1. You were recently admitted to college and your Aunt Tillie has agreed to fund the tuition for your education. The admissions representative at your college says that tuition might rise approximately 5 percent per year. Aunt Tillie has agreed to deposit a lump sum today that will cover your tuition for four years but she needs to know the amount of the initial deposit.Your aunt is no longer able to take care of herself so she also wants to set aside a lump sum of money to pay her rent in an assisted-living facility for the next three years. The facility has agreed not to raise her rent if she signs a three year lease upfront.It’s now four years later and thanks to your aunt’s generosity you have graduated from college. She has offered to lend you the money to buy your first new car. You are interested in calculating the payment amount on a $35 000 car loan at 6 percent for five years. She has also agreed to accept five annual payments instead of monthly payments.It seems there’s no end to Aunt Tillie’s generosity. She has now agreed to loan you $10 000 for the down payment on a home. You have decided to structure the loan so that the payment amount remains constant through the term of the contract and you can budget for a consistent loan payment each month.Which of the following formulas can be used to correctly calculate your annual loan payments to Aunt Tillie for the car loan?35 000 = C x (1/1.056)/.05$35 000 = C x (1/1.065)/.06$35 000 = C x (1/1.055)/.05$35 000 = C x (1/1.066)/.06Question 2.2.You were recently admitted to college and your Aunt Tillie has agreed to fund the tuition for your education. The admissions representative at your college says that tuition might rise approximately 5 percent per year. Aunt Tillie has agreed to deposit a lump sum today that will cover your tuition for four years but she needs to know the amount of the initial deposit.Your aunt is no longer able to take care of herself so she also wants to set aside a lump sum of money to pay her rent in an assisted-living facility for the next three years. The facility has agreed not to raise her rent if she signs a three year lease upfront.It’s now four years later and thanks to your aunt’s generosity you have graduated from college. She has offered to lend you the money to buy your first new car. You are interested in calculating the payment amount on a $35 000 car loan at 6 percent for five years. She has also agreed to accept five annual payments instead of monthly payments.It seems there’s no end to Aunt Tillie’s generosity. She has now agreed to loan you $10 000 for the down payment on a home. You have decided to structure the loan so that the payment amount remains constant through the term of the contract and you can budget for a consistent loan payment each month.If Aunt Tillie also wants to reward you with a graduation gift of cash and she deposits $1 000 in an account at the end of each year for the next four years for how many years will the money earn interest?FourFiveThreeIt depends on what term she selectsQuestion 3.3.You were recently admitted to college and your Aunt Tillie has agreed to fund the tuition for your education. The admissions representative at your college says that tuition might rise approximately 5 percent per year. Aunt Tillie has agreed to deposit a lump sum today that will cover your tuition for four years but she needs to know the amount of the initial deposit.Your aunt is no longer able to take care of herself so she also wants to set aside a lump sum of money to pay her rent in an assisted-living facility for the next three years. The facility has agreed not to raise her rent if she signs a three year lease upfront.It’s now four years later and thanks to your aunt’s generosity you have graduated from college. She has offered to lend you the money to buy your first new car. You are interested in calculating the payment amount on a $35 000 car loan at 6 percent for five years. She has also agreed to accept five annual payments instead of monthly payments.It seems there’s no end to Aunt Tillie’s generosity. She has now agreed to loan you $10 000 for the down payment on a home. You have decided to structure the loan so that the payment amount remains constant through the term of the contract and you can budget for a consistent loan payment each month.Which of the following calculations will you perform to determine the amount of the initial deposit necessary to fund your college education?Future value with single cash flowFuture value with multiple cash flowsPresent value with single cash flowPresent value with multiple cash flowsQuestion 4.4. Which of the following factors affects the rate of return of an investment at maturity?Interest rateLength of timePVAll of the AboveQuestion 5.5.If you invested $1000 today at a rate of 5% for five years and periodically you withdrew the interest earned what type of interest is calculated for during the term of the investment?Simple interestCompound interestInterest on interestFuture value interestQuestion 6.6.How does the element of time affect future and present value calculations?The element of time has no affect on future and present value calculations.The value of money increases over time in future value calculations; the value of money decreases over time in present value calculations.The value of money decreases over time in future value calculations; the value of money increases over time in present value calculations.The value of money increases over time in present value calculations; the value of money decreases over time in