Chap 5 -- BF

If you invest for single period at an interest rate of r, you 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 percent for 2 years?

1.21

If you invest $100 at 10 percent simple interest, how much will you have in 10 years?

FV = $100 + 10 ($100 X .10) = 200

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

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

What is the future value of $100 compounded for 50 years at 10 percent annual interest?

$11,739.09

The basic present value equation underlies many of the:

most important ideas in corporate finance

The difference between ______ interest and compound interest is that compound interest _______ with time.

simple; increases

Discounting is the opposite of compounding

True

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

True

Which of the following methods can be used to calculate present value?

-A financial calculator -A time value of money table -An algebraic formula

Which of the following are correct spreadsheet functions?

=PV(rate,nper,pmt,fv) =RATE(nper,pmt,pv,fv) =FV(rate,nper,pmt,pv)

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?

FV = $100 X (1.10)^3

Small changes in the interest rate do not really matter when dealing with millions or billions of dollars over 30 or 40 years.

False

Which of the following investments would result in a higher future value? Investment A - 12% APR for 10 years Investment B - 12% APR for 12 years

Investment B

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

-Dividend growth -Sales growth -Population growth

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

present