Chapter 05 Smartbook Assignment
What is the future value of $1,000 invested for 8 years at 6%?
$1,593.85
The _____ rate is the rate used to calculate the present value of future cash flows.
Discount
Calculating the present value of a future cash flow to determine its value today is called
Discounted cash flow valuation
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
The multi-period formula for future value using compounding is FV = (1+r)^t.
False
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
True or false: When using the time value of money features of a financial calculator, you should key in the interest rate as a decimal.
False
The equation that results in the _____ value interest factor for a single deposit is as follows: (1+r)^t.
Future
______ value is the cash value of an investment at some time in the ______.
Future; future
The _____ the interest rate changes, the greater the impact to the future value of an amount invested.
Greater
The greater the number of time periods, the _____ the impact of compounding.
Greater
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 _____ value.
Present
The _____ value is the current value of future cash flows discounted at the appropriate discount rate.
Present
The equation that results in the _____ value interest factor for a single deposit is as follows: 1/(1+r)^t
Present
Which of the following are correct spreadsheet functions?
Present value =PV(rate,nper,pmt,fv) Discount rate =RATE(nper,pmt,pv,fv) Future value =FV(rate,nper,pmt,pv)
If we know the interest rate is 10 percent per year and the money is invested for 10 years, then we can use the _____ to find the present value.
Present value factor
The discount rate is also called the rate of
Return
Interest earned only on the original principal amount invested is called _____ interest.
Simple
Interest earned on the original principal amount invested is called _____.
Simple interest
The difference between _____ interest and compound interest is that the amount of compound interest earned gets _____ every year.
Simple; bigger
If $100 earns compound interest for 2 years at 10 percent per year, the future value will be ______.
$121.00
If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?
$133.10 ($100 x .10 = $10 + $100 =$110) ($110 x .10 = 11 + 110 = 121) ($121 x .10 = 12.1 + 121 = 133.10)
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 invest for a single period at an interest rate of r, your money will grow to _____ per dollar invested.
(1+r)
Which of the following methods can be used to calculate present value?
- A time value of money table - A financial calculator - An algebraic formula
Which of the following can be determined using the future value approach to compound growth developed in this chapter?
- Dividend growth - Sales growth
Using a 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
Which formula will you enter into a spreadsheet cell to determine how long it will take $40 to grow to $240 at an interest rate of 6.53% compounded annually?
=NPER(0.0653,0,-40,240)
Future value is the _____ value of an investment at some time in the future.
Cash
Discounting is the opposite of
Compounding
The idea behind _____ is that interest is earned on interest.
Compounding
The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest is called _____.
Compounding
All else equal, the longer time period you have before you will need the money, the _____ you will need to deposit today to have the same amount in the future.
Less
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 basic present value equation underlines many of the
Most important ideas in corporate finance
The basic present value equation is:
PV = FVt/(1 + r)^t
In general, if you invest for one period at an interest rate of r, your investment will grow to 1 _____ r.
Plus
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 correct future value interest factor in a time value of money table for $1 in 10 years at 10 percent per year is 2.5937.
True
Suppose present value is $100, future value is $1,000, and N is 10 years. Which formula below is used to find the (decimal) interest rate?
r= (1000/100)^(1/10) - 1