FINC 494 - Ch 4

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

Using a time value of money table, what is the future value interest factor for 10% for 2 years?

1.21

Using a time value of money table, what is the future value interest factor for 20 percent for 2 years?

1.4400

Which of the following is the correct Excel function to calculate the present value of $300 due in five years at a discount rate of 10 percent?

= PV(0.10,5,0,-300)

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

FV = PV(1+r)^t

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

False

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

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: The present value is the sum of all expenses in a project.

False

True or false: The process of leaving your money and any accumulated interest in an investment for more than one period is called multiplied interest.

False Called compounding

If FV = PV × (1 + r) is the single-period formula for future value, which of the following is the single-period present value formula?

PV = FV / (1 + r)

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

True

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

True

To calculate the future value of $100 invested for t years at r interest rate, you enter the present value in your calculator as a negative number. Why?

because the $100 is an outflow from you which should be negative

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

discounted cash flow (DCF)

Which of the following are the primary as well as easy ways used to perform financial calculations today?

financial calculator spreadsheet functions

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

future

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

future

Using the PV, discount rate, and _____ , you can determine the number of periods

future value

When dealing with compound interest, it is more financially advantageous to have a ______ time horizon for investment.

longer

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

longer, greater

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

money

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

With _____ interest, the interest is not reinvested.

simple

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

the reciprocal of 1 divided by

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

they are available for only a relatively small number of interest rates it is easier to use inexpensive financial calculators instead

The real world has moved away from using ______ for calculating future and present values.

time value of money tables

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

two