Chapter 4

Calculating the present value of a future cash flow to determine its worth today is commonly called _________ valuation.

Discounted cash flow (DCF)

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

Future

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

Longer; greater

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

What can be used to calculate present value?

a. An algebraic formula b. A financial calculator c. A time value of money table

True or false: when entering the interest rate in a financial calculator, you should key in the interest rate as a decimal.

a. False; As a percent

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

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

What can be determined using the future value approach to compound growth developed in this chapter?

a. Population growth b. Dividend growth c. Sales growth

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

a. The reciprocal of b. 1 divided by

The current value of a future cash flow discounted at the appropriate rate is called the _______ value.

Present

With discounting, the resulting value is called the ______ value; while with compounding the result is called the _______ value.

Present; future

What formula represents a present value factor?

1/(1+r)^t

The idea behind ________ is that interest is earned on interest.

compounding