ch 5,6 finance

cash

Future value is the ________ value of an investment at some time in the future.

simple

Interest earned only on the original principal amount invested is called interest.

treasury bills treasury notes treasury bonds

The U.S. government borrows money by issuing:

most important ideas in corporate finance

The basic present value equation underlies many of the _____

calculate the present value of each cash flow then add the discounted values together

When calculating the present value of multiple cash flows using a spreadsheet, you must:

the same

When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year.

The cash flows grow at a constant rate. The cash flows grow for a finite period.

Which compounding interval will result in the lowest future value assuming everything else is held constant?

annual

Which compounding interval will result in the lowest future value assuming everything else is held constant?

1/(1 + r)t

Which formula below represents a present value factor?

sales growth dividend growth

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

A constant stream of cash flows forever

Which of the following is a perpetuity?

compounding

he process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called

121.00

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

present

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

end

In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the _____ of each period.

tradition; legislation

Because of __________ and _________, interest rates are often quoted in many different ways.

greater, larger

Longer-term bonds have (smaller/greater) interest rate sensitivity because a (smaller/larger) portion of a bond's value comes from the face amount.

multiple

Most investments involve _____ cash flows.

one

One method of calculating future values for multiple cash flows is to compound the accumulated balance forward _____ at a time.

$1,000/[(1 − 1/1.103)/0.10]

Ralph has $1,000 in an account that pays 10 percent per year. Ralph wants to give this money to his favorite charity by making three equal donations at the end of the next 3 years. Which of the following formulas show how much Ralph will give to the charity each year?

return

The discount rate is also called the rate of .

compounding

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

APR

The interest rate per period multiplied by the number of periods in the year.

principal

The original loan amount is called the _____.

ong; short; face value; coupon payments

The reason that interest rate risk is greater for ____ term bonds than for ____ term bonds is that the change in rates has a greater effect on the present value of the ____ than on the present value of the ____.

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 false question.

Public issue and privately placed

What are the two major forms of long-term debt?

FV = C((1+r)t−1r)

Which of the following is the formula for the future value of an annuity?

Calculate the future value of each cash flow first and then add them up Compound the accumulated balance forward one year at a time

Which of the following processes can be used to calculate future value for multiple cash flows?

Cash flows from a product whose sales are expected to remain constant forever Preferred stock A consol (bond that pays interest only and does not mature)

Which of the following should be valued using a perpetuity formula?

600, 605

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 ____.

calculate the future value of each cash flow then add the compounded values together

When calculating the future value of multiple cash flows using a spreadsheet, you must: Multiple choice question.

future, future

________value is the cash value of an investment at some time in the__________

higher EARs

Given the same APR, more frequent compounding results in _____. Multiple choice question.

Every instant

How frequently does continuous compounding occur?

2-30

In terms of time to maturity, U.S. Treasury notes and bonds have initial maturities ranging from ___ years. Multiple choice question.

simple interest

Interest earned on the original principal amount invested is called _____. Multiple choice question.

present

_______ value is the current value of future cash flows discounted at the appropriate discount rate.