Business Finance Chapter 4

If you wish to find the future value of $100 invested at 10% for 5 years, which of the following would be the correct excel function?

=FV(0.10,5,0,-100)

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%?

=PV(0.10,5,0,300)

Which of the following is the multi-period formula for compounding a present value into a future value?

FV=PVx(1+r)^t

If FV=PVx(1+r) is the single period formula for future value, which of the following is the single period present value formula?

PV=FV/(1+r)

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

Population growth, sales growth, dividend growth

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; inflation will make a dollar in the future worth less than a dollar today

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: When entering the interest rate in a financial calculator, you should key in the interest rate as a decimal.

false

The amount an investment is worth after one or more periods is called the ___ value

future

Time value of money tables are not as common as they once were because

it is easier to use inexpensive financial calculators instead, they are available for only a relatively small number of interest rates

A dollar received one year from today has ____ value than a dollar received today

less

Given an investment amount and a set rate of interest, the ___ the time period, the ___ the future value

longer; greater

The current value of a future cash flow discounted at the appropriate rate is called the ____ value

present

With discounting, the resulting value is called the ____ value; while with compounding the result is called the _____ value.

present; future

For a given time period (t) and interest rate (r), the present value factor is ____ the future value factor.

the reciprocal of, 1 divided by

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

28.33 years

If you invest $500 for one year at a rate of 8% per year, how much interest will you earn?

$40

You invest $500 at 10 percent interest per annum. At the end of 2 years with simple interest you will have ___ and with compound interest you will have ____.

$600, $605

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

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

Which of the following is an incorrect keystroke in a financial calculator for calculating the future value of $100 today for 2 years at 10% per year?

0.10 I/Y

If the interest rate is 10% per year and there are 10 years, what is the present value discount factor?

0.3855

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

1.21

Which formula below represents a present value factor?

1/(1+r)^t

Suppose we invest $100 now and receive $259.37 in 10 years. What rate of interest will we achieve?

10.0%

If you investt $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?

133.10

The future value of a $100 investment in 4 years compounded at 8% per year equals ___

136.05

If a firm's sales are growing at 5% per year, how long will it take for the firm's sales to triple?

22.5 years