FIN 3200 Ch. 4

In a present value equation, the ________rate (r) can be found using the PV, FV, and t. (Enter one word per blank.)

discount

The real world has moved away from using _____________________________ for calculating future and present values. Multiple choice question. time value of money tables mathematical formulas spreadsheets financial calculators

A

With discounting, the resulting value is called the _____ value; while with compounding the result is called the ____ value. Multiple choice question. present; future future; present discounted; compounded current; expected

A

Which of the following methods are used to calculate present value? Multiple select question. A time value of money table A financial calculator Random number generation An algebraic formula

A, B, D

The basic present value equation is: Multiple choice question. PV × FVt = (1 + r)^t PV = FVt/(1 + r)^t PV/(1 + r)^t = FVt

B

Using the PV, discount rate, and ________ , you can determine the number of periods. (Enter abbreviation only.)

FV

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. True false question. True False

False: one period

The amount an investment is worth after one or more periods is called the _____ value. Multiple choice question. expected present anticipated future

Future

True or false: The present value is the sum of all expenses in a project. True false question. True False

F

Using a time value of money table, what is the future value interest factor for 20 percent for 2 years? Multiple choice question. 1.1500 1.2100 2.4883 1.4400

D

True or false: If you invest at a rate of r for two periods, under compounding, your investment will grow to (1+r)2 per dollar invested. True false question. True False

True

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

cash

Which formula below represents a present value factor? Multiple choice question. (1+r)/t 1/N+1/r 1/(1+r)t 1/(1+N)r

C

Using a time value of money table, what is the future value interest factor for 10 percent for 2 years? Multiple choice question. 1.10 1.21 2.00 121

B

When dealing with compound interest, it is more financially advantageous to have a _____ time horizon for investment. Multiple choice question. shorter longer

B

For a given time period (t) and interest rate (r), the present value factor is _______ the future value factor. (Select all that apply.) Multiple select question. 1 minus 1 divided by the reciprocal of 1 plus

B & C

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

T

The current value of a future cash flow discounted at the appropriate rate is called the _____ value. Multiple choice question. simple current present expected

C

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%? Multiple choice question. =PV(10,5,0,300) =PV(10,5,0,-300) =PV(0.10,5,0,-300)

C

Which of the following is the correct formula for calculating the present value of a future amount, expected in t years at r per cent interest? Multiple choice question. PV = RV x (1-r)^t PV = FV/(1-r)^t PV = FV/(1+r)^t PV = FV x (1+r)^t

C

The process of accumulating interest in an investment over time to earn more interest is called _________. Multiple choice question. simple interest compounding add-on interest growth

Compounding

Future value is the ________ value of an investment at some time in the future. Multiple choice question. relational indirect interest cash

D

The idea behind ______ is that interest is earned on interest. Multiple choice question. simplification reinsurance rebounding compounding

D

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

F: you can with discount rate

If you invest for a single period at an interest rate of r, your money will grow to ______ per dollar invested. Multiple choice question. (1+r)1+r (1-r)1-r (1×r)1×r (1÷r)

A

Calculating the present value of a future cash flow to determine its worth today is commonly called ___________ valuation. Multiple choice question. compounded discounted cash flow (DCF) present cash flow (PCF) present worth

B

Time value of money tables are not as common as they once were because: Multiple select question. A. they are easily memorized. B. they are available for only a relatively small number of interest rates. C. it is easier to use inexpensive financial calculators instead D. they are more accurate than formula or calculator solutions.

B & C

Given an investment amount and a set rate of interest, the _____ the time horizon the _____ the future value. Multiple choice question. shorter; greater longer; smaller longer; greater

C

If FV= PV x (1+r) is the single period formula for future value, which of the following is the single period present value formula? Multiple choice question. PV = FV x (1+r) PV = FV x (1-r) PV = FV/(1+r) PV = FV/(1-r)

C

With________ interest, the interest is not reinvested.

simple

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

T

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

False

FV = ________×(1 + r)^t

PV

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

future

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? Multiple choice question. A. It doesn't matter whether you enter it as a positive or negative number. B. Because the $100 is an inflow and should be negative. C. Because the $100 is an outflow from you which should be negative.

C

What is the primary difference between time value of money data entries in your calculator and in a spreadsheet function? Multiple choice question. A. The present value is entered as positive in your calculator and negative in the function. B. The present value is entered as negative in your in your calculator but as a positive in the spreadsheet function. C. The interest rate in your calculator is entered as a whole number while in the spreadsheet function it is entered as a decimal.

C

Which of the following is the correct formula for calculating the present value of a future amount, expected in t years at r per cent interest? Multiple choice question. PV = FV/(1-r)^t PV = RV x (1-r)^t PV = FV/(1+r)^t PV = FV x (1+r)^t

C

Which of the following is the multi-period formula for compounding a present value into a future value? Multiple choice question. FV = PV(1+r)tPV1+rt FV = PV × r × t FV = PV×(1 + r)× t FV = PV×(1 + r)t

D

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

F

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. True false question. True False

F: compound interest

FV =____ ×(1 + r)t

PV

Fill in the blanks to complete the sentence. If you invest at a rate of r for____ periods, under compounding, your investment will grow to (1+r)2 per dollar invested.

2