Week 4 study

True or false: Given the PV, FV, and life of the investment, you can determine the discount rate.

true

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.

false

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

The current value of a future cash flow discounted at the appropriate rate is called the _____ value.

present

Why is a dollar received today worth more than a dollar received in the future? A dollar will be worth as much in the future as it is today. A dollar today is not worth more than a dollar in the future. Today's dollar can be reinvested, yielding a greater amount in the future. Deflation will make a dollar in the future worth less than a dollar today.

Today's dollar can be reinvested, yielding a greater amount in the future.

Future value is the ___ value of an investment at some time in the future.

cash

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

(1+r)

Which formula below represents a present value factor?

1/(1+r)^t

Which of the following methods are used to calculate present value? Random number generation A financial calculator A time value of money table An algebraic formula

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

The idea behind ______ is that interest is earned on interest.

compounding

The process of accumulating interest in an investment over time to earn more interest is called _________.

compounding

In a present value equation, the ___ rate (r) can be found using the PV, FV, and t.

discount

Calculating the present value of a future cash flow to determine its worth today is commonly called ___________ valuation.

discounted cash flow (DCF)

True or false: Future value refers to the amount of money an investment is worth today.

false

True or false: Given the PV, FV, and payment amount, you can determine the number of periods.

false