Managing Personal Finance Module II

What does the "Time Value of Money" concept emphasize?

• Money today is equal in value to money in the future

• Money today is worth more than money in the future

• Money in the future is worth more than money today

• Money has no time-related value

Which factor does NOT justify the Time Value of Money?

• Inflation

• Uncertain future

• Interest factor

• Fixed purchasing power

The present value of a future cash flow is calculated by:

• Multiplying by the discount rate

• Dividing by a discount factor

• Adding inflation to the cash flow

• Subtracting the interest rate from the cash flow

Rule of 72 helps to estimate:

• Annual returns

• Time to double investment

• Rate of depreciation

• Future asset value

Real assets are considered good inflation hedges because they:

• Pay fixed interest

• Are government-backed

• Retain or increase real value

• Mature early

A personal balance sheet shows:

• Total expenses

• Financial position at a specific point

• Annual income and savings

• Cash flows over time

Net worth is calculated as:

• Total liabilities - Total assets

• Total income - Total savings

• Total assets - Total liabilities

• Total expenses - Total liabilities

Compound interest differs from simple interest as:

• It includes only the principal

• It includes both principal and interest accrued

• It is paid annually only

• It excludes time as a factor

The formula for simple interest includes which variables?

• Principal, Time, Rate

• Principal, Rate, Inflation

• Time, Rate, Future Value

• Inflation, Assets, Liabilities

Inflation affects investments by:

• Increasing real returns

• Decreasing purchasing power

• Reducing nominal returns

• Increasing fixed-income returns