Assignent 4

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 × (1/10) - 1 r = (1000/100) × (1/10) - 1s r = (1000/100) - 1 r = (1000/100)^(1/10) - 1

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

The discount rate is also called the rate of ____.

return

When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year. stair-stepped different the same regressing

the same

True or false: Given the same rate of interest, more money can be earned with compound interest than with simple interest.

true

What is the future value of $1,000 invested for 8 years at 6%? $1,480.00 $1,593.85 $1,586.87

$1,593.85

If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years? $133.10 $130.00 $131.00 $121.00

$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 ____. $550; $600 $600; $605 $605; $600 $550; $605

$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) (1+r) (1×r) (1-r)

(1+r)

Using a time value of money table, what is the future value interest factor for 10 percent for 2 years? 1.10 1.21 2.00 121

1.21

Which of the following can be determined using the future value approach to compound growth developed in this chapter? Erratic growth Dividend growth Sales growth

Dividend growth Sales growth

What is the future value of $100 compounded for 50 years at 10 percent annual interest? $868.85 $14,987.45 $500.00 $11,739.09

FV = $100 × 1.10^50 = $11,739.09

Future value is the ______ value of an investment at some time in the future. interest cash relational indirect

cash

Discounting is the opposite of ____.

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

The ____ rate is the rate used to calculate the present value of the future cash flows.

discount

Calculating the present value of a future cash flow to determine its value today is called _____. discounted cash flow valuation discounted inflation rate modeling future period modeling presented cash flows valuation

discounted cash flow valuation

True or false: The multi-period formula for future value using compounding is FV = (1 + r)^t.

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 Blank______ value interest factor for a single deposit is as follows: (1 + r)^t present future past compound

future

The greater the number of time periods, the (smaller/greater) the impact of compounding.

greater

A dollar received one year from today has _____ value than a dollar received today. less more the same

less

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

The basic present value equation underlies many of the _____. most important ideas in corporate finance most crucial ideas about portfolio risk basic principles of the U.S. tax code

most important ideas in corporate finance

In general, if you invest for one period at an interest rate of r, your investment will grow to 1 (minus/plus) r.

plus

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. future past present idealistic

present

The ____ value is the current value of future cash flows discounted at the appropriate discount rate.

present

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 FV = $100÷(1.10)^3 FV = $100 × 0.10 × 3 FV = $100 × 1.10 × 3

FV = $100 × (1.10)^3

Interest earned only on the original principal amount invested is called ____ interest.

simple

f 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. future idealistic present past

present

The difference between _______ interest and compound interest is that the amount of compound interest earned gets (bigger or smaller) ___________ every year. discount; bigger interest; smaller simple; bigger

simple; bigger

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

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? There is no difference in the required deposit. 10-year investment 4-year investment

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(6,0,−6000,10000) =NPER(0.06,0,−6000,10000) =NPER(0.06,0,6000,10000) =NPER(6,0,6000,10000)

=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(0,0.0653,−40,240) =NPER(0.0653,0,−40,240) =N(0.0653,0,−40,240) =N(40,0.0653,−240)

=NPER(0.0653,0,−40,240)

Which of the following methods can be used to calculate present value? Random number generation An algebraic formula A time value of money table A financial calculator

An algebraic formula A time value of money table A financial calculator

Which of the following are correct spreadsheet functions? Interest rate = DISCOUNT(nper,pmt,pv,fv) Present value = PV(rate,nper,pmt,fv) Future value = FV(rate,nper,pmt,pv) Discount rate = RATE(nper,pmt,pv,fv)

Present value = PV(rate,nper,pmt,fv) Future value = FV(rate,nper,pmt,pv) Discount rate = RATE(nper,pmt,pv,fv)

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 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. less than the same as more than

more than

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. future value factor ROE present value factor times interest earned

present value factor

____ value is the cash value of an investment at some time in the ____.

future; future

The (smaller/greater) the interest rate changes, the greater the impact to the future value of an amount invested.

greater

Which formula below represents a present value factor? 1/(1 + N)^r 1/N + 1/r (1 + r)/t 1/(1 + r)^t

1/(1 + r)^t