Finance Chapter 5 Smartbook Questions

a. cash

Future value is the ______ value of an investment at some time in the future. Multiple choice question. a. cash b. relational c. interest d. indirect

c. $121.00

If $100 earns compound interest for 2 years at 10 percent per year, the future value will be ____. Multiple choice question. a. $120.00 b. $100.00 c. $121.00 d. $110.00

b. present

If you want to know how much you need to invest today at 12 percent compounded annually in order to have $4,000 in five years, you will need to find a(n) _______ value. Multiple choice question. a. idealistic b. present c. future d. past

c. simple interest

Interest earned on the original principal amount invested is called _____. Multiple choice question. a. interest yield b. compound interest c. simple interest

simple

Interest earned only on the original principal amount invested is called ____________ interest.

true

T/F: Given the same rate of interest, more money can be earned with compound interest than with simple interest.

compounding

The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called ________________

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

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? Multiple choice question. a. r = 1000 × (1/10) - 1 b. r = (1000/100)^(1/10) - 1 c. r = (1000/100) × (1/10) - 1s d. r = (1000/100) - 1

b. $11,739.09

What is the future value of $100 compounded for 50 years at 10 percent annual interest? Multiple choice question. a. $500.00 b. $11,739.09 c. $868.85 d. $14,987.45

b. the same

When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year. Multiple choice question. a. regressing b. the same c. different d. stair-stepped

d. 1/(1 + r)^t

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

return

The discount rate is also called the rate of __________

future

____________ value is the cash value of an investment at some time in the _______________

a. $600; $605

You invest $500 at 10 percent interest. At the end of 2 years with simple interest you will have ____ and with compound interest you will have ____. Multiple choice question. a. $600; $605 b. $550; $605 c. $605; $600 d. $550; $600

d. =NPER(0.06, 0, −6000, 10000)

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'll have enough to buy the car. Which of the following spreadsheet functions will solve the problem? Multiple choice question. a. =NPER(0.06, 0, 6000, 10000) b. =NPER(6, 0, −6000, 10000) c. =NPER(6, 0, 6000, 10000) d. =NPER(0.06, 0, −6000, 10000)

true

T/F: The formula for a present value factor is 1/(1+r)t.

present

The ___________ value is the current value of future cash flows discounted at the appropriate discount rate.

c. PV = FVt/(1+r)^t

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

a. most important ideas in corporate finance

The basic present value equation underlies many of the _____. Multiple choice question. a. most important ideas in corporate finance b. basic principles of the U.S. tax code c. most crucial ideas about portfolio risk

b. more than

The concept of the time value of money is based on the principle that a dollar today is worth __________ a dollar promised at some time in the future. Multiple choice question. a. less than b. more than c. the same as

b. compounding

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

b, c, d

Which of the following are correct spreadsheet functions? Multiple select question. a. Interest rate = DISCOUNT(nper,pmt,pv,fv) b. Discount rate = RATE(nper,pmt,pv,fv) c. Present value = PV(rate,nper,pmt,fv) d. Future value = FV(rate,nper,pmt,pv)

a, b

Which of the following can be determined using the future value approach to compound growth developed in this chapter? Multiple select question. a. Sales growth b. Dividend growth c. Erratic growth

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

Why is a dollar received today worth more than a dollar received in the future? Multiple choice question. a. A dollar today is not worth more than a dollar in the future. b. A dollar will be worth as much in the future as it is today. c. Today's dollar can be reinvested, yielding a greater amount in the future.