Finance Chapter 3

A lump sum can be a​ one-time earlier but not a​ one-time later cash flow.

False

At an annual growth rate of​ 5%, the approximate time it would take for an amount to double could be found by dividing 5 by 72.

False

A​ "Lump Sum" would involve cash flows occurring at two or more different time periods.

False

Compounding is the process used to find a PV.

False

FVs are earlier values and PVs are later values

False

FVs represent what you need to invest later to have it grow into a specified earlier amount.

False

The discounting process adds the interest part to the future value to arrive at the present value.

False

There are a total of 5 variables in the basic TVM​ lump-sum formulas

False

With compound​ interest, interest is earned every period on that​ period's starting amount.

True

There are 3 basic Time Value of Money formulas covered in chapter 3 of our text.

False

Ceteris paribus​, as a debtor and for the same annual interest​ rate, you would prefer simple interest to compound interest.

True

Present values are earlier values that appear rightward on a time line and future values are later values that appear leftward on a time line.

False

Ceteris​ paribus, the FV and the number of periods are inversely related.

False

The number of years it would take an investment to double is approximately equal to the annual interest rate divided 72.

False

There is an inverse relationship between the present value and the discount​ rate, meaning that they move in the same direction

False

The​ right-hand side variables in the discount rate formula represent the 3 key factors determining stock prices

False

With compound​ interest, interest is earned every period on only the original starting amount

False

Ceteris paribus​, as a​ lender, you would prefer compound interest over simple interest.

True

Consider a two−year ​investment: Given a constant and positive interest​ rate, the interest earned in the second year will be greater than the interest earned in the first year​ (assuming annual​ compounding).

True

FVs represent the amount that an earlier amount will grow into.

True

PVs are leftward on a time line and FVs are rightward on the time line.

True

To calculate how long it would take for an earlier amount to grow into a later​ amount, we would solve the​ lump-sum Time Value of Money formula for the variable​ "n".

True

What is​ "discounted" from the FV is the interest part to arrive at the PV.

True