Chapter 4: self study

If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?

$100 = FV/(1+.10)^3 multiply both sides by (1+.10)^3 (1+.10)^3 x 100 = FV answer = $133.10

If the interest rate is 10% per year and there are 10 years, what is the present value discount factor?

1/(1.10)^10= 0.3855

If a firms sales are growing at %5 per year, how long will it take for the firm's sales to triple?

22.5 years

To calculate the future value of $100 invested for t years at r interest rate, you enter the present value in your calculator as a negative number. Why?

Because the $100 is an outflow from which you, which should be negative.

Time value of money tables are not as common as they once were because:

It is easier to use inexpensive financial calculators instead & they are available for only a relatively small number of interest rates

If FV = PV x (1+r) is the single period formula for future value, which of the following is the single perios present value formula?

PV = FV/(1+r)

which of the following is the correct formula for calculating the present value of a future amount, expected in T years at R per cent interest?

PV = FV/(1+r)^t

The following is the correct excel function to calculate the present value of $300 due in 5 years at a discount rate of 10%.

Present value = PV(rate,nper,pmt,fv) =PV(0.10,5,0,300)

If you invest $500 for one year at a rate of 8% per year, how much interest will you earn?

$40

You invest $500 at 10 percent interest per annum. At the end of 2 years with simple interest you will have ______ and with compound interest you will have ________.

$600;$605

The process of accumulating interest in an invedtment over time to earn more interest is called ______________.

compounding

The correct future value interest factor in a time value of money table for finding the future value of $100 in 10 years per year interest is______.

(1+.10)^10 = 2.5937

suppose the present value is $100, the future value is $1000, and t is 10 years. Which formula is used to find the (decimal) interest rate?

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

which of the following can be used to calculate present value? a. random generation b. a financial calculator c. a time value of money table d. an algebraic equation

b. a financial calculator c. a time value of money table d. an algebraic equation

True or false: future value refers to the amount of money investment is worth today.

false

The amount an investment is worth after one or more periods is called the ________ value.

future

Given an investment amount and set a rate of interest, the _______ the time period, the _______ the future value.

longer;greater

If you want to know how much you need to invest today at 12% compounded annually in order to have $4000 in five years, you will need to find a(n) __________ value

present

You must invest _______ today at *% to get $2 in one year?

1.85

Which formula below represents a present value factor?

1/(1+r)^t

Suppose we invest $100 now and receive $259.37 in 10 years. What rate of interest will we achieve?

10%

For a given time period (t) and interest rate (r), the present value factor is ___________ the future value factor.

-1 divided by -the reciprocal of

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. -Inflation will make a dollar in the future worth less than a dollar today.

The present value interest factor for $1 at 5% compounded annually for 5 years [PVIF(5%,5)] is:

0.7835

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

If you invest $100 for 5 years at 10% interest compounded annually, which of the following will be the formula for the future value of your investment?

FV = 100 x (1.10)^5