CH 4 Introduction to Valuation: The time value of money
You invest $500 at 10 percent interest per annum. At the end of 2 years with simple interest you will have ____ and with compound interest you will have _____.
$600; $605
Which of the following can be used to calculate present value?
- A financial calculator - Time value of money table - Algebraic formula
Which of the following are the primary ways used to perform financial calculation today?
- Spreadsheet functions - Financial calculator
For a given time period (t) and interest rate (r), the present value factor is ____ the future value factor.
- the reciprocal of - 1 divided by
The present value interest factor for $1 at 5% compounded annually for 5 years [PVIF(5%,5)] is
.07835
Which of the following is an incorrect keystroke in a financial calculator the future value of $100 today for 2 years at 10% per year
0.10 I/Y
Using the time value of money table, what is the future value interest factor for 10 percent for 2 years?
1.21
Which formula below represents a present value factor?
1/(1+r)^t
Suppose we invest $100 now and received $259.37 in 10 years. What rate of interest will we achieve?
10.0% N=10 PV= -100 PMT=0 FV=259.37 I=9.999 = 10.0%
If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?
133.10 N=3 I=10 PV = .100 PMT =0
If a firm's sales are growing at 5% per year, how long will it take for the firm's sales to triple?
22.5 years
Which of the following is the correct excel function to calculate the present value of $300.00 due in 5 years at a discount rate of 10%
=PV(0.10,5,0,300)
Future value is the _____ value of an investment at some time in the future.
Cash
Calculating the present value of a future cash flow to determain its worth today is commonly called ________valuation.
Discounted Cash Flow (DCF)
Which of the following is the correct mathematical formula for calculation of the future value of $100 invested today for 3 years at 10% per year?
FV = $100 X (1.10)^3
Which of the following is the uliti-period formula for compoundinf a present value into a futurevalue?
FV=PV x (1 +r) ^T
True or false: Future value refers to the amount of many an investment is worth today
False
You must invest ____ today at 8% to get $2 in one year (round your answer to two decimal places)?
PV = $1.85 N = 1 I = 8% PMT = 0 FV = 2
If FV= PV x (1+r) is the single period formulafor future value, which of the following is the single period present value formula?
PV = FV/(1+r)
What is the primary diffrence between time value of money data entries in your calculator and in a spreadsheet function?
The interest rate in your calculator is entered as a whole number while in the spreadsheet function it is entered as a decimal
True or False: The formula for a present value is 1/(1+r)^t
True
The process of accumulating interest in an investment over time to earn more interest is called
compounding
given an investment amount and a set rate of interest, the ____ the time period, the ____ the future value.
longer;greater
If you invest $500 for one year at a rate of 8% per year, how much interest will you earn?
$40.00 N=1 I=8% PV= -500 PMT = 0 FV=540.00 540-500 =40
Why is a dollar received today worth more than a dollar received in the future?
- Todays's dollar can e reinvest, yielding a greater amount in the future. - Inflation will make a dollar in the future worth less than a dollar today.
The future value of a $100 investment in 4 years compounded at 8% per year equals___.
136.05