Module 3 Quiz

Question 1

When making rate of return assumptions for a client’s goal, a planner should use _____.

Answer 1

A conservative rate of return

Question 2

What effect does an assumption, regarding the rate of return, have on achieving a goal?

Answer 2

An assumption of a high rate of return may result in fewer dollars being invested to achieve a particular goal.

Question 3

All other relevant variables being equal, which of the following statements is CORRECT?

Answer 3

The future value of an annuity due will be greater than the future value of an ordinary annuity.

Question 4

Steve invested $10,000 in a growth mutual fund five years ago. He earned an average annual return of 9.5% on the fund during that period. How much is his fund worth now?

Answer 4

$15,742

1 P/YR
end mode
10,000, +/-, PV
9.5 I/YR
5, downshift, N
Solve for FV

Question 5

Mary wants to accumulate $100,000 in 12 years. She believes she can earn 7%, compounded annually, on her money. How much does she need to invest today to achieve her goal?

Answer 5

$44,401

1 P/YR
end mode
100,000, FV
7, I/YR
12, downshift, N
Solve for PV

Question 6

Rhonda invested $5,000 in a mutual fund 15 years ago. It is now worth $25,250. What average annual rate of return did Rhonda earn on this investment?

Answer 6

11.40%

1 P/YR
end mode
5,000, +/-, PV
25,250, FV
15, downshift, N
Solve for I/YR

Question 7

Tammy wants to buy a new car and finance $20,000 with a five-year loan at 6%. What would her monthly payments be?

Answer 7

$386.66

12 P/YR
end mode
20,000, PV
6, I/YR
5, downshift, N
Solve for PMT

Question 8

John plans to invest $2,000 at the beginning of each year for the next 18 years. If he can earn 10%, compounded annually, on his investment, how much will he have accumulated at the end of this period?

Answer 8

$100,318

1 P/YR
begin mode
2,000, +/-, PMT
10, I/YR
18, downshift, N
Solve for FV

Question 9

Claudette plans to invest $5,000 in a variable annuity at the end of each year for the next 25 years. She believes she can earn an average annual return of 12% over this time. How much will she have accumulated at the end of 25 years?

Answer 9

$666,669

1 P/YR
end mode
5,000, +/-, PMT
12 I/YR
25, downshift, N
Solve for FV

Question 10

Seiko is taking out a 30-year mortgage loan of $200,000 at 6%. Payments are due at the end of each month. How much is Seiko’s monthly principal and interest mortgage payment?

Answer 10

$1,199.10

12 P/YR
end mode
200,000, PV
6, I/YR
30, downshift, N
solve for PMT

Question 11

Ann plans to invest $30,000 in a savings account that earns interest at 3%, compounded quarterly. At the end of seven years, how much will the account be worth?

Answer 11

$36,981

4 P/YR
end mode
30,000, +/-, PV
3, I/YR
7, downshift, N
Solve for FV

Question 12

Assume an annuity will make payments of $500 at the beginning of each month for the next 20 years, starting today. Using a discount rate of 6%, what is the present value of this annuity?

Answer 12

$70,139

12 P/YR
begin mode
500, PMT
6, I/YR
20, downshift, N
Solve for PV

Question 13

Jack invested $100,000, and after one year, the account was worth $107,000. Assuming monthly compounding, approximately what rate of return did he earn?

Answer 13

6.78%

12 P/YR
end mode
100,000, +/-, PV
107,000, FV
1, downshift, N
Solve for I/YR

Question 14

Valentina will receive semiannual payments of $4,000 at the end of each period for the next 10 years. She will receive her first payment six months from today, and her opportunity cost is 8%. What is the present value of these payments?

Answer 14

$54,361

2 P/YR
end mode
4,000, PMT
8, I/YR
10, downshift, N
Solve for PV

Question 15

Wayne wants to know how long it would take his $10,000 nest egg to grow to $15,000, assuming annual compounding with a 5.5% return. Your answer should be _____.

