FIN 101 - CH 4

Future value is the _ value of an investment at some time in the future. a) cash b) relational c) indirect d) interest

a) cash

A dollar received after one year from today has _ value than a dollar received today. a) less b) more c) the same

a) less

Which formula below represents a present value factor? a) 1 / (1+N)^r b) 1 / (1+r)^t c) 1 / [ (N+1) / r ] d) (1+r) / t

b) 1 / (1+r)^t

If a firm's sales are growing at 5 percent per year, how long will it take for the firm's sales to triple? a) 22.5 years b) 14.5 years c) 12.8 years d) 18.3 years

a) 22.5 years

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? a) Because the $100 is an outflow from you which should be negative. b) It doesn't matter whether you enter it as a positive or negative number. c) Because the $100 is an inflow and should be negative.

a) Because the $100 is an outflow from you which should be negative.

The future value of $100 compounded at 10 percent per year for 50 years is: a) $500.00 b) $11,739.09 c) $0.85 d) $54,987.45

b) $11,739.09 FUTURE VALUE = PV * (1+r)^t = 100 * (1+.10)^50

T/F: Future value refers to the amount of money an investment is worth today.

False

Which of the following is the correct mathematical formula for calculation of the future value of $100 invested today for 3 years at 10 percent per year? a) FV = $100 * 1.10 * 3 b) FV = $100 * (1.10)^3 c) FV = $100 * 0.10 * 3 d) FV = $100 / (1.10)^3

b) FV = $100 * (1.10)^3

Which of the following methods are used to calculate present value? Select all that apply. a) random number generation b) a financial calculator c) an algebraic formula d) a time value of money table

b) a financial calculator c) an algebraic formula d) a time value of money table

If you invest for a single period at an interest rate of r, your money will grow to _ per dollar invested. a) (1*r) b) (1/r) c) (1+r) d) (1-r)

c) (1+r)

The amount an investment is worth after one or more periods is called the _ value. a) future b) present c) anticipated d) expected

a) future

Given an investment amount and a set rate of interest, the _ the time horizon the _ the future value. a) longer; greater b) longer; smaller c) shorter; greater

a) longer; greater

Using a time value of money table, what is the future value interest factor for 10 percent for 2 years? a) 2.00 b) 121 c) 1.10 d) 1.21

d) 1.21

The process of accumulating interest in an investment over time to earn more interest is called _. a) growth b) add-on interest c) simple interest d) compounding

d) compounding

The current value of a future cash flow discounted at the appropriate rate is called the _ value. a) present b) expected c) current d) simple

a) present

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 _. a) $550; $600 b) $550; $605 c) $600; $605 d) $605; $600

c) $600; $605 SIMPLE INTEREST = PV + [ (PV*r) * t ] COMPOUND INTEREST = PV * (1+r)^t

Suppose we invest $100 now and receive $259.37 in 10 years. What rate of interest will we achieve? a) 11% b) 12% c) 10% d) 9%

c) 10% = [ (FV / PV) ^ (1/t) ] - 1 = [ (259.37 / 100) ^1/10 ] - 1

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

c) FV = (PV) * (1+r)^t

For a given time period (t) and interest rate (r), the present value factor is _ the future value factor. Select all that apply. a) the reciprocal of b) 1 minus c) 1 plus d) 1 divided by

a) the reciprocal of d) 1 divided by

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

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

What is the primary difference between time value of money data entries in your calculator and in a spreadsheet function? a) The present value is entered as positive in your calculator and negative in the function. b) The interest rate in your calculator is entered as a whole number while in the spreadsheet function it is entered as a decimal. c) The present value is entered as negative in your calculator but as a positive in the spreadsheet function.

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

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

c) more than

The real world has moved away from using _ for calculating future and present values. a) financial calculators b) mathematical formulas c) time value of money tables d) spreadsheets

c) time value of money tables

If the interest rate is 10 percent per year and there are 10 years, what is the present value discount factor? a) 0.4927 b) 0.6883 c) 0.5610 d) 0.3855

d) 0.3855 PRESENT VALUE DISCOUNT FACTOR = 1 / (1+r)^t = 1 / (1+0.10)^10

With discounting, the resulting value is called the _ value; while with compounding the result is called the _ value. a) future; present b) current; expected c) discounted; compounded d) present; future

d) present; future