finance ch 5
which of the following methods can be used to calculate present value? (3 answers)
1) a time value of money table 2) algebraic formula 3) financial calculator
time value of money tables are not as common as they once were b/c: __? (2 answers)
1) its easier to use inexpensive fnancial calculators instead 2)theyre available for only a relatively small # of interest rates
using a time value of money table, whats the FV interest factor for 10% for 2yrs?
1.21
T/F? given the same rate of interest, more money can be earned w/ compound interest than w/ simple interest
True
$1 received 1yr from today has __ value than $1 received today
less
the concept of the time value of money is based on the principle that $1 today is worth __ $1 promised at some time in the future
more than
the basic PV equation underlies many of the
most important ideas in corporate finance
if you want to know how much you need to invest today at 12% compounded annually in order to have $4000 in 5 yrs, you will need to find a(n) ___ value
present
what is the FV of $100 compounded for 50 yrs at 10% annual interest?
$11,739.09 =$100X1.10^50
if $100 earns compound interest for 2 yrs at 10%/yr, the future value will be___?
$121.00 FV=$100x1.10^2= $121
if you invest $100 at 10% simple interest, how much will you have in 10 yrs?
$200 FV= $100+10($100x.10)= $200 simple FV=$100(1.10)^10=$259.37 cmpound
if you invest for a single period at an interest rate of r, your money will grow to __/$ invested
(1+r)
if you invest $100 at 10% compounded annually, how much money will you have at the end of 3 yrs?
133.10
how long will it take $40 to grow $240 at an interest rate of 6.53% compounded annually?
28.33 yrs (enter PV=-40, FV= 240, I/Y=6.53. *MUST ENTER NEGATIVE 40)
suppose we invest $100 now & get back $236.74 in 10 yrs. what interest rate will we achieve?
9.0%
multi period formula for compounding a PV into a FV?
FV=PVx(1+r)^t
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
T/F? discounting is the opposite of compounding
true
T/F? in a time value of money table, if the FV is 1.3310 w/ an interest rate of 10%, then the # of yrs must be 3
true
why is $1 received today worth more than a dollar received in the future? (2 answers)
1) inflation will make $1 in the future worth less than $1 today 2) today's dollar can be reinvested, yielding a greater amt in the future
which of the following can be determined using the FV approach to compound growth developed in this chapter? (3 answers)
1) population growth 2) dividend growth 3) sales growth
suppose PV is $100, FV is $1000, & N is 10yrs. which formula below is used to find the decimal interest rate?
(1000/100)^(1/10)-1
which formula below represents a present value factor?
1/(1+r)^t
on a time value of money table, the intersection of the column for a 10% interest rate & the row for 10 yrs yields a PV factor |1/(1+r)^t| of:
0.3855
if the interest rate is 10%/yr & the money is invested for 10 yrs, what is the PV discount factor?
0.3855 1/(1.10)^10= 0.3855
the PV interest factor for $1 at 5% compounded annually for 5 yrs is
0.7835
T/F? small changes in the interest rate do not really matter when dealing w/ millions/ billions of dollars over 30/40 yrs
false
T/F? the correct mathematical formula for finding the FV of a $68 PV in 12yrs at 9% annual interest is: FV=$68(1.12^9).
false
T/F? when using the time value of money features of a financial calculator, you should key in the interest rate as a decimal.
false
