PRE-TEST Understanding Time Value of Money

Rita promises her daughter on her 12^th birthday that she will give her $12,000 for college on her 18^th birthday. How much does Rita need to put in the bank now if the interest rate on her account is 12% per year?

• $5,248.19

• $6,502.12

• $11,685.87

• $6,079.58

What is the definition of present value?

• the future value of a current sum of money

• the interest paid on a current sum of money

• the current value of a future sum of money

• the interest paid on a future sum of money

Randy saves money using an account which earns interest over the course of several years. Which statement is true?

• The value of money in his account increases over time.

• The present value of money in his account is greater than the future value.

• The value of money in his account remains constant over time.

• The future value of his account is equal to the present value.

Why does the value of money in a savings account increase over time?

• because it earns interest

• because it is not spent

• because future value is always equal to present value

• because future value is always less than present value

Nikita invests $2,000 into a bank account with a 4% annual interest rate. In seven years, which is the most expensive item she could afford to buy?

• a beach vacation priced at $2,200

• a sectional sofa priced at $2,700

• a mountain bike priced at $2,500

• a home theater system priced at $3,000

You want to deposit $12,000 in a bank at an interest rate of 8 percent per year. What is the future value of this money after five years?

• $15,315.38

• $17,631.94

• $16,830.62

Todd currently has $5,000. What was the value of his money four years ago if he's earned 4 percent interest each year?

• $4,274.02

• $4,113.51

• $4,109.64

Kate wants to have $25,000 in 16 years. How much does she need to invest if the interest rate is 6 percent per year?

• $10,431.63

• $9,841.16

• $7,353.88

What would be the value of $100 after 10 years if you earn 11 percent interest per year?

• $259.37

• $283.94

• $110.46

If you save $3,000 at an interest rate of 14 percent per year, how much will you have at the end of six years? The interest should be compounded.

• $5,805.96

• $6,502.34

• $6,584.91