Chapter 4 LearnSmart

The amount an investment is worth after one or more periods is called

the future value

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

Spreadsheet functions and financial calculators

T/F: the formula for a present value factor is 1/[(1+r)^t]

True

Which of the following is an incorrect keystroke in a financial calculator for calculating the future value of $100 today for 2 years at 10% per year

0.10 I/Y

The present value interest factor for $1 at 5% compounded annually for 5 years [PVIF(5%,5)] is: 0.7835

0.7835 (on a chart)

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

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

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

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 = 100 x (1.1)^3

T/F: when entering the interest rate in a financial calculator, you should key in the interest rate as a decimal

False (the calculator is already programmed to view it as a percent)

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

compounding

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

discounted cash flow (DCF) valuation