interest rate increases, the present value of an amount to be received at the end of a fixed period…
a. increases
b. decreases
c. remains the same
d. not enough information to tell

As the time period until receipt increase, the present value of an amount at a fixed interest rate…
a. decreases
b. remains the same
c. increases
d. not enough information to tell

Mr Blochins is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn an 8% annual rate of return. How much money will his daughter have when she starts college?
a. $11,250
b. $12,263
c. $24,003
d. $23,079

Mr. Nailor invests $5,000 in a certificate of deposit at his local bank. He receives annual interest of 8% for 7 years. How much interest will his investment earn during this time period?
a. $2,915
b. $3,570
c. $6,254
d. $8,570

Sharon Smith will receive $1million in 50 years. The discount rate is 14. As an alternative, she can receive $2,000 today. Which should she choose?
a. the $1 million dollars in 50 years
b. $2,000 today
c. She should be indifferent
d. need more information

Mr. Fisher wants to build a house in 10 years. He estimates that the total cost will be $170,000. If he can put aside $10,000 at the end of each year, what rate of return must be earn in order to have the amount needed?
a. between 11% and 12%
b. between 8% adn 9%
c. 17%
d. none of the above

The shorter the length of time between a present value and its corresponding future value…
a. the lower the present value, relative to the future value.
b.the higher the present value, relative to the future value.
c.the higher the interest rate used in the present-valuation.
c. none of the above

A dollar today is worth more than a dollar to be received in the future because…
a. the dollar can be invested today and earn interest
b. of the risk of nonpayment in the future
c. inflation will reduce purchasing power of a future dollar
d. none of the above

The higher the rate used in determining the future value of a $1 annuity…
a.the smaller the future value at the end of the period.
b. the greater the future value at the end of a period.
c. the greater the present value at the beginning of a period.
d. None of the above – the interest has no effect on the future value of an annuity.

Mr. Darden is selling his house for $165,000. He bought it for $55,000 nine years ago. What is the annual return on his investment? …
a. 3%
b. Between 14% and 16%
c. 13%
d. none of the above

d.

a.

a.

b.

a.

c.

a.

b.

d.

b.

d.

c.

The question is this: you can afford monthly deposits of $200 into an account that pays 5.7% compounded monthly. how long will it be until you have $7,000 to buy a boat?

I used the formula FV=PMT([(1+i)^n-1]/i) but couldnt figure out how to solve for n. Please help me

first month 200x.057=11.40 (interest) ……….211.40 (balance)
second month 211.40x.057=12.05+200 …….. 423.45
third month 423.45x.057=24.14+200…………. 647.59
fourth month 647.59x.057=36.91=200 ………… 884.50

can you see how it goes? keep going like this and you will reach $7000
I am sure there is a shorter way to find your answer, but you can at least see how this works.

If you believe you can earn more by investing on your own than what the Annuity pays, then taking a Cash Value makes sense. But a more conservative way would be to take the annuity. Not only will you be assured of the annual payout, but you won’t have the stress of deciding how to spend or invest the lump sum payout.

I read a little about the woman who was 80 and had lots of money and her broker wanted to sell her annuities. Many people said that was not a good idea.
My mom is 82 and has absolutely no money in the bank. Her income was from a building she was part owner of that was leased as a resturant. The business went belly up and the building was sold. It is in escrow as I type. She will get about half a mil when all is said and done in January.
She is talking to a broker that wants her to put all of it into some kind of annuoity that pays 9 per cent. He is tall and friendly as his qualifications. I have never met him but I just picked up the prospectus package when I last visited.
It is through Jackson National Life and it is a variable annuity.
I will meet with this guy sometime next month but have no facts to counter his proposals.
Someone have some thoughts on this situation?

An annuity is a good way for older individuals to receive income because the payments can be taxed less if set up properly AND provide with lifetime payments with the balance passing to heirs (you I’m guessing) very easily without going through probate. HOWEVER, for someone in their 80’s, a fixed annuity would be much safer and less volatile. Jackson National is a good company, but have her guy talk to you about fixed annuities, which have more guarantees and safety for older individuals

Why do some people dislike insurance annuities? Are they considered a rip off? I have heard opinions not to buy but no real reasons. Help me , please

Annuities are a valid product, that meets the financial goals of a few people – a very few people.

Most people will do better in mutual funds.

Annuities aren’t a ripoff, but they make a TON of money for the agent and company, and a very SMALL rate of return for the purchaser.

Would it be best to take a lump sum payment or take it over a long term for a lotto player that is in his 30s?

Lump sum— and always eat dessert first.
Life is unpredictable.