University of Saskatchewan

• COMM 229

• Module #1 Chapter end review Question (1,2,5) 1) What is the time value of money? How is it related to opportunity costs? Time value of money refers to the value of money in the present compared to the value of money in the future and how it changes. Opportunity costs are the potential benefits that an individual misses out on when choosing an alternate investment 2) Define interest. Define and describe simple interest and compound interest. Interest is a percentage that you get in return from your initial investment. Simple interest is when after maturity you get collect the money and don’t add any to the account. Compound interest is when after maturity the interest you make gets put back into the account and the interest grows exponentially. 3) What inputs are required when calculating the future value of a single dollar amount using a formula? You need the interest rate and the time period Module #1 Financial Planning Problems (1-4,6) 1) How much interest will you pay on a loan of $15 500 if you are paying the loan off in 9 months? Your loan rate is 4.125%. 2) How much money do you have to invest to earn $300 of interest in 327 days if you are able to earn 7% on your money? 3) What rate of interest did you earn over a period of 67 days on an investment of $7500 where you received an interest payment of $150? 4) How many days did it take for your investment of $4300 to earn $147 in interest at a rate of 5.12%? 5) Rodney received a total of $1000 cash as graduation gifts from various relatives. He wants to invest it in a guaranteed investment certificate (GIC) so that he will have a down payment on a car when he graduates from university in five years. His bank will pay 3 percent interest compounded annually