exam 1, chapter 4 smartbook

Using the PV, discount rate, and_____ , you can determine the number of periods

FV

If FV = PV × (1 + r) is the single-period formula for future value, which of the following is the single-period present value formula? Multiple choice question. PV = FV × (1 + r) PV = FV/(1− r) PV = FV × (1 − r) PV = FV/(1 + r)

PV = FV/(1 + r)

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

If you invest at a rate of r for _______ periods, under compounding, your investment will grow to (1 + r)2 per dollar invested.

two

calculating the present value of a future cash flow to determine its worth today is commonly called Blank______ valuation. Multiple choice question. present worth discounted cash flow (DCF) present cash flow (PCF) compounded

discounted cash flow (DCF)

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

false

The amount an investment is worth after one or more periods is called the Blank______ value. Multiple choice question. expected future present anticipated

future

A dollar received one year from today has Blank______ value than a dollar received today.

less

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

false

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

The current value of a future cash flow discounted at the appropriate rate is called the Blank______ value. Multiple choice question. current simple present expected

present

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

true

Why is a dollar received today worth more than a dollar received in the future? Multiple choice question. A dollar will be worth as much in the future as it is today. 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. 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.

In a present value equation, the ______ rate (r) can be found using the PV, FV, and t. (Enter one word per blank.)

discount

With discounting, the resulting value is called the Blank______ value, while with compounding the result is called the Blank______ value. Multiple choice question. discounted; compounded present; future current; expected future; present

present; future

The process of accumulating interest in an investment over time to earn more interest is called ______. Multiple choice question. simple interest add-on interest growth compounding

compounding

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? Multiple choice question. because the $100 is an inflow and should be negative doesn't matter whether you enter it as a positive or negative number because the $100 is an outflow from you which should be negative

because the $100 is an outflow from you which should be negative

Future value is the Blank______ value of an investment at some time in the future. Multiple choice question. interest cash indirect relational

cash

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

cash

The idea behind Blank______ is that interest is earned on interest. Multiple choice question. reinsurance rebounding simplification compounding

compounding

When dealing with compound interest, it is more financially advantageous to have a Blank______ time horizon for investment. Multiple choice question. longer shorter

longer

Given an investment amount and a set rate of interest, the Blank______ the time horizon the Blank______ the future value. Multiple choice question. longer; greater shorter; greater longer; smaller

longer; greater

Given an investment amount and a set rate of interest, the Blank______ the time horizon the Blank______ the future value. Multiple choice question. shorter; greater longer; greater longer; smaller

longer; greater

The concept of the time value of money is based on the principle that a dollar today is worth Blank______ a dollar promised at some time in the future. Multiple choice question. less than more than the same as

more than

With _____ interest, the interest is not reinvested.

simple