Chapter 5

The future value is the value today of a future cash flow

Balls

The principle is the amount of the investment

TRUE

The principle is the amount of the investment

True

Using lower interest rate will

decrease of future value of any investment

The earnings from compounding drive much of the return earned on a long-term investment because the longer the investment., The greater the proportion of total earnings from Interest earned on interest

true

What time value of money refers to the issue of

what the value of the stream of future cash flows is today

A dollar today is worth less than a dollar received in the future

False

The future value is simply the current value of a future cash flow that has been discounted at the appropriate discount rate

False

The present value is what the investment will be worth after earning interest for one or more periods.

False

The principal is the amount of interest earned each period.

False

The process of converting the initial amount into a future value is called discounting

False

The time value of money implies that the further in the future you receive a dollar the more it is worth today

False

The time value of money is based on the idea that most people prefer to consume goods tomorrow rather than consuming similar goods today

False

There is no trade-off between money today and money at some future date and it does not depends the rate of interest you can earn by investing

False

compounding is the process by which interest earned on an investment is spent so that in the future periods,Interest is not earned on the interest previously earned as well as the original depreciation amount

False

with a higher interest-rate on an investment, less money is accumulated for any time period

False

The process of converting future cash flows to what its present value is

Discounting

The further in the future you receive a dollar the more it is worth today

FALSE

The higher the discount rate, the higher the present value of a future cash flow

FALSE

The term (1+i) is the present value interest factor, often called simply the present value factor, for a single period, such as one year

FALSE

The time value of money implies that the further in the future you receive a dollar, the more it is worth today

FALSE

The future value factor for 10 years at 15% with annual compounding is calculated as (1+15)^10

TRUE

The time value of money implies that a dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return

TRUE

Which of the following statements is FALSE with respect to the present value of a future amount

The lower the discount rate, the lower the present value of a single some for a given time period

Compound interest includes not only simple interest but also interest earned on the reimbursement of previously earned interest, the so-called interest earned on interest

True

If the discount rate increases than the present value of a potential investment Would fall

True

Money has a time value because a dollar in hand today is worth more than a dollar to be received in the future

True

The concept of compounding is not restricted to money and any number that changes over time such as a population of a city changes at some compound growth rate

True

The farther in the future dollar will be received, the worse it is worth today

True

The future value (FV) of an investment is worth the investment will be worth after earning interest for one or more time periods

True

The future value as what the investment will be worth after earning interest for one or more periods

True

The growth in the future value of an investment over time is not linear, but exponential

True

The longer the time. The funds are invested, the greater the future value

True

The present value factor increases as the number of period decreases

True

The present value is simply the current value of a future cash flow that has been discounted at the appropriate discount rate

True

The present value of a dollar becomes smaller the farther into the future that dollar is to be received

True

The principal is the amount of money on which interest is paid

True

The time value of money implies that a dollar received today is worth more than a dollar received tomorrow

True

The value of a dollar invested at a positive interest rate grows over time

True

With a higher interest rate on an investment more money is accumulated for anytime Period

True

compound growth occurs when the initial value of a number increases or decreases each period by the factor (1+ growth rate)

True

computationally, the present value factor is the reciprocal of the future value factor, or 1/(1+i)

True

the term (1+i) Is the future value interest factor, often called simply the future value factor, for a single period, such as one year

True

Future value measures

What one or more cash flows are worth at the end of a specified period.

A dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return

correct

Using higher discount rates will

decrease the present value of any future cash flow

Any number of changes that are observed over time in the physical and social sciences unfortunately do not follow a compound growth rate pattern and the future value formula cannot be used in calculating these growth rate

false

Simple interest includes not only interest on interest but also interest earned on the reinvestment of previously earned interest, the so-called compound interest

false

The earnings from compounding does not affect the return and on a long-term investment because the longer the investment. The smaller the proportion of total earnings from interest earned on interest

false

The higher the discount rate, the higher the present value of $1 for a given time.

false

The lower the interest rate, the faster the value of an investment will grow, and the larger the amount of money that will accumulate over time

false

The present value factor decreases as the number of period decreases

false

The term (1+i) Is it present value interest factor, often called simply the present value factor, for a single period, such as one year

false

The time value of money implies that a dollar received today is worth less than a dollar to be received in the future because funds received today cannot be invested to earn a return

false

The value of a dollar invested at a negative interest rate grows overtime

false

using lower discount rate will

increase the present value of any future cash flow