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Personal Finance Ch5

Personal Finance Ch 5 (Stukent)

QuestionAnswer
What is the Time Value of Money (TVM)? The idea that money available today is worth more than the same amount of money available in the future.
Which of the following is NOT a reason why money today is worth more than the same amount in the future? A. Inflation B. Earnings potential C. Opportunity cost D. Nominal return D. Nominal return
If you invest $150 at a 4% annual interest rate, how much will you have after one year? A. $165 B. $156 C. $150 D. $171.99 B. $156
Which of the following best describes nominal return? The percentage gain or loss on an investment without adjusting for inflation.
What is compounding? The process of reinvesting earnings to generate more earnings over time.
What does Future Value (FV) represent? The value of an asset at a specified date in the future.
Using the Future Value formula, what is the FV of $625 invested at a 5% annual return for 10 years? A. $383.70 B. $805.00 C. $1,018.06 D. This FV cannot be calculated without knowing the inflation rate C. $1,018.06
What is the Present Value (PV) of $400 to be received in 3 years at an annual interest rate of 6%? A. $320.00 B. $335.85 C. $355.60 D. $476.41 B. $335.85
Why is it important to consider inflation when analyzing an investment return? Because inflation decreases the purchasing power of money over time.
Why is saving money considered very important? It provides financial security and peace of mind.
What are three primary reasons to save money? Life happens, you can’t work forever, and the power of compounding.
Why is it important to start saving early for retirement? The earlier you start saving, the more financially comfortable your future will be.
How does the 50/30/20 rule work in budgeting? It allocates 50% for needs, 30% for wants, and 20% for savings.
What is the purpose of setting up an emergency fund? To cover unexpected expenses like medical bills and car repairs.
What is the advantage of setting up automatic savings? To consistently save without thinking about it.
How can tracking your spending help you save more money? It shows where you can cut back and save more.
Why is prioritizing paying off high-interest debt important in saving strategies? It reduces the total amount of interest paid over time.
Created by: Jack T
 

 



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