Finance 303 - Chapter 4

Which of the following is the multi-period formula for compounding a present value into a future value?

FV = PV×(1 + r)^t

If you invest at a rate of r for __________ periods, under compounding, your investment will grow to (1+r)^2 per dollar invested.

2

Which of the following is the correct formula for calculating the present value of a future amount, expected in t years at r percent interest?

PV = FV/(1+r)^t

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.

cash

The process of accumulating interest in an investment over time to earn more interest is called _________.

compounding

In a present value equation, the __________ rate (r) can be found using the PV, FV, and t. (Enter one word per blank.)

discount

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

future

FV = __________ ×(1 + r)^t

pv

True or false: Given the PV, FV, and life of the investment, you can determine the discount rate.

true

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

(1+r)

Which formula below represents a present value factor?

1/(1+r)^t

Which of the following methods are used to calculate present value?

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

True or false: If you invest at a rate of r for two periods, under compounding, your investment will grow to (1+r)^2 per dollar invested.

true

True or false: The formula for a present value factor is 1/(1+r)^t.

true

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

compounding

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

discounted cash flow (DCF)

True or false: Future value refers to the amount of money an investment is worth today.

false

True or false: If you invest for two periods at an interest rate of r, then your money will grow to (1 + r) per dollar invested.

false

True or false: Given the PV, FV, and payment amount, you can determine the number of periods.

false (also need rate)

Using the PV, discount rate, and , you can determine the number of periods. (Enter abbreviation only.)

fv

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

present