FNAN 300 Connect Chapter 4

You must invest ______________ today at 8% to get $2 in one year?

$1.85

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=$100x(1.10)^3

Given an investment amount and a set rate of interest, the ____________ the time period, 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

If you want to know how much you need to invest today at 12% compounded annually in order to have $4,000 in five years, you will need to find a(n) ____________ value

present

Suppose we invest $100 now and receive $259.37 in 10 years. What rate interest will we achieve?

10.0%

The correct future value interest factor in a time value of money table for finding the future value of $100 in 10 years at 10% per year interest is _________________.

2.5937

If a firm's sales are growing at 5% per year, how long will it take for the firm's sales to triple?

22.5 years

How long will it take $40 to grow to $240 at an interest rate of 6.53% compounded annually?

28.33

Which of the following is the correct Excel function to calculate the present value of $300 due in 5 years at a discount rate of 10%?

=PV(0.10,5,0,300)

Which of the following can be used to calculate present value?

a time value of money table, a financial calculator, and an algebraic formula

If you invest $100 for 5 years at 10% interest compounded annually, which of the following will be the formula for the future value of your investment?

FV=100x(1.10)^5

If FV=PVx(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)

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 and it is easier to use inexpensive financial calculators instead

True or false: The formula for a present value factor is 1/(1+r)^2

true

You invest $500 at 10 percent interest per annum. At the end of 2 years with simple interest you will have ____________ and with compound interest you will have ____________.

$600;$605

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

$133.10

If you invest $500 for one year at a rate of 8% per year, how much interest will you earn?

$40

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

1 divided by and the reciprocal of

The present value interest factor for $1 at 5% compounded annually for 5 years is:

1/(1.05)^5= 0.7835

If the interest rate is 10% per year and there are 10 years, what is the present value discount factor?

1/(1.10)^10= 0.3855

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

compounding

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

false

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

false

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

future

Why is a dollar received today worth more than a dollar received in the future?

inflation will make a dollar in the future worth less than a dollar today and today's dollar can be reinvested, yielding a greater amount in the future

With discounting, the resulting value is called the ____________ value; while with compounding the result is called the _____________ value.

present; future

What is the primary difference between time value of money data entries in your calculator and in a spreadsheet function?

the interest rate in your calculator is entered as a whole number while in the spreadsheet function it is entered as a decimal