FNAN 300 Ch. 4
Less.
A dollar received one year from today has ___________ value than a dollar received today.
Discounted cash flow (DCF)
Calculating the present value of a future cash flow to determine its worth today is commonly called ____________ valuation.
2.5937
The correct future value interest factor in a time value of money table for finding the future value of $100 in 10 years at 10% per year interest is _____________.
$136.05
The future value of a $100 investment in 4 years compounded in 8% per year equals _____________.
Compounding
The idea behind ________ is that interest is earned on interest.
0.7835 1/(1.05)^5=0.7835
The present value interest factor for $1 at 5% compounded annually for 5 years [PVIF(5%,5)] is:
Compounding
The process of accumulating interest in an investment over time to earn more interest is called ____________.
-Financial calculator -Spreadsheet functions
Which of the following are the primary as well as easy ways used to perform financial calculations today?
$600; $605 simple interest= 500 (0.10)=$50 per year. times two years= $100 total. Adding the original principal yields $600. With compound interest, the total is $500 (1.10)^2=$605. The FV will always be higher with compound interest.
You invest $500 at 10% interest per annum. At the end of 2 years with simple interest you will have ________ and with compound interest you will have ___________.
$1.85
You must invest ________ today at 8% to $2 in one year (round your sewer to two decimal places)?
9%
Suppose the present value is $1,100, the future value is $1,200, after one year. What is the interest rate?
10% ($259.37/$100)^1/10-1=10%
Suppose we invest $100 now and receive $259.37 in 10 years. What rate of interest will we achieve?
Future
The amount an investment is worth after one or more periods is called the ___________ value.
PV=FV/(1+r)^t
The basic present value equation is:
1 divided by the reciprocal of
For a given time period (t) and interest rate (r), the present value factor is _____________ the future value factor.
False.
True or False: Future value refers to the amount of money an investment is worth today.
Cash
Future value is the ___________- value of an investment at some time in the future.
FV=100 x (1.10)^5
If you invest $100 for 5 years at 10% interest compounded annually, which of the following will be the formula for the future value of your investment?
$40.00 $500 x 8%=$40
If you invest $500 for one year at a rate of 8% per year, how much interest will you earn?
Because the $100 is an outflow from you which should be negative.
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?
True.
True or False: The formula for a present value factor is 1/ (1+r)^t
FV= $100 x (1.10)^3
Which of the following is the correct mathematical formula for calculation of the future value of $100 invested today for 3 years at 10%per year?
A financial calculator An algebraic formula A time value of money table.
Which of the following methods are used to calculate present value?
-Today's dollar can be reinvested, yielding a greater amount in the future. -Inflation will make a dollar in the future worth less than a dollar today.
Why is a dollar received today worth more than a dollar received in the future?
1.21
Using a time value of money table, what is the future value interest factor for 10 percent for two years?
Present; future.
With discounting, the resulting value is called the __________ value; while with compounding the result is called the ___________ value.
$11,739.09 FV=$100 x 1.10 ^50 =$11,739.09
The future value of $100 compounded at 10% per year for 50 years is:
=PV (0.10, 0, -300)
Which of the following is the correct Excel function to calculate the present value of $300 due in 5 years at a discounted rate of 10%?
PV= FV/(1+r) ^t
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?
longer; greater.
Given an investment amount and a set rate of interest, the ______________ the time horizon the _________ the future value.
PV=FV/(1+r)
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?
22.5 years.Which
If a firm's sales are growing at 5% per year, how long will it take for the firm's sales to triple?
0.3855 1/(1.10)^10=0.3855
If the interest rate is 10% per year and there are 10 years, what is the present value discount factor?
$133.10 FV= $100 x (1.10) ^3
If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?
(1 + r)
If you invest for a single period at an interest rate of r, your money will grow to ________ per dollar invested.
Present.
If you want to know how much you need to invest today at 12% compounded annually in order to have $4,000 in five years, you will need to find a(n) ___________ value.