FIN 3320 CHAPTER 5

T/F? when using the time value of money features of a financial calculator, you should key in the interest rate as a decimal.

false

if you want to know how much you need to invest today at 12% compounded annually in order to have $4000 in 5 yrs, you will need to find a(n) ___ value

present

the difference between ______ interest and compound interest is that the amount of compound interest earned gets (bigger or smaller) ______ every year

simple; bigger

Suppose we invest $100 now and get back $236.74 in 10 years. What rate of interest will we achieve?

9.0%

Which of the following are correct spreadsheet functions?

=PV(rate,nper,pmt,fv) =RATE(nper,pmt,pv,fv) =FV(rate,nper,pmt,pv)

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

Which of the following investments would result in a higher future value? Investment A-12% APR for 10 years Investment B-12% APR for 12 years

investment b

A dollar received one year from today has _____ value than a dollar received today.

less

the concept of the time value of money is based on the principle that $1 today is worth __ $1 promised at some time in the future

more than

If you invest for a single period at an interest rate of r, your money will grow to ___ per dollar invested

(1+r)

suppose PV is $100, FV is $1000, & N is 10yrs. which formula below is used to find the decimal interest rate?

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

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

0.7835

which of the following methods can be used to calculate present value?

1) a time value of money table 2) algebraic formula 3) financial calculator

which of the following can be determined using the FV approach to compound growth developed in this chapter?

1) population growth 2) dividend growth 3) sales growth

which formula below represents a present value factor?

1/(1+r)^t

T/F? the correct mathematical formula for finding the FV of a $68 PV in 12yrs at 9% annual interest is: FV=$68(1.12^9).

false

the basic PV equation underlies many of the

most important ideas in corporate finance

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

$121

if you invest $100 at 10 percent simple interest, how much money will you have in 10 years?

$200 FV=$100+10($100x.10)= $200simple FV=$100(1.10)^10=$259.37 compound

You invest $500 at 10 percent. At the end of 2 years with simple interest you will have ____ and with compound interest you will have _____.

$600; $605

If you plan to put a $10,000 down payment on a house in 5 years and you can earn 6% per year, how much will you need to deposit today?

$7,472.58

Assume 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

how long will it take $40 to grow $240 at an interest rate of 6.53% compounded annually?

28.33 yrs (enter PV=-40, FV= 240, I/Y=6.53. *MUST ENTER NEGATIVE 40)

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

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

cash

The idea behind _____ is that interest is earned on interest

compounding

T/F Discounting is the opposite of compounding

true

Using a time value of money table, what is the future value interest factor for 10 percent for 2 years?

1.21