FIN301 Exam 2 Study Review
Simple
Interest earned only on the original principal amount invested is called _______ interest.
False
True or false: Small changes in the interest rate affect the future value of a small-term investment more than they would affect the value of a long-term investment.
True
True or false: The correct future value interest factor in a time value of money table for $1 in 10 years at 10 percent per year is 2.5937.
False
True or false: The multi-period formula for future value using compounding is FV = (1 + r)t
False
True or false: When using the time value of money features of a financial calculator, you should key in the interest rate as a decimal.
1.21
Using a time value of money table, what is the future value interest factor for 10 percent for 2 years?
Simple
Interest earned on the original principal amount invested is called _____.
Less
A dollar received one year from today has _____ value than a dollar received today.
Less
All else equal, the longer time period you have before you will need the money, the ______ you will need to deposit today to have the same amount in the future.
10-year investment
Assuming the interest rate offered for a 10-year investment plan is same as for a 4-year investment plan. For an investor to achieve the same future value, which of these two plans would require a smaller savings amount to be deposited today?
discounted cash flow valuation
Calculating the present value of a future cash flow to determine its value today is called _____.
compounding
Discounting is the opposite of __________
Cash
Future value is the Blank______ value of an investment at some time in the future.
present value factor
If we know the interest rate is 10 percent per year and the money is invested for 10 years, then we can use the _____ to find the present value.
$133.10
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 percent compounded annually in order to have $4,000 in five years, you will need to find a(n) _______ value.
plus
In general, if you invest for one period at an interest rate of r, your investment will grow to 1 __________
r = (1000/100)^(1/10) - 1
Suppose present value is $100, future value is $1,000, and N is 10 years. Which formula below is used to find the (decimal) interest rate?
=NPER(0.06,0,−6000,10000)
Suppose you want to save $10,000 to buy a car. You have $6,000 to deposit today and you can earn 6% on your investments. You want to know when you'll have enough to buy the car. Which of the following spreadsheet functions will solve the problem?
present
The _____ value is the current value of future cash flows discounted at the appropriate discount rate.
discount
The _______ rate is the rate used to calculate the present value of the future cash flows.
most important ideas in corporate finance
The basic present value equation underlies many of the _____.
simple; bigger
The difference between _______ interest and compound interest is that the amount of compound interest earned gets (bigger or smaller) ___________ every year.
Return
The discount rate is also called the rate of ____
present
The equation that results in the _______ value interest factor for a single deposit is as follows: 1/(1+r)^t
True
The formula for a present value factor is 1/(1+r)^t
greater
The greater the number of time periods, the _______ the impact of compounding.
compounding
The idea behind ______ is that interest is earned on interest.
Compounding
The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called _______
True
True or false: Discounting is the opposite of compounding.
True
True or false: Given the same rate of interest, more money can be earned with compound interest than with simple interest.
$1,593.85
What is the future value of $1,000 invested for 8 years at 6%?
$11,739.09
What is the future value of $100 compounded for 50 years at 10 percent annual interest?
The same
When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year.
=NPER(0.0653,0,−40,240)
Which formula will you enter into a spreadsheet cell to determine how long it will take $40 to grow to $240 at an interest rate of 6.53% compounded annually?
Future value = FV(rate,nper,pmt,pv) Present value = PV(rate,nper,pmt,fv) Discount rate = RATE(nper,pmt,pv,fv)
Which of the following are correct spreadsheet functions?
Sales growth; Dividend Growth;
Which of the following can be determined using the future value approach to compound growth developed in this chapter?
FV = $100 × (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 time value of money table An algebraic formula A financial calculator
Which of the following methods can be used to calculate present value?
Today's dollar can be reinvested, yielding a greater amount in the future.
Why is a dollar received today worth more than a dollar received in the future?
$600; $605
You invest $500 at 10 percent interest. At the end of 2 years with simple interest you will have ____ and with compound interest you will have ____.
Future ; Future
_______ value is the cash value of an investment at some time in the ____________
