Fin Chapter 4

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

False

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

FV = ×(1 + r)t

pv

Using the PV, discount rate, and , you can determine the number of periods. (Enter abbreviation only.)

fv

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

(1+r)

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

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

Which formula below represents a present value factor?

1/(1+r)t

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

Cash

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

Future

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

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

True

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

compounding

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

compunding

In a present value equation, 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

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

false

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

present

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

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

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

FV = PV×(1 + r)t