Question

Amy’s goal is to save $50,000 in 10 years. To know how much she should be saving now on a regular basis to reach this goal, Amy would use:

1. internal finance concepts.
2. a budget.
3. time value of money calculations.
4. several complex math functions.

Which of the following statements is true about compound growth?

1. The longer you let your money grow, the more it will produce.
2. The full benefits of compound growth are generally realized within 5 to 10 years.
3. Only interest experiences compound growth, not other investment gains.
4. How long money is set aside does not matter when calculating compound growth.

You have been offered a credit card. The monthly interest rate is 1.9%. What’s the card’s APR?

1. 22.80%.
2. 23.45%.
3. 25.57%.
4. 26.50%.

Kenneth is contributing to his 401(k) retirement plan. He contributes $3,000 per year. His employer matches 50% of his contribution. If Kenneth can earn a 10% rate of return, how much (approximately) will he have in his account after 10 years?

1. $18,433.
2. $27,650.
3. $47,812.
4. $71,718.

Car loans and mortgages are examples of:

1. present values of lump-sum payments.
2. future values of lump-sum payments.
3. annuity payments.
4. annuity-due payments.

Answer 1

1. Time Value of money calculations

To know the amount to be saved to achieve a particular goal of monay, time vvalue of money concepts will be used.

2. The longer you let your money grow, the more it will produce.

In compunding Future value = Principal * (1+r)^t, where t is time period of investment. So as the time increases, the more value will be.

3. 22.8%

APR = Monthly rate * 12=  1.9%.*12 = 22.8%

4 $ 71 718

Total Contribution = By employee + By employer = 3000 + 1500 = $ 4500

No of years 10 , Rate of interest = 10%

Future Value = 4,500*PVAF(10%, 10) = 15.9373*4500 = $ 71,718