FINAN 815 CH 4 SmartBook
Future value is the ______ value of an investment at some time in the future.
Cash
True or false: Future value refers to the amount of money an investment is worth today.
F
True or false: Given the PV, FV, and payment amount, you can determine the number of periods.
F
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.
F
True or false: When entering the interest rate in a financial calculator, you should key in the interest rate as a decimal.
F
The amount an investment is worth after one or more periods is called the ______ value.
Future
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 formula below represents a present value factor?
1/(1 + r)t
When dealing with compound interest, it is more financially advantageous to have a _____ time horizon for investment.
Longer
FV = ____ × (1 + r)^t
PV
The basic present value equation is ______.
PV = FVt/(1 + r)t
With _____ interest, the interest is not reinvested. (Enter only one word per blank.)
Simple
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.
T
True or false: The formula for a present value factor is 1/(1+r)^t
T
True or false: Given the PV, FV, and life of the investment, you can determine the discount rate.
True
Future value is the ______value of an investment at some time in the future. (Enter only one word per blank.)
cash
In a present value equation, the_______ rate (r) can be found using the PV, FV, and t. (Enter one word per blank.)
discount
Calculating the present value of a future cash flow to determine its worth today is commonly called ______ valuation.
discounted cash flow (DCF)
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. Multiple select question. the reciprocal of 1 minus 1 divided by 1 plus
the reciprocal of 1 divided by
The idea behind ______ is that interest is earned on interest.
compounding
Which of the following are the primary as well as easy ways used to perform financial calculations today? Multiple select question. financial calculator spreadsheet functions manual calculations time value of money tables
financial calculator spreadsheet functions
If you invest at a rate of r for ______ periods, under compounding, your investment will grow to (1 + r)2 per dollar invested.
2
Which of the following is the multi-period formula for compounding a present value into a future value?
FV = PV × (1 + r)t
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
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
Which of the following methods are used to calculate present value? Multiple select question. a financial calculator random number generation a time value of money table an algebraic formula
a financial calculator a time value of money table an algebraic formula
The process of accumulating interest in an investment over time to earn more interest is called ______.
compounding
Time value of money tables are not as common as they once were because: Multiple select question. it is easier to use inexpensive financial calculators instead. they are available for only a relatively small number of interest rates. they are more accurate than formula or calculator solutions. 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.
Given an investment amount and a set rate of interest, the ______ the time horizon the ______ the future value.
longer; greater
True or false: The present value is the sum of all expenses in a project.
F
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.
F
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)
Using the PV, discount rate, and , you can determine the number of periods. (Enter abbreviation only.)
FV
The present value is the current value of the _______cash flows discounted at the appropriate discount rate.
future