Answer 15

7.57 years

1 P/YR
end mode
10,000, +/-, PV
15,000, FV
5.5, I/YR
Solve for N

Question 16

How does an assumption on the future rate of inflation impact the achievement of a specific goal?

Answer 16

A rate of inflation assumption that is too low may mean that more years will be needed to achieve the goal.

Question 17

Shanice invested $2,000 in an IRA at the beginning of each year for 24 years. If Shanice earned interest at a rate of 10% on her account, how much did she accumulate at the end of this period?

Answer 17

$194,694

1 P/YR
begin mode
2,000, +/-, PMT
10, I/YR
24, downshift, N
Solve for FV

Question 18

Fritz is interested in a $175,000, 30-year mortgage with a 5% fixed interest rate. He has asked you to determine how much his level principal and interest payments would be each month. You tell him that his payments would be _____.

Answer 18

$939.44

12 P/YR
end mode
175,000, PV
5, I/YR
30, downshift, N
Solve for PMT

Question 19

How much would a person need to invest at the end of each year in order to accumulate $100,000 in 15 years, assuming the investment could earn an annualized rate of 9%?

Answer 19

$3,406

1 P/YR
end mode
100,000, FV
9, I/YR
15, downshift, N
Solve for PMT

Question 20

When setting goals, it is generally better to _____.

Answer 20

Assume a lower rate of return rather than a higher rate of return

Question 21

Which of these calculations should be done in the BEG (begin) mode?

1. College tuition payments
2. Auto loan payments
3. Home mortgage payments

Answer 21

1. College tuition payments

Question 22

Which of the following statements about annuities is CORRECT?

Answer 22

An ordinary annuity is a stream of payments or receipts made at the end of each period

Question 23

Which of these statements is CORRECT?

Answer 23

All else being equal, contributing to an individual retirement account (IRA) as an annuity due rather than an ordinary annuity will result in a higher account balance in the future.

Question 24

James just won the lottery and has the choice of either taking a lump sum of $500,000 or receiving a payment of $62,000 at the beginning of each year for the next 10 years. If James believes the opportunity cost is 6%, what should he do?

Answer 24

The $500,000 lump sum is greater than the present value of the annuity, so James should take the lump sum.

1 P/YR
begin mode
62,000, PMT
6, I/YR
10, downshift, N
Solve for PV

Question 25

If a future value is $145,000, the annual discount rate is 8%, and the time period is 23 years, then the present value is _____.

Answer 25

$24,696

1 P/YR
end mode
145,000, FV
8, I/YR
23, downshift, N
Solve for PV

Question 26

Which of the following time value of money variables is NOT defined correctly?

Answer 26

PV: par value

Question 27

Roberta has $5,000 invested in a mutual fund and plans on adding $500 at the end of every quarter for the next five years. If she makes all of her quarterly contributions and earns a 7.5% return, what will her investment in the fund be worth in five years?

Answer 27

$19,248

4 P/YR
end mode
5,000, +/-, PV
500, +/-, PMT
7.5, I/YR
5, downshift, N
Solve for FV

Question 28

The present value of $1,000 ordinary annuity payments that are made once a year for nine years and discounted at an annual rate of 6% is _____.

Answer 28

$6,802

1 P/YR
end mode
1,000, PMT
6, I/YR
9, downshift, N
Solve for PV

Question 29

Regina wants to accumulate $20,000 in three years to start her own business. She wants to be conservative and only count on earning a 1.5% return. What amount would Regina have to set aside monthly in order to reach her goal?

Answer 29

$543.50

12 P/YR
end mode
20,000, FV
1.5, I/YR
3, downshift, N
Solve for PMT

Question 30

Zack inherited XYZ stock from his dad when it was worth $12,324. He has held onto XYZ, and seven years later, it is now worth $33,645. What annual rate of return has Zack earned on the stock?

Answer 30

15.43%

1 P/YR
end mode
12,324, +/-, PV
33,645, FV
7, downshift, N
Solve for I/YR