3060 HW4

FV = ________ ×(1 + r)t

PV

If FV= PV x (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)

Which of the following is the correct formula for calculating the present value of a future amount, expected in t years at r per cent interest?

PV = FV/(1+r)^t

The basic present value equation is:

PV = FVt/(1 + r)^t

The present value is the current value of the ___________ cash flows discounted at the appropriate discount rate.

future

With discounting, the resulting value is called the _____ value; while with compounding the result is called the ____ value.

present; future

The real world has moved away from using _____________________________ for calculating future and present values.

time value of money tables

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.

False

With __________ interest, the interest is not reinvested.

simple

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 percent for 2 years?

1.21

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

True

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

Which of the following is the correct Excel function to calculate the present value of $300 due in 5 years at a discount rate of 10%?

=PV(0.10,5,0,-300)

Which of the following methods are used to calculate present value?

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

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.

Using the PV, discount rate, and ____________ you can determine the number of periods.

FV

Which of the following is the multi-period formula for compounding a present value into a future value?

FV = PV×(1 + r)^t

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

True or false: If you invest for two periods at an interest rate of r, then your money will grow th (1 + r) per dollar invested.

False

True or false: The present value is the sum of all expenses in a project.

False

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

compounding

The ____________ rate 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)

For a given time period (t) and interest rate (r), the present value factor is _______ the future value factor. (Select all that apply.)

the reciprocal of 1 divided by

Time value of money tables are not as common as they once were because:

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

The amount an investment is worth after one or more periods is called the _____ value.

future

Given an investment amount and a set rate of interest, the _____ the time horizon the _____ the future value.

longer; greater

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

present

When dealing with compound interest, it is more financially advantageous to have a _____ time horizon for investment.

longer

Which of the following are the primary as well as easy ways used to perform financial calculations today?

Spreadsheet functions Financial calculator

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

cash

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.

True

True or false: The formula for a present value factor is 1/(1+r)^t .

True