FIN CH4&5

Which of the following can be used to calculate present value?

-financial calculator -an algebraic formula -a time value of money table

If the interest rate is 10% per year and there are 10 years, what is the present value discount factor?

0.3855

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

1.21

You must invest ____ today at 8% to get $2 in one year.

1.85

An ordinary annuity consists of a _____ stream of cash flows for a fixed period of time.

level

Given an investment amount and a set rate of interest, the ___ the time period, the ____ the future value.

longer; greater

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

present

Suppose we invest $100 now and receive $259.37 in 10 years. What rate of interest will we achieve?

10%

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

If you invest $100 at 10% compounded annually, how much money will you have at the end of 3 years?

$133.10

You invest $500 at 10% interest per annum. At the end of 2 years with simple interest you will have___ and with compound interest you will have ____.

$600; $605

What is the future value of $100 deposited each year for 2 years beginning next year, then $200 deposited for the next two years if you can earn 6% per year?

$643.46

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

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

The present value interest factor for $1 at 5% compounded annually for 5 years is:

0.7835

The present value interest factor for an annuity with an interest rate of 8% per year over 20 years is _____.

9.8181

You agree to pay back $1100 in 4 weeks for a $1000 payday loan. Your annual percentage rate (APR) to 2 decimal places is _____%. (assume 52 weeks in a year)

130.00

The correct future value interest factor in a time value of money table for finding the future value of $100 in 10years at 10% per year interest is ____.

2.5937

Which of the following is the correct mathematical formula for calculation of the future value of $100 invested today for 3 years at 10% per year?

FV=$100 x (1.10)^3 FV=PV x (1 + r)^t

T/F Future value refers to the amount of money an investment is worth today.

False

T/F When entering the interest rate in a financial calculator, you should key in the invest rate as a decimal.

False

For a given time period (t) and interest rate (r), the present value factor is _____ the future value factor.

-the reciprocal for -1 divided by