FIN LS CH5

Which of the following can be determined using the future value approach to compound growth developed in this chapter?

sales growth and dividend growth

The difference between ____ interest and compound interest is that the amount of compound interest earned gets (bigger or smaller) _____ every year.

simple; bigger

What is the future value of $1,000 invested for 8 years at 6%?

$1,593.85 1000 for PV 8 for n and 6 for 1/Y

What is the future value of $100 at 10 percent simple interest for 2 years?

$120

If $100 earns compound interest for 2 years at 10 percent per year, the future value will be ______.

$121.00 FV=$100x1.10^2= $121

You invest $500 at 10 percent interest. At the end of 2 years with simple interest you will have ____ and with compound interest you will have _____.

$600; $605

If you plan to put a $10,000 down payment on a house in five years and you can earn 6% per year, how much will you need to deposit today?

$7,474.58

if you invest for a single period at an interest rate of r, your money will grow to __/$ invested

(1+r)

Suppose the present value is $100, the future value is 1,000 and t is 10 years. Which formula below is used to find the interest rate?

(1000/100)^(1/10)-1

The present value interest factor for $1 at 5% compounded annually for 5 years is:

0.7835

Using a time value of money table, what is the future value interest factor for 10 percent for 2 years?

1.21

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=$100x(1.10)^3

True or false: small changes in the interest rate affect the future value of a small-term investment more than they would affect the value of a long-term investment.

False

Which of the following investments would result in a higher future value? Investment A-12% APR for 10 yrs Investment B-12% Apr for 12 yrs

Investment B

Which of the following methods can be used to calculate present value?

an algebraic formula, a financial calculator, and a time value of money table

The idea behind _____ is that interest is earned on interest.

compounding

If you want to know how much you need to invest today at 12% compounded annually in order to have $4,000 in five years, you will need to find a(n) _____ value.

present

Assuming the interest rate offered for a 10 year investment plan is same as for a 4 year investment plan. For an investor to achieve the same future value, which of these two plans would require a smaller savings amount to be deposited today?

10 year investment

How long will it take $40 to grow to $240 at an interest of 6.53% compounded annually?

28.33 yrs (enter PV=-40, FV= 240, I/Y=6.53. *MUST ENTER NEGATIVE 40)

Suppose we invest $100 now and get back $236.74 in 10 years. What rate of interest will we achieve?

9% TO CALCULATE: PV=-$100 FV=$236.74 N=10

Which of the following are correct spreadsheet functions?

=PV(rate,nper,pmt,fv) =RATE(nper,pmt,pv,fv) =FV(rate,nper,pmt,pv)

The basic present value equation is:

PV=FV/(1+r)^t

Why is a dollar received today worth more than a dollar received in the future?

Today's dollar can be reinvested, yielding a greater amount in the future.

True or false: Discounting is the opposite of compounding.

True

True or false: given the same rate of interest, more money can be earned with compound interest than with simple interest.

True

True or false: the formula for a present value factor is 1/(1+r)^t.

True