FISV 2010 Finance

Spring Term 2014

Exam 3-

Instructions

1. Please type answers into  this word document
2. You may use your textbook to answer these questions.
3. You may not collaborate/co-author with another student or any other individual to write answers for this exam. This assignment is for a grade and must be the student’s individual work. Evidence of collaboration/co-authoring will be considered ‘cheating’. Please consult my syllabus for consequences of cheating.
4. NO LATE ASSIGNMENTS WILL BE ACCEPTED. This exam will be collected at the start of class with calling the roster. In cases of extreme emergency, students who must be absent must email me prior to 3:00 pm on the due date to receive permission to email the assignment prior to 3:50 pm May 1, 2014 when it is due. I will not accept emailed submissions that do not have my approval or that arrive after the due date/time. 

1.    Explain the phrase “a dollar today is worth more than a dollar tomorrow.”

2.    Explain the importance of a timeline.

3.    What are the two factors to be considered in time value of money?

4.    Differentiate future value from present value.

5.    Differentiate between compounding and discounting.

6.    Explain how compound interest differs from simple interest.

7.    If you were given a choice of investing in an account that paid quarterly interest and one that paid monthly interest, which one should you choose if they both offer the same stated interest rate and why?

8.    Compound growth rates are exponential over time. Explain.

9.    What is the rule of 72?

 This is a rule of thumb to determine how fast an investment can double. It is a rule that allows you to closely approximate the time that it would take to double yourmoney. It works well with interest rates between 5 and 20 percent but varies more with higher rates. The Rule of 72 says that the time to double your money (TDM) approxi–mately equals 72/i, where i is expressed as a percentage.

10. You are planning to take a spring break trip to Cancun your senior year. The trip is exactly two years away, but you want to be prepared and have enough money when the time comes. Explain how you would determine the amount of money you will have to save in order to pay for the trip.