Chapter 5 Question Bank

what is the future value of $1,000 invested for 8 years at 6%?

$1,593.85

what is the future value of $100 compounded for 50 years at 10% annual interest?

$11,739.09

if $100 earns compound interest for 2 years at 10% per year, the future value will be ___.

$121

if you invest $100 at 10% simple interest, how much money will you have in 10 years?

$200

you invest $500 at 10% interest. at the end of 2 years with simple interest you will have ___ and with compound interest you will have ___.

$600, $605

if you plan to put a $10,000 down payment on a house in 5 years and you can earn 6% per year, how much will you need to deposit today?

$7,472.58

suppose you want to save $10,000 to buy a car. You have $6,000 to deposit today and you can earn 6% on your investments. You want to know when you have enough to buy the car. Which of the following spreadsheet functions will solve the problem? NPER=___.

(0.06, 0, -6000, 10000)

if you invest for a single period at an interest rate of r, your money will grow to ___ per dollar invested.

(1 + r)

the present value interest factor for $1 at 5% compounded annually for 5 years [PVIF(5%,5)] is ___.

0.7835

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

1.21

which formula below represents a present value factor?

1/(1+r)^t

assuming the interest rate offered for a 10-year investment plan is same as for a four-year investment plan. for an investor to achieve the same future value, which of these two plans would require a smaller savings amount to be deposited today?

10 year investment

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

28.33 years

suppose we invest $100 now and get back $236.74 in 10 years. what rate of interest will we achieve?

9%

which of the following are correct spreadsheet functions?

<> Discount rate = RATE(nper,pmt,pv,fv) <> Future Value = FV(rate,nper,pmt,pv) <> Present Value = PV(rate,nper,pmt,fv)

which of the following methods can be used to calculate present value?

<> a time value of money table <> in algebraic formula <> a financial calculator

which of the following can be determined using the future value approach to compound growth developed in this chapter?

<> dividend growth <> population growth <> sales growth

small changes in the interest rate affect the future value of a small-term investment more than they would affect the value of a long-term investment. TRUE or FALSE?

FALSE

the multi-period formula for compounding is FV = (1 + r)^t

FALSE

when using the time value of money features of a financial calculator, you should key in the interest rate as a decimal. TRUE or FALSE?

FALSE

which of the following investments would result in a higher future value? Investment A (12% APR for 10 years) or Investment B (12% APR for 12 years)?

Investment B

the basic present value equation is ___.

PV = FV / (1+r)^t

discounting is the opposite of compounding.

TRUE

given the same rate of interest, more money can be earned with compound interest than with simple interest. TRUE or FALSE?

TRUE

the correct future value interest factor in a time value of money table for $1 in 10 years at 10% per year is to 2.5937.

TRUE

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

today's dollar can be reinvested, yielding a greater amount in the future.

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

cash

the idea behind ___ is that interest is earned on interest.

compounding

a dollar received one year from today has ___ value than a dollar received today

less

the concept of the time value of money is based on the principle that a dollar today is worth ___ a dollar promised at sometime 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 5 years, you will need to find a (n) ___ value.

present

suppose present value is $100, future value is $1,000, and N is 10 years. which formula below is used to find the (decimal) interest rate?

r = (1000/100)^(1/10) - 1

the difference between ___ interest and compound interest is that the amount of compound interest earned gets [bigger OR smaller] every year.

simple, bigger