ch 4 smartbook questions

If you invest for a single period at an interest rate of r, your money will grow to ______ per dollar invested.

(1+r)

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

1.21

Using a time value of money table, what is the future value interest factor for 20 percent for 2 years?

1.4400

Which of the following is the correct Excel function to calculate the present value of $300 due in five years at a discount rate of 10 percent?

= PV(0.10,5,0,-300)

Using the PV, discount rate, and ___________ , you can determine the number of periods.

FV

Which of the following is the multi-period formula for compounding a present value into a future value? FV = PV × (1 + r)^t FV = PV × r × t FV = PV × (1 + r)× t FV = PV/(1+r)t

FV = PV × (1 + r)^t

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

False Future value refers to the amount of money an investment will grow to over some period of time at some given interest rate.

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

False Given the PV, FV, and discount rate, you can determine the number of periods.

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

False The calculator is already programmed to interpret 10 as 10 percent.

Which of the following methods are used to calculate present value? a financial calculator random number generation an algebraic formula a time value of money table

a financial calculator an algebraic formula a time value of money table

Calculating the present value of a future cash flow to determine its worth today is commonly called ______ valuation.

discounted cash flow (DCF)

Which of the following are the primary as well as easy ways used to perform financial calculations today? financial calculator spreadsheet functions manual calculations time value of money tables

financial calculator spreadsheet functions

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

future

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.

more than

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

present

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

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

The real world has moved away from using ______ for calculating future and present values.

time value of money tables

FV = _________ × (1 + r)^t

PV

The process of accumulating interest in an investment over time to earn more interest is called

compounding

Which formula below represents a present value factor? 1/(1 + N)^r 1/N + 1/r 1/(1 + r)^t (1 + r)/t

1/(1 + r)^t

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.

False If you invest for one period at an interest rate of r, then your money will grow to (1 + r) per dollar invested.

If FV = PV × (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) PV = FV/(1 + r) PV = FV × (1 − r) PV = FV × (1 + r)

PV = FV/(1 + r)

Which of the following is the correct formula for calculating the present value of a future amount, expected in t years at r percent interest? PV = FV/(1 − r)^t PV = FV × (1 + r)^t PV = RV × (1 − r)^t PV = FV/(1 + r)^t

PV = FV/(1 + r)^t

The basic present value equation is ______.

PV = FVt/(1 + r)^t

What is the primary difference between time value of money data entries in your calculator and in a spreadsheet function?

The interest rate in your calculator is entered as a whole number, while in the spreadsheet function it is entered as a decimal.

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.

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?

because the $100 is an outflow from you which should be negative

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

cash

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

cash

A dollar received one year from today has ______ value than a dollar received today.

less

When dealing with compound interest, it is more financially advantageous to have a ______ time horizon for investment.

longer

For a given time period (t) and interest rate (r), the present value factor is ______ the future value factor. 1 plus the reciprocal of 1 minus 1 divided by

the reciprocal of 1 divided by

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

true

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

If you invest at a rate of r for ____________ periods, under compounding, your investment will grow to (1 + r) per dollar invested.

two

With ___________ interest, the interest is not reinvested.

simple

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.

False The process of leaving your money and any accumulated interest in an investment for more than one period is called compounding.

The idea behind ______ is that interest is earned on interest.

compounding

Given an investment amount and a set rate of interest, the ______ the time horizon the ______ the future value.

longer; greater

With discounting, the resulting value is called the ______ value, while with compounding the result is called the ______ value.

present; future

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

True

In a present value equation, the __________ rate (r) can be found using the PV, FV, and t.

discount