Week 4 study
True or false: Given the PV, FV, and life of the investment, you can determine the discount rate.
true
True or false: If you invest for two periods at an interest rate of r, then your money will grow to (1 + r) per dollar invested.
false
The concept of the time value of money is based on the principle that a dollar today is worth __________ a dollar promised at some time in the future.
more than
The current value of a future cash flow discounted at the appropriate rate is called the _____ value.
present
Why is a dollar received today worth more than a dollar received in the future? A dollar will be worth as much in the future as it is today. A dollar today is not worth more than a dollar in the future. Today's dollar can be reinvested, yielding a greater amount in the future. Deflation will make a dollar in the future worth less than a dollar today.
Today's dollar can be reinvested, yielding a greater amount in the future.
Future value is the ___ value of an investment at some time in the future.
cash
If you invest for a single period at an interest rate of r, your money will grow to ______ per dollar invested.
(1+r)
Which formula below represents a present value factor?
1/(1+r)^t
Which of the following methods are used to calculate present value? Random number generation A financial calculator A time value of money table An algebraic formula
A financial calculator A time value of money table An algebraic formula
The idea behind ______ is that interest is earned on interest.
compounding
The process of accumulating interest in an investment over time to earn more interest is called _________.
compounding
In a present value equation, the ___ rate (r) can be found using the PV, FV, and t.
discount
Calculating the present value of a future cash flow to determine its worth today is commonly called ___________ valuation.
discounted cash flow (DCF)
True or false: Future value refers to the amount of money an investment is worth today.
false
True or false: Given the PV, FV, and payment amount, you can determine the number of periods.
false