future value calculations.Question 7.7.You were recently admitted to college and your Aunt Tillie has agreed to fund the tuition for your education. The admissions representative at your college says that tuition might rise approximately 5 percent per year. Aunt Tillie has agreed to deposit a lump sum today that will cover your tuition for four years but she needs to know the amount of the initial deposit.Your aunt is no longer able to take care of herself so she also wants to set aside a lump sum of money to pay her rent in an assisted-living facility for the next three years. The facility has agreed not to raise her rent if she signs a three year lease upfront.It’s now four years later and thanks to your aunt’s generosity you have graduated from college. She has offered to lend you the money to buy your first new car. You are interested in calculating the payment amount on a $35 000 car loan at 6 percent for five years. She has also agreed to accept five annual payments instead of monthly payments.It seems there’s no end to Aunt Tillie’s generosity. She has now agreed to loan you $10 000 for the down payment on a home. You have decided to structure the loan so that the payment amount remains constant through the term of the contract and you can budget for a consistent loan payment each month.What should you keep in mind if Aunt Tillie asks your opinion about two different annuities she is considering as an investment?Decreasing a discount rate lowers the present valueIncreasing a discount rate lowers the future valueIncreasing a discount rate lowers the present value.Decreasing a discount rate increase the future valueQuestion 8.8.What is the relationship between an interest rate and a discount rate in time value of money calculations?There is no relationship between an interest rate and a discount rate.A discount rate represents how much an amount of money decreases as in a future value calculation; an interest rate represents how much an amount of money increases as in a present value calculation.An interest rate represents how much an amount of money increases as in a present value calculation; a discount rate represents how much an amount of money decreases as in a future value calculation.An interest rate represents how much an amount of money increases as in a future value calculation; a discount rate represents how much an amount of money decreases as in a present value calculation.Question 9.9.You were recently admitted to college and your Aunt Tillie has agreed to fund the tuition for your education. The admissions representative at your college says that tuition might rise approximately 5 percent per year. Aunt Tillie has agreed to deposit a lump sum today that will cover your tuition for four years but she needs to know the amount of the initial deposit.Your aunt is no longer able to take care of herself so she also wants to set aside a lump sum of money to pay her rent in an assisted-living facility for the next three years. The facility has agreed not to raise her rent if she signs a three year lease upfront.It’s now four years later and thanks to your aunt’s generosity you have graduated from college. She has offered to lend you the money to buy your first new car. You are interested in calculating the payment amount on a $35 000 car loan at 6 percent for five years. She has also agreed to accept five annual payments instead of monthly payments.It seems there’s no end to Aunt Tillie’s generosity. She has now agreed to loan you $10 000 for the down payment on a home. You have decided to structure the loan so that the payment amount remains constant through the term of the contract and you can budget for a consistent loan payment each month.Which of the following calculations should you use to determine the initial deposit amount to pay for her expenses in the assisted-living facilityPresent value for annuity cash flowsFuture value for multiple cash flowsFuture value for single cash flowFuture value for variable cash flowQuestion 10.10.You were recently admitted to college and your Aunt Tillie has agreed to fund the tuition for your education. The admissions representative at your college says that tuition might rise approximately 5 percent per year. Aunt Tillie has agreed to deposit a lump sum today that will cover your tuition for four years but she needs to know the amount of the initial deposit.Your aunt is no longer able to take care of herself so she also wants to set aside a lump sum of money to pay her rent in an assisted-living facility for the next three years. The facility has agreed not to raise her rent if she signs a three year lease upfront.It’s now four years later and thanks to your aunt’s generosity you have graduated from college. She has offered to lend you the money to buy your first new car. You are interested in calculating the payment amount on a $35 000 car loan at 6 percent for five years. She has also agreed to accept five annual payments instead of monthly payments.It seems there’s no end to Aunt Tillie’s generosity. She has now agreed to loan you $10 000 for the down payment on a home. You have decided to structure the loan so that the payment amount remains constant through the term of the contract and you can budget for a consistent loan payment each month.With regard to the loan for a down payment on your mortgage what drawback exists with the loan you want compared to a loan in which payments decrease through the term of the loan?Higher interest paymentsA longer termA larger down paymentLess interest expense deduction for income tax purposes
