finance chapter 4

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)

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

compounding

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

future

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

present

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

longer; greater

Which formula below represents a present value factor?

1/(1+r)t

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

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

Using a time value of money table, what is the future value interest factor for 20 percent for 2 years?

1.4400

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

1 divided by the reciprocal of

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.

F

True or false: When entering the interest rate in a financial calculator, you should key in the interest rate as a decimal.

F

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

FV = PV×(1 + r)t

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

Spreadsheet functions Financial calculator