Chapter 5
The future value is the value today of a future cash flow
Balls
The principle is the amount of the investment
TRUE
The principle is the amount of the investment
True
Using lower interest rate will
decrease of future value of any investment
The earnings from compounding drive much of the return earned on a long-term investment because the longer the investment., The greater the proportion of total earnings from Interest earned on interest
true
What time value of money refers to the issue of
what the value of the stream of future cash flows is today
A dollar today is worth less than a dollar received in the future
False
The future value is simply the current value of a future cash flow that has been discounted at the appropriate discount rate
False
The present value is what the investment will be worth after earning interest for one or more periods.
False
The principal is the amount of interest earned each period.
False
The process of converting the initial amount into a future value is called discounting
False
The time value of money implies that the further in the future you receive a dollar the more it is worth today
False
The time value of money is based on the idea that most people prefer to consume goods tomorrow rather than consuming similar goods today
False
There is no trade-off between money today and money at some future date and it does not depends the rate of interest you can earn by investing
False
compounding is the process by which interest earned on an investment is spent so that in the future periods,Interest is not earned on the interest previously earned as well as the original depreciation amount
False
with a higher interest-rate on an investment, less money is accumulated for any time period
False
The process of converting future cash flows to what its present value is
Discounting
The further in the future you receive a dollar the more it is worth today
FALSE
The higher the discount rate, the higher the present value of a future cash flow
FALSE
The term (1+i) is the present value interest factor, often called simply the present value factor, for a single period, such as one year
FALSE
The time value of money implies that the further in the future you receive a dollar, the more it is worth today
FALSE
The future value factor for 10 years at 15% with annual compounding is calculated as (1+15)^10
TRUE
The time value of money implies that a dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return
TRUE
Which of the following statements is FALSE with respect to the present value of a future amount
The lower the discount rate, the lower the present value of a single some for a given time period
Compound interest includes not only simple interest but also interest earned on the reimbursement of previously earned interest, the so-called interest earned on interest
True
If the discount rate increases than the present value of a potential investment Would fall
True
Money has a time value because a dollar in hand today is worth more than a dollar to be received in the future
True
The concept of compounding is not restricted to money and any number that changes over time such as a population of a city changes at some compound growth rate
True
The farther in the future dollar will be received, the worse it is worth today
True
The future value (FV) of an investment is worth the investment will be worth after earning interest for one or more time periods
True
The future value as what the investment will be worth after earning interest for one or more periods
True
The growth in the future value of an investment over time is not linear, but exponential
True
The longer the time. The funds are invested, the greater the future value
True
The present value factor increases as the number of period decreases
True
The present value is simply the current value of a future cash flow that has been discounted at the appropriate discount rate
True
The present value of a dollar becomes smaller the farther into the future that dollar is to be received
True
The principal is the amount of money on which interest is paid
True
The time value of money implies that a dollar received today is worth more than a dollar received tomorrow
True
The value of a dollar invested at a positive interest rate grows over time
True
With a higher interest rate on an investment more money is accumulated for anytime Period
True
compound growth occurs when the initial value of a number increases or decreases each period by the factor (1+ growth rate)
True
computationally, the present value factor is the reciprocal of the future value factor, or 1/(1+i)
True
the term (1+i) Is the future value interest factor, often called simply the future value factor, for a single period, such as one year
True
Future value measures
What one or more cash flows are worth at the end of a specified period.
A dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return
correct
Using higher discount rates will
decrease the present value of any future cash flow
Any number of changes that are observed over time in the physical and social sciences unfortunately do not follow a compound growth rate pattern and the future value formula cannot be used in calculating these growth rate
false
Simple interest includes not only interest on interest but also interest earned on the reinvestment of previously earned interest, the so-called compound interest
false
The earnings from compounding does not affect the return and on a long-term investment because the longer the investment. The smaller the proportion of total earnings from interest earned on interest
false
The higher the discount rate, the higher the present value of $1 for a given time.
false
The lower the interest rate, the faster the value of an investment will grow, and the larger the amount of money that will accumulate over time
false
The present value factor decreases as the number of period decreases
false
The term (1+i) Is it present value interest factor, often called simply the present value factor, for a single period, such as one year
false
The time value of money implies that a dollar received today is worth less than a dollar to be received in the future because funds received today cannot be invested to earn a return
false
The value of a dollar invested at a negative interest rate grows overtime
false
using lower discount rate will
increase the present value of any future cash flow