Finance 301 Exam 2 Bcole
Using a time value of money table, what is the future value interest factor for 10 percent for 2 years?
$1 *(1+.10)^2= 1.21
Which of the following processes can be used to calculate future value for multiple cash flows?
Compound the accumulated balance forward one year at a time & Calculate the future value of each cash flow first and then add them up
Which of the following can be determined using the future value approach to compound growth developed in this chapter?
Divedend Growth & Sales Growth
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
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. True false question.
False
The present value of a series _______ of cash flows is the amount you would need today to exactly duplicate those future cash flows.
future
__________ value is the cash value of an investment at some time in the ______.
future and future
A dollar received one year from today has _____ value than a dollar received today.
less
A single cash flow is also known as a:
lump sum
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
A typical investment has a large cash (inflow/outflow) at the beginning and then a cash (inflows/outflows) for many years.
outflows and inflows
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
The discount rate is also called the rate of
return
If you invest for a single period at an interest rate of r, your money will grow to ______ per dollar invested.
(1 + R)
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 ____.
500 * .10= $50 each year simple interest 500 (1.10)^2 = $605 compound interest
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: Given the same rate of interest, more money can be earned with compound interest than with simple interest.
True
True or false: Given the same rate of interest, more money can be earned with compound interest than with simple interest.
True: With compound interest, more money can be earned.
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
What is the future value of $100 compounded for 50 years at 10 percent annual interest?
$11,739
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
If $100 earns compound interest for 2 years at 10 percent per year, the future value will be
FV= $100 * 1.10 ^2 = 121
True or false: The multi-period formula for future value using compounding is FV = (1 + r)t.
False : FV= PV * (1+r)^t
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.
Present
Interest earned only on the original principal amount invested is _____interest.
Simple
The difference between _______ interest and compound interest is that the amount of compound interest earned gets (bigger or smaller) ___________ every year.
Simple and bigger
Interest earned on the original principal amount invested is called _____.
Simple interest