Chapter 5 smart book readings
The formula for a present value factor is 1/(1+R)^t
True
A dollar received one year from today has _____ value than a dollar received today.
less
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
_______ value is the cash value of an investment at some time in the _________
Future:Future
What is the future value of $100 compounded for 50 years at 10 percent annual interest?
$11,739.09
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
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
Which formula below represents a present value factor?
1/(1 + r)t
True or false: The multi-period formula for future value using compounding is FV = (1 + r)t.
FALSE
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 × (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
The _________ (smaller/greater) the interest rate changes, the greater the impact to the future value of an amount invested.
Greater
All else equal, the longer time period you have before you will need the money, the ___________ (less/more) you will need to deposit today to have the same amount in the future.
Less
When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year.
The Same
The basic present value equation underlies many of the _____.
most important ideas in corporate finance
Interest earned only on the original principal amount invested is called _______ interest
simple
The idea behind ______ is that interest is earned on interest.
Compounding
Which of the following are correct spreadsheet functions?
Discount rate = RATE(nper,pmt,pv,fv) Present value = PV(rate,nper,pmt,fv) Future value = FV(rate,nper,pmt,pv)
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
Suppose you want to save $10,000 to buy a car. You have $6,000 to deposit today and you can earn 6% on your investments. You want to know when you'll have enough to buy the car. Which of the following spreadsheet functions will solve the problem?
=NPER(0.06,0,−6000,10000)
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)
Which of the following methods can be used to calculate present value?
A financial calculator An algebraic formula A time value of money table
Future value is the ______ value of an investment at some time in the future.
Cash
Future value is the ______ value of an investment at some time in the future. Multiple choice question.
Cash
The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called
Compound
The ________value is the current value of future cash flows discounted at the appropriate discount rate.
Present
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
Which of the following can be determined using the future value approach to compound growth developed in this chapter?
Sales growth Dividend growth
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.
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
