Financial Management Chapter 5

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

1.21

which formula below represents a present value factor?

1/(1+r)^t

future value

PV(1+r)^t

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

if you want to know how much you need to invest today at 12% compounded annually in order to have $4000 in five years, you will need to find a(n) __ value

present

the following equation results in the __ value interest factor for a single deposit: 1/(1+r)^t

present

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

r=(1000/100)^(1/10) -1

the difference between __ interest and compound interest is that the amount of compound interest earned gets __ every year.

simple bigger

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

$200

if you plan to put a $10000 down payment on a house in five years and you can earn 6% per year, how much will you need to need to deposit today?

$7472.58

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

(1+r)

if the interest rate is 10% per year and $1 is invested for 10 years, what is the present value discount factor?

.3855

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

11,739.09

how long will it take $40 to grow to $240 at an interest rate of 6.53% compounded annually?

28.33 years

you are planning to buy a house before you retire. for this purpose, you want to put money in an investment account so that you have enough money for down payment. assuming the interest rate offered for a 6 year investment plan is the same as for a 4 year investment plan. which of these two plans would require a smaller savings amount to be deposited today?

6 year investment

suppose we invest $100 now and get back $236.74 in 10 years. what rate of interest will we achieve?

9%

suppose you want to save $10000 to buy a car. you have $6000 to deposit today and you can earn 6% on your investments. you want to know when youll have enough to buy the car. which of the following spreadsheet functions will solve the problem?

=NPER (.06,0,-6000,10000)

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

B

present value

FV/(1+r)^t

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

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

dividend growth population growth sales growth

T or F? small changes in the interest rate do not really matter when dealing with millions or billions of dollars over 30 to 40 years

false

T or F? given the same rate of interest, more money can be earned with compound interest than with simple interest

true

T or F? the future value of $1 invested for t periods at a rate of r per period is $1 x (1+r)^t

true

T or F? discounting is the opposite of compounding

true compounding increases money forward in time, discounting reduces money back in time

T or F? when using the time value of money features of a financial calculator, you should key in the interest rate as a decimal

false