Acc 325 - Chapter 4 Smartbook
Why is a dollar received today worth more than a dollar received in the future?
Today's dollar can be reinvested, yielding a greater amount in the future.
T/F: 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
T/F: The present value is the sum of all expenses in a project.
false
The present value is the current value of the _____ cash flows discounted at the appropriate discount rate.
future
What is the future value of $1,000 invested for 15 years at a rate of 5%?
$2,079?
if you invest for a single period at an interest rate of r, your money will grow to ______ per dollar invested.
(1+r)
The variables in a future value of a lump sum problem include all of the following, except: future value payments time period interest rate
Payments?
What is the primary difference between time value of money data entries in your calculator and in a spreadsheet function?
The interest rate in your calculator is entered as a whole number, while in the spreadsheet function it is entered as a decimal..
Which of the following methods are used to calculate present value? random number generation a financial calculator an algebraic formula a time value of money table
a financial calculator an algebraic formula a time value of money table
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
The process of accumulating interest in an investment over time to earn more interest is called _____.
compounding
How would a decrease in the interest rate effect the future value of a lump sum, single amount problem (all other variables remain the same)?
decrease the future value?
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 Blank______ valuation.
discounted cash flow
T/F: Given the PV, FV, and payment amount, you can determine the number of periods.
false
T/F: When entering the interest rate in a financial calculator, you should key in the interest rate as a decimal.
false
Which of the following are the primary as well as easy ways used to perform financial calculations today? spreadsheet functions time value of money tables financial calculator manual calculations
financial calculator spreadsheet functions
The amount an investment is worth after one or more periods is called the ______ value.
future
When dealing with compound interest, it is more financially advantageous to have a ______ time horizon for investment.
longer
Given an investment amount and a set rate of interest, the ______ the time horizon the ______ the future value.
longer; greater
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
With discounting, the resulting value is called the ______ value, while with compounding the result is called the ______ value.
present; future
With _____ interest, the interest is not reinvested.
simple
For a given time period (t) and interest rate (r), the present value factor is ______ the future value factor.
the reciprocal of 1 divided by
The real world has moved away from using ______ for calculating future and present values.
time value of money tables
T/F: Given the PV, FV, and life of the investment, you can determine the discount rate.
true
T/F: The formula for a present value factor is 1/(1+r)t1/1+��.
true
Which formula below represents a present value factor? (1 + r)/t 1/(1 + N)r 1/(1 + r)t 1/N + 1/r
1 / (1 + r) ^ t
Using a time value of money table, what is the future value interest factor for 10% for 2 years?
1.21 *Look under 10% until you get to 2 for two years. That number is 1.10.
Using a time value of money table, what is the future value interest factor for 20 percent for 2 years?
1.4400
If you invest at a rate of r for _____ periods, under compounding, your investment will grow to (1 + r)2 per dollar invested.
2
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. (Enter abbreviation only.)
FV
Which of the following is the multi-period formula for compounding a present value into a future value? FV = PV × r × t FV = PV(1+r)tPV/(1+r)t FV = PV × (1 + r)t FV = PV × (1 + r)× t
FV = PV×(1 + r)^t
T/F: Future value refers to the amount of money an investment is worth today.
False
T/F: If you invest for two periods at an interest rate of r, then your money will grow to (1 + r) per dollar invested.
False
T/F: The process of leaving your money and any accumulated interest in an investment for more than one period is called multiplied interest.
False
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)
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 PV = FV/(1 − r)t PV = FV/(1 + r)t PV = RV × (1 − r)t
PV = FV / (1+r)^t
The basic present value equation is ______.
PV = FVt/(1 + r)^t
The basic present value equation is_____.
PV = FVt/(1 + r)^t
Which of the following is the correct Excel function to calculate the present value of $300 due in five years at a discount rate of 10 percent?
PV(0.10,5,0,-300)
FV = _____ * (1 + r)^t
PV, or present value, or $1, or 